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Windows Phone 8: Give It Away Now!

Microsoft's move in India should be followed up across the board

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Thanks to advances in chip technology, companies like Intel (INTC) are now offering mobile CPUs compatible with both operating systems. A dual-boot smartphone lets MSFT get Windows Phone 8 into the hands of consumers without forcing them to make the choice to kick Android cold turkey. The hope is, they’ll play around with Windows, decide they like it, begin to transition away from Android and next time, they’ll go all-in on a Windows Phone 8 smartphone.

Chinese manufacturer Huawei has announced it will release a dual-boot Android/Windows Phone 8 smartphone in the U.S. this year, so this isn’t a pipe dream — it’s happening.

Just to add another twist, MSFT collects patent royalties from the majority of Android smartphone makers. That’s right, Android isn’t really free, at least for the estimated 70% of smartphone vendors who signed agreements with Microsoft. That number has been pegged at $5 per handset and $2 billion in revenue for MSFT in 2013.

MSFT could sweeten the pot to convince manufacturers to offer the dual-boot option by waiving the Android royalty fee on such a device. On top of the Windows Phone free offer, suddenly manufacturers are saving money on razor-thin Android margins just by giving Microsoft a spot on the device.

Of course, making Windows Phone free and possibly waiving Android royalty fees means giving up revenue. But in the grand scheme of things, that isn’t much; call it roughly $3 billion between the two last year.

Bottom Line

BlackBerry has few customers remaining, meaning the era of easy poaching for Windows Phone 8 is just about up. And rulings by European courts are beginning to chip away at those Android royalties. So in the status quo (charging instead of giving away Windows Phone free to manufacturers), MSFT faces the likelihood of slowing adoption and royalty fees from Android smartphones under siege.

Contrast $3 billion with little prospect for meaningful growth against the bigger game: the secondary revenue available to a mobile operating system vendor, primarily a mobile ad market that’s expected to top $38 billion by 2018.

There is other revenue that comes with mobile OS market share, including app sales and cloud storage. Meaningful numbers of Windows Phone 8 smartphones could help to popularize Microsoft’s Bing search engine on the desktop (more ad revenue) and combat the “halo effect” that’s seen PCs running Windows replaced at the enterprise level by Macs and Chromebooks.

Former CEO Steve Ballmer refused to play Google’s game, but new Microsoft CEO Satya Nadella is already showing signs of movement. Waiving the Windows Phone 8 license for a few Indian manufacturers is a start.

But if Windows Phone 8 is ever going to gain a meaningful smartphone market share and a bigger chunk of the mobile advertising dollars that are currently going mainly to Google, Microsoft needs to put a two-step plan into action:

Shove out Windows Phone for free and push dual-boot smartphones.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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