Microsoft's HTC License for Android: Why the Microsoft/Google War Shifted to Microsoft

Rob Enderle

In what appears to be "News of the Weird," HTC today licensed Microsoft patents for its Android products. It isn't unusual for a hardware manufacturer to license code from Microsoft or to use Android for one of a variety of new devices such as tablets or smartphones. However, licensing Microsoft technology for a Google product is, to my knowledge, very unusual and speaks to the risks associated with licensing a product like Android, which is nearly free and is a blend of intellectual property that the provider doesn't completely own and can't protect. Microsoft just announced that it sold a license to HTC to protect HTC's Android-based products. This would be like HP selling a license to Boeing to use IBM products and getting more for the license than IBM got for the hardware.

 

The net is that a product of this type may -- and clearly that was the case here -- have hidden costs similar or even greater than a more traditionally built, protected and licensed product. But this has broader implications: It shows a major shift in the battle, and another decisive loss for Google (on top of China). It indicates that Microsoft is now winning the fight. Let's talk about all of this.

 

Why Android Might Be Too Expensive

 

The problem with "free" is that you get little support. OEMs have generally reported this to be the case with Google. The sense is, given that it is free, be happy with what you get. This is partially because the provider, in this case Google, must maintain margins and isn't budgeting to provide much service nor can it fund an indemnification program. This would be like getting insurance from a company that didn't have enough reserves to pay possible claims -- you simply wouldn't be protected regardless of the claims.

 

This might create a greater problem for open source products because it should be easier to determine whether code is conflicting if you can get, without court action, access to the source code. Open source should make it easier to do a thorough investigation, lowering the bar for companies or individuals who want to bring action. Most commercial open source vendors do provide some type of indemnification, and you would think, with Google's resources, it could as well. But most commercial open source vendors also charge for their services, which partially funds the indemnification.


 

Google vs. Microsoft Competitive Dynamic

 

It's unusual for a customer of one company to have to license a technology from its competitor. However, Apple is suing HTC for infringement with its Android products, and Google apparently hasn't provided indemnification. Given that Apple is aggressive -- so much so that it prompted the search and seizure of assets belonging to a Gizmodo reporter recently -- HTC likely will incur substantial legal fees, which it probably didn't factor into the costs of Android. These licensing fees to Microsoft take that cost even higher and could make alternative platforms like Windows Phone 7 and Symbian comparatively much less expensive, much less distracting, and much less likely to blow out a budget.

 

This showcases a change in the competitive dynamic between Google and Microsoft. On Google's home turf, search and advertising revenue, Microsoft had been struggling to be relevant. With the Yahoo partnership and Google choosing to exit China, Microsoft's influence has been steadily increasing. For instance, and interestingly enough, Bing is the default search engine on Motorola's Android phones in China.

 

Android certainly had a lot of initial buzz, but has largely failed to do much damage to the iPhone's dominance. Recently, Verizon abandoned Google's signature phone, the Nexus One, which hasn't done well in the market. This and the latest licensing deal suggest that Google is beginning to run into major problems in competing with Microsoft on Microsoft's own turf.

 

This, once again, is starting to increasingly mirror Netscape, which dominated browsers initially, but eventually failed in its core market against Microsoft. And it was largely ineffective in any markets that a then much-less-entrenched Microsoft was growing into.

 

Wrapping Up: Microsoft Advantage

 

Large companies tend to move slowly, but they have the advantage of deeper knowledge of the markets they serve and they tend to be entrenched, so are difficult to displace quickly. Younger firms can move more quickly, but tend to lack the experience, which forces them to focus on one battle at a time until the war is won. That dynamic is playing out between Microsoft and Google. Google initially caught Microsoft napping and grew to significant size in a market area Microsoft didn't understand and wasn't watching. However, instead of staying focused, Google then moved into other areas outside its core competencies and increasingly into Microsoft's. Meanwhile, Microsoft slowly gained competence in Google's core areas while retaining most advantages in areas it initially controlled.

 

This is far from done, and Google is clearly doing better than Netscape did, but the outcome could be similar. The winner will retain the majority of what it started with and will gain the most new ground at the competitor's expense. While it appeared Google was winning over much of the past decade, Microsoft didn't lose any major resources. This trend suggests that Google's strategy will need to be dramatically altered, or Microsoft will have to make a substantial mistake, to avoid Google losing this war.

 

Typically in taking out a giant in a two-vendor system (Apple/Microsoft), you'd hurt the smaller vendor first and more deeply. Apple tossed Google off like a flea from a dog, which should have suggested a significant weakness in Google's approach. That again supports the position that Google's strategy is critically flawed.



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Apr 28, 2010 8:13 AM a. asdf a. asdf  says:

"News of the Weird", Part 2: HP buys Palm

http://www.engadget.com/2010/04/28/hp-buys-palm/

Can't wait for WebOS iPaq's, lol.

---"Microsoft's influence has been steadily increasing."

At what price?

http://static.businessinsider.com/~~/f?id=49da75904b543755002ea77e

http://www.businessinsider.com/henry-blodget-microsofts-bingmsn-results-truly-horrifying-quarterly-loss-balloons-to-713-million-2010-4

There's no way Microsoft could have competed online without Windows profits. And why IMHO, if you want to compete with Microsoft, you have to compete on Windows sooner or later.

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Jul 4, 2010 1:54 AM User1821818 User1821818  says: in response to a. asdf

Android apps are free with little support but android phones are much stable than windows phones. Customers do prefer stable phones rather than apps.Blackberry need to introduce their apps to compete in this market.

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