There's no denying that Android
is absolutely crushing Microsoft's Window Phone
platform in the mobile space, yet the better Android performs, the more Microsoft laughs all the way to the bank. That's because Microsoft makes big money off of Android patent royalties, and if you can fatten your pockets off the success of your rival, you've figured out how to put yourself in a win-win situation.
Just how much is Microsoft really making? Nomura analyst Rick Sherlund wrote in a note to investors that Microsoft generates around $2 billion per year from Android royalties, adding that Android revenue has a 95 percent margin, meaning it's pretty much all profit for Microsoft, Business Insider
$2 billion annually from Android royalties? Well played, Steve Ballmer.
Furthermore, Sherlund says without this infusion of cash, Microsoft would lose money on its mobile and Xbox businesses. Microsoft reports revenue figures for its Entertainment and Devices division, which is comprised of Xbox, Windows Phone, and Android royalty payments. If you subtract what Microsoft is making off of Android, then suddenly Microsoft is losing in the neighborhood of $2.5 billion on Skype, Xbox, and Windows Phone, with the Xbox platform accounting for a $2 billion loss all by itself, Sherlund says.
Whether or not Sherlund's estimate is on the money is not known, but even if it's off a little bit, Microsoft is in good shape, especially as Android continues to grow. As times goes on, Microsoft's annual royalties could balloon by billions of dollars of more than what it already is.