TANSTAAFL -Making Windows Phone and Windows RT free

Recently rumors have surfaced that Microsoft is considering making Windows Phone and Windows RT free. There Ain’t No Such Thing As A Free Lunch.  Today’s OEM licenses come with marketing kickbacks that dramatically lower their price.  Indeed one comment on Microsoft’s purchase of Nokia claimed they had to do it because they were giving Nokia more in marketing support per device than Nokia was paying in per-device license fees!  So actually making the licenses free will come with a price, the OEM won’t get any market development funds from Microsoft.

Given that Microsoft/Nokia control over 90% of the market for both Windows Phone and Windows RT there is little financial downside to dropping the price to zero. Or it may be that “free” is just a technicality, the actual mechanism might be to charge OEMs a license fee but offer all of them 100% of the license fee in Market Development Funds. The latter better matches how Microsoft likes to do business, but the former might better appeal to some OEMs.  Perhaps Microsoft will offer them a choice of licensing models.

The one thing that isn’t going to happen is for Microsoft to offer OS licenses for free and provide marketing support to the OEMs.  TANSTAAFL.


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8 Responses to TANSTAAFL -Making Windows Phone and Windows RT free

  1. Bob - Former DECie says:

    I don’t pay much attention to the Android world. I know Google gives Android free to the hardware manufacturers and in return get eyeballs to support their advertising model. Do they support manufacturers in any other way such as with MDF?

  2. BRH says:

    It’s plausible as well that the Msft-Nokia legacy oem contracts call for Nokia to get the best pricing (akin to MFN) and by reducing ‘all to free’…there will be less friction to get others in the Windows-Phone-fold. Then what happens behind the scenes in any given quarter/semester/year with marketing/demand generation funds is private between the companies.

    • halberenson says:

      I think there are other numerous questions. For. Example, right now Android OEMs pay Microsoft a patent licensing fee on every unit sold. If Windows Phone/RT are free does that make then actually cheaper than Android?

      • Mark says:

        Hal, wouldn’t you think it’s nearly a wash or cheaper already? What’s MS’s getting – maybe $10-15 best case? And for that they’re providing the OS, indemnification, and access to MDF? By the time an Android OEM pays royalties to MS and others, fend off the lawsuits that are only increasing in number, and pay 100% of their own marketing, it seems all but the biggest would likely be paying more per unit for “free” Android vs non-free WP. But Android’s share and momentum probably makes any per unit OS related cost moot.

        • halberenson says:

          Yes, which is why I’ve always thought gross price was a silly argument. It’s net value that counts. But perhaps there are OEMs that have a different viewpoint, such as a myriad of Chinese upstarts.

  3. The threat of Android is larger than just mere cost of licenses. We saw how Linux failed at replacing Windows on the desktop, yet were adopted incredibly quickly on mobile devices.

    Right now, the AOSP is a wild card and it is around here where a lot of interesting variations are being played out. Amazon, MIUI and even Nokia “Normandy” are trying to eke out advantages in the mobile equivalent of an open PC platform.

    The difference though is these companies are disrupting the major players via business model innovation – something that incumbents find difficult to defend against.

    Personally I don’t know how offering free licenses can make Microsoft a better “devices and services” company, but it is reasonable defensive move to gain market share before the entire industry matures.

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