Digitimes Research: Microsoft patent fee cut to attract vendors to pre-install apps in Android products

Luke Lin, DIGITIMES Research, Taipei

According to Digitimes Research's latest findings from Taiwan's and China's smartphone/tablet upstream supply chain, in exchange for hardware players to pre-install its software applications such as Office, OneDrive or Skype onto their Android-based devices, Microsoft is offering them discounts on the patent licensing fees it charges their Android devices.

On March 23, Microsoft announced it had reached an agreement with 11 hardware players including Samsung Electronics, Dell and Pegatron Technology, for them to pre-install Office programs such as Word, Excel, PowerPoint and OneNote, as well as OneDrive and Skype onto their Android devices.

Based on Digitimes Research's understanding, these hardware players have all signed patent licensing agreements with Microsoft for their Android devices and need to pay fees for every Android-based product shipped.

With Android devices' shipments rising, Microsoft's incomes from the patent licensing fees have grown to substantial levels. To expand the usage of its applications in mobile devices, Microsoft has now decided to return some of the incomes to hardware players in exchange for their pre-installing its applications onto their Android products.

Google may find it difficult to ask its partners to reject the Microsoft policy, since price competition among Android devices is growing fierce, and profits from smartphones and tablets are shrinking gradually with some vendors even operating in losses. The market situation has made Microsoft's licensing fee discount a rather appealing offer for players that have been looking to cut down their costs to boost gross margins and the project is expected to attract more Android product vendors to join.