Thursday, October 11, 2012

Microsoft about to build branded phones and tablets to save money

Microsoft is about to make a fundamental shift in it`s branding strategy. As we all know in the past Microsoft has been content primarily selling licenses to its products to OEMs. But according to industry insider Eldar Murtazin that`s about to change, and drastically.

Siting Eldar Murtazin, Microsoft’s royalty fees from licensing the Windows Phone OS to manufacturers like Nokia, HTC and Samsung are essentially being given back to these companies in the form of marketing dollars. In Nokia’s case, this is a matter of public record, this according the company’s 2011 annual report:

"We are paying Microsoft a software royalty fee to license the Windows Phone smartphone platform, which we record as royalty expense in our Smart Devices cost of goods sold. We have a competitive software royalty structure, which includes annual minimum software royalty commitments and reflects the large volumes that we expect to ship, as well as a variety of other considerations related to engineering work to which both companies are committed. We expect that the adoption of Windows Phone will enable us to reduce significantly our operating expenses. For example, the Microsoft partnership allows us to eliminate certain research and development investments, particularly in operating systems and services, which we expect will result in lower overall research and development expenditure over the longer-term for our Devices & Services business.

In recognition of the contributions that we are providing, we will receive quarterly platform support payments from Microsoft. In the fourth quarter of 2011, we received the first quarterly payment of USD 250 million (approximately EUR 180 million). We have started to recognize a portion of the platform support payments as a benefit to our Smart Devices cost of goods sold. The total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitments."

interesting times for Microsoft indeed, I think this will be a rough road for them to travel, this new strategy could save them mountains of money or it could backfire miserably

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