Microsoft licensing costs destroy Windows Phone adoption

By Graeme Burton
23 Jul 2012 View Comments
Nokia Lumia 900

Microsoft's insistence on charging a hefty licence fee for its Windows Phone operating system will prevent it from achieving the kind of critical mass it needs to compete against Apple and Google in the smartphone market.

That is the conclusion of Ovum analyst Tony Cripps following on from the news that Nokia is paying as much as $60 (£40) per unit, depending on the volumes it achieves, for its Windows Phone licence. It no doubt accounts for the "exclusive" approach it intends to take to marketing new Windows Phone 8 devices.

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"Ever since Microsoft has been in the business of developing operating systems for phones and portable devices it has always remained part of its strategy that it makes money out of it," said Cripps.

"Clearly, when you have an operating system like [Google] Android, for which at least the code is free, it's not the best business model if you want to maximise volumes of devices running your software," he added.

The issue of licence fees has arisen repeatedly of late, said Cripps, with phone makers expressing their frustration at Microsoft's commercial rigidity.

"I was speaking to one major chip maker that has a reference designs business. Effectively, it creates a phone and integrates the software and the hardware for OEMs. The Windows Phone licence fee issue is massive because it would like to design and build Windows Phone devices in the competitive, low end of the smartphone market, but that's absolutely impossible because of the sensitivity in the handset business of the ‘bill of materials'," said Cripps.

In some cases, the addition of just a few cents on the bill of materials can mean the adoption of one technology in place of another – yet Microsoft's licensing structure would make Windows Phone the most expensive component of almost all mobile phones currently on the market today, including the Apple iPhone.

Indeed, according to iSuppli, only the Nand Flash memory in the 64GB Apple iPhone – at $76.80 (£49.50) – costs more than $35 (£22.56).

The cost of the licence is felt particularly acutely among operators, for whom handset purchasing costs represent one of their biggest single annual equipment expenses.

"Frankly, if Microsoft wants to compete effectively against the massed ranks of Android OEMs then I think it has to think seriously about lowering the licensing costs quite significantly," advised Cripps.

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