How free Windows Phone/RT software could pay off big for Microsoft

Giving away Windows Phone software and Windows RT to device makers is a brilliant move that plays into Microsoft's long-term BYOD strategy

The tech blogosphere lit up yesterday when Tom Warren, in his inimitable way, floated a trial balloon for Microsoft. Quoting unnamed sources, Warren said that "Microsoft is considering making Windows Phone and Windows RT available free of charge to device makers."

Although the freebies wouldn't appear until the Windows Threshold wave hits, apparently planned for Q2 2015, and we've already heard that kind of free Windows talk for HTC, this proposal accomplishes much while costing Microsoft basically nothing. In short, it's a stellar idea. Do the math.

A month ago, IDC reported that "by itself, Nokia accounted for 93.2 percent of all the Windows Phone-powered smartphones shipped during the quarter." With Nokia headed to the Microsoft side of the force early next year, a huge chunk of Windows Phone software royalties (which because of the terms of an old Microsoft-Nokia deal aren't really being paid anyway) will devolve into an internal transfer.

That much is obvious. Here's the part that isn't.

Analysts tend to think of Android as a Google product -- it isn't; it's a Microsoft product. At least, when a manufacturer puts Android on a phone or tablet, the company has to pay Microsoft not Google. Android isn't free; it's a major revenue source for Microsoft. According to Rick Sherlund, a very-well-connected analyst who works for Nomura, Microsoft's making about $2 billion a year from Android patent royalties. Apparently all of the major phone and tablet manufacturers (except, presumably, Apple) and many of the smaller ones (except, presumably, Google-owned Motorola) are paying the Redmond piper for every copy of Android they bundle.

Say you're making phones or tablets and Microsoft comes to you with an offer: Either you pay the agreed-upon patent royalty for Android or you can have Windows Phone/RT for free.

Tough choice, eh? But wait, it gets better.

When Microsoft bought Nokia's mobile business, there was a term to their agreement that didn't draw much comment at the time: Microsoft bought a 10-year license for Nokia's patents but it didn't buy the patents themselves. As Matt Asay at Readwrite so astutely put it, "The real money, however, isn't in Microsoft delving deeper into Android patent royalties. Rather, it's in letting Nokia do it."

So the offer to phone manufacturers from Microsoft next year will look like this: Pay the patent royalty for Android and get your lawyers lined up to fight Nokia -- hey, Microsoft doesn't control Nokia! Or you can have Windows Phone/RT for free, and as an added perk we'll indeminify Windows Phone from any patent lawsuits.

Ding, ding, ding. It's a win-win-win situation.

Microsoft doesn't have to put advertising on Windows Phone or RT in order to make up for lost revenue. All it has to do is clean up the Windows Store to turn a tidy profit. Then there's the halo effect -- the "buy into an environment" argument. Just as iOS devices are propelling the Apple juggernaut, a successful Windows Phone/RT could well play into Microsoft's long-term game with BYOD and the whole corporate shtick.

Windows Phone and Windows RT are turning into the same product in the Threshold timeline -- at least that's the plan. Making the "Metro" consumer version -- the least capable of the three projected Windows versions -- a free product and getting it onto millions of portable devices could make Microsoft a whole lot more money than trying to sell the OS piecemeal, mostly to its own Nokia division.

Strap me down and slap me silly. I think I'm turning into a Terry Myerson fanboy.

This story, "How free Windows Phone/RT software could pay off big for Microsoft," was originally published at Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow on Twitter.

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