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Yes, Microsoft should dump the Windows Phone licensing fee
The rumors that Microsoft is considering eliminating its Windows Phone license fee may make you think the company's desperate. But in fact, the move could represent confidence on Microsoft’s part.
Citing unnamed sources, Bloomberg is reporting that Microsoft is in talks with HTC about offering the Windows Phone operating system on HTC’s Android phones. The idea is that users might be able to have both operating systems on the same device, or be able to choose one or the other.
But the more interesting part of the Bloomberg report is the suggestion that Microsoft is considering dropping or eliminating its licensing fee for Windows Phone altogether for HTC.
Microsoft has stubbornly stuck with its licensing model even while Android dominates the smart phone market with its free operating system. Microsoft doesn’t disclose the license fee but reports suggest it's around $15 per phone. That adds up, particularly for struggling phone makers like HTC. It doesn’t seem to make a lot of sense for Microsoft to keep up this barrier to using its software.
However, dropping the licensing fee would put Microsoft in an awkward position in terms of monetizing its product -- unless it had other ways to benefit from the use of Windows Phone.
Windows Phone comes with a host of Microsoft products. Bing is thoroughly integrated into the phone and Skype works well on them. There are some neat Xbox services available on Windows Phones. The app store is still widely criticized ,for being too small but Microsoft earns from app downloads too.
Plus, having a mobile platform is vital to make sure that Microsoft's enterprise products remain relevant as the world moves to mobile computing. Microsoft's goal with Windows Phone was never to earn a ton of money from the phones -- even if it had sold tens of millions of them, its $15 license fee would have put it far behind Apple and other hardware makers in terms of revenue. (That will change once Microsoft owns Nokia, but that deal won't close until 2014.) But Microsoft wanted to make sure its business products -- particularly Office-family products like Office 365 and Exchange -- had a solid mobile story. While Apple has long supported Exchange ActiveSync (EAS) on the iPhone, there's no guarantee it would continue doing so; Google recently dropped support for EAS in Gmail.
In reality, Microsoft hasn't always tied its mobile clients to its business products as effectively as it could have -- for instance, initial Windows Phone devices couldn't be managed with Microsoft's System Center management technology. But in theory, having control over a mobile client platform gives Microsoft an opportunity to make everything work together. That's better than having to rely on Apple, Google, and other competitors.
Microsoft isn’t commenting about its rumored negotiations with HTC but it would be smart to consider dropping the licensing fee. With under 4 percent market share in mobile, Microsoft can’t afford not to take this risk.
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