Tuesday, January 31, 2012

To win the smartphone war, is Microsoft really spending over $200 per Nokia handset?

We already know that Amazon.com is not averse to losing a few bucks on each Kindle Fire, since it will (probably) make it back on consumables (meaning e-books, apps, etc., etc.). However, an unanswered question has been how much would Microsoft be willing to spend to catch Google and Apple in the smartphone platform race. The answer, it would appear, is over $200 per handset.

It's all guesswork, however, but Forbes did the math and it seems to make sense.

In Q4 2011, Microsoft paid $250 million to Nokia. Nokia, meanwhile, claims to have shipped 1 million Windows phones. While shipped is not the same as sold, it doesn't matter: $250 million spread across 1 million handsets = $250 per phone.

Naturally, just as any other WP OEM does, Nokia pays a WP license fee to Microsoft. While no one outside of Microsoft and its partners knows exactly what that amount is, sources have previously reported the fee to be between $20 and $30 per handset.

Since they are such close partners, and guessing that Microsoft expects Nokia to carry a large load in terms of WP devices shipped, Forbes guesses the fee would be on the low side, or $20 per handset.

With the math complete, that means that Microsoft pays $230 per handset to Nokia, its BFF in Windows Phone.

While truly a rough estimate, a figure that high would show a measure of desperation on Microsoft's part. The company was really late to the game with a modern smartphone platform.

Here's something else not taken into account by Forbes: it's well known that Microsoft is PAYING developers to develop for Windows Phone. We don't mean free handsets; we mean actual cash, in an attempt to catch up in the app race.

Aggressiveness isn't Microsoft's alone, either. The price point for the Nokia Lumia 900, at $99.99 on the AT&T network is very aggressive for an LTE smartphone. It shows all the players in the WP game have some skin in it.

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