The Microsoft Tax is official: Samsung will pay royalties for each Android phone or tablet it sells

Samsung finally caved. The Korean giant agreed to pay Microsoft royalties for each and every Android-powered tablet or smartphone it sells.

This then is the day that the Microsoft Tax has become official. Unlike the (in)famous Apple Tax, which is just a way of saying that Apple products are more expensive than the competition, the Microsoft Tax is fueled by the company’s patents and is something that very soon will hit every company that makes any kind of hardware that runs Android.

Last year, HTC did what Samsung is doing now and signaled a rather grim future for Android device manufacturers. Back then some analyst estimated that HTC would be paying Microsoft $20-$40 per smartphone. Now Samsung is a much bigger company, and holds quite a few patents itself, so it was probably able to negotiate that down to, say $10 per device for phones (maybe a bit more for tablets).

It also looks like one of the methods by which Samsung drove the royalty per unit down was promising to invest a lot more than now in Windows Phone devices.

Which makes this a win-win for Microsoft. On one hand, it’s already making more money from Android royalties than from licensing Windows Phone, on the other hand it will get the increased support for its struggling mobile OS from one of the biggest handset makers around.

Alongside HTC, a bunch of smaller companies (at least small in the mobile world) like Onkyo, General Dynamics, ViewSonic, Acer, Velocity Micro, and Wistron have also already agreed to pay Microsoft. But Samsung is clearly the big fish in this pond. And with it caving, it’s clearly only a matter of time before all the other Android manufacturers will have to. Microsoft will sue them all, that’s for sure. The company has clearly shown that what it lacks in being able to compete with Android on software it is more than happy to make up in patent defences.

So that’s that then. Android isn’t free anymore.

The nice irony here is that Google (through Motorola, which it has recently acquired) may end up paying royalties to Microsoft for Android.

So what about Android? If this happened once, it’s bound to happen again. Many other companies hold many mobile-related patents, and these companies have chosen not to go after Android makers so far. But if they do, then Android may get even more expensive, potentially even costing around $60 per device. If that happens, then Android’s march to the midrange and low-end portions of the mobile market will be brutally halted. After all, you can’t sell $100 devices if you have to pay $60 in royalties for each one.

While that will probably not kill Android, it may break its incredible momentum. And leave an interesting opening in the market. The low-end and the midrange have historically been ‘won’ by Nokia, but in recent months, especially in Western markets, it has been replaced by Android offerings.

So what OS will take Android’s place? iOS? Probably not. Even if Apple starts selling a cheaper iPhone in more places than just the US, that will still be just one device, no matter how craved. BlackBerry OS? Hardly possible, since RIM itself recognizes that it’s on the way out. RIM is transitioning right now, and will have a whole new QNX-based phone OS soon. Perhaps that may take a chunk of the midrange market in the future, but not in the near future.

So what’s left? Exactly. Windows Phone.

Therefore, today’s announcement is actually a win-win-win for Microsoft.

Remember, this is the company that couldn’t care less about ethics, and is known for bullying businesses into using its products (or preinstalling their software). It’s just doing the same thing over and over again.

As for Windows Phone, whether or not it’s a better platform than Android will become irrelevant. And that’s exactly what Microsoft wanted. It doesn’t care about the moral high ground, or the methods used (which, though legal, do exploit the sorry state of the patent system). It wants Windows Phone to succeed.

And it very may well do that, because Microsoft has patents, time, and money. The first of those three we’ve seen in action. The company also has a lot of money to invest in Windows Phone, and it can wait. A lot. This isn’t impatient HP we’re talking about here. Windows Phone may not be a success today, but by this time next year? Who knows?

Of course, what I’ve painted above is one possibility. This is the predictable path. Things may turn out differently, and for the sake of Android and competition in this space (since WP and iOS are basically two sides of the same closed-ecosystem coin) let’s hope they somehow do.

PS: If you want to have a good laugh, read Microsoft’s surreal blog post on today’s news. Here’s a taste:

“We recognize that some businesses and commentators – Google chief among them – have complained about the potential impact of patents on Android and software innovation. To them, we say this: look at today’s announcement. If industry leaders such as Samsung and HTC can enter into these agreements, doesn’t this provide a clear path forward?”

Author: Vlad Bobleanta

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