Why it makes sense for Microsoft to waive Windows Phone license fees (for now)

Signaling a possible change in strategy, Microsoft has reportedly given two phone makers in India free licensing terms for Windows Phone. Lava and Karbonn are the handset makers to get the waived fee, The Times of India reported on Thursday.

HTC Windows Phone 8X

The idea behind the licensing change is to attract more handset makers to build Windows Phone in various countries as Nokia’s(s nok) Lumia is the main Windows Phone brand now and will become part of Microsoft soon.┬áThe Times of India notes that not even those Lumia phones were exempt from Microsoft’s(s msft) licensing fees for Windows Phones, which is estimated to be between $5 and $20 per handset. By lifting the fee, Microsoft could attract new partners that currently focus on building Google(s goog) Android phones, which are also free for the main operating system but not for Google’s services.

Financially, it may not be a big risk to take if Microsoft does eliminate its Windows Phone licensing free in the short-term.

While the company has been growing its share of the market, Android and iOS(s aapl) are still way out in front with no signs of a major change anytime soon. Without share, Microsoft’s platform can be viewed as a secondary or even tertiary system from a developers point of view and new apps typically appear on other phones first as a result. Faster market share growth can change that, so by adding more partners, Microsoft has more chances to earn sales in various regions.


The other factor that helps this strategy is Microsoft’s royalty revenue from Android phones and tablets. As recently as November, it was estimated that Microsoft earns $2 billion a year from the sale of Android devices. That helps Microsoft’s market share situation from a financial perspective; especially as Android continues to be the overall dominant platform when it comes to global mobile device sales.

If Microsoft were to build its own share to rival Android, it would see less on the royalty side but could recoup the money through its Windows Phone app store and its own services. In the short term at least, this might not be a bad play, even if it causes some to suggest that Microsoft is admitting a sort of defeat for Windows Phone.