The ironic tale of Android: Microsoft’s most profitable OS

Posted by Rob Enderle

Google hit the market led by a bunch of kids fresh out of school who were more than eager to prove why their way was better.

They created a company that basically sells what doesn’t belong to them for a massive profit. Your eyeballs and personal information are their product and advertisers their customer. Like the Native Americans who sold Manhattan Island for mere beads, you are happy with the free access to products you’d likely never pay for. Google figures we are idiots, and you know what? Mountain View is unfortunately right. 

The ironic tale of Android: Microsoft’s most profitable OS

Then again, Android is a special piece of irony though because, while Google incurs the cost and gives it away from free, Microsoft makes licensing revenue from more of it than Google appears to get ad revenue from. So the irony is that while Google is basically a company that made legal theft profitable, Microsoft, that old fuddy duddy of a corporation, makes a ton of money by legally taking the value from Android. 

If that wasn’t enough irony, recently Google’s Chairman started screaming that drones needed to be regulated because they could violate his privacy. Meanwhile, violating privacy is basically Google’s primary business model. Frankly, I’m not sure if the guy is a hypocrite or just wants to ensure that Google doesn’t face drone competition. 

Android:  Microsoft’s Most Profitable Product

For now, though, let’s focus on the Android part because I find the situation particularly fascinating. As you may recall, Android was based on the old Linux model that existed in the early part of last decade. This model basically said that as long as you created an open product like Linux or Android you didn’t have to worry about software patents (which followers believed were BS anyway) and no one would dare to sue you. What I don’t think the industry realized at the time? There was so little revenue tied to the practice it was actually the economics of the litigation which provided the protection.  

Once companies like Samsung started using a product like this from Google the rules changes and Android, if nothing else, has been one of the reasons IP litigation is a growth industry in California. What is interesting is the massive number of companies that now license parts of Android from Microsoft - effectively paying more cash to that company than Google gets (because they provide Android for "free").  

One of the biggest myths that resulted is that Android is free, because it isn’t, you just pay Microsoft rather than Google. And Microsoft even gets revenue from Amazon, one of the largest producers of Android based products. But Amazon forked the code and has no connection back to Google, giving Microsoft more potential income from it than Google gets. The list of licensees (here) is impressive and realize that not a single one of these companies paying Microsoft pays Google for this same OS.  

And while they pay Redmond in line with what a Microsoft platform in this mobile space might also cost, Microsoft doesn’t have to incur development costs, doesn’t provide co-marketing funding, and doesn’t have to fund migration or tech training programs all of which should be funded, though often isn’t, by Google.  

With the exception of some minor lawyer fees and audit costs (often reimbursed) Android is pure profit to Microsoft. The last time I saw something like this was when IBM was giving OS/2 away in cereal boxes and didn’t realize they still owed Microsoft a licensee fee for the Windows part of it. IBM eventually had to pay Microsoft fee for every disk put in a cereal box even though IBM not only didn’t get any money for those CDs, it actually cost IBM considerably to fund the program.  

Wrapping Up: 

I think there is something ironic about Google making its money mining the masses while Microsoft making a ton of profit mining Google. I’d think this was far funnier if I wasn’t at the wrong end of this particular revenue stream. Yes, we certainly live in crazy times.