Microsoft's offer to give HTC Windows Phone software for free or close to it may well mean that Microsoft is taking a page from Google's Android playbook -- give away the software to all device makers, and make money off consumers via advertising and services.
Bloomberg reports that Microsoft is in talks with HTC to have Windows Phone software run on its Android smartphones. HTC will get the software for free or close to it. It's not clear how the two operating systems will coexist, although a dual-boot option is one obvious possibility.
Until now, HTC has essentially abandoned Windows Phone. Bloomberg notes that HTC hasn't released a Windows Phone since June, and has no plans to release one now.
Such a move seems radical, but Microsoft needs to do something radical if it wants to succeed in mobile. Even though a recent report found that Windows Phone now has double-digit market share in some European markets, its worldwide market share is still under 4 percent.
Microsoft's purchase of Nokia's handset business has no doubt scared away potential Windows Phone partners, who likely don't trust Microsoft to play fair if it's competing against them in selling hardware. Partners were already in short supply before the Nokia deal. Afterwards, they'll be scarcer still. Having Windows Phones made by only one mobile phone manufacturer is not the way to make the platform a success.
Google has managed to do quite well in mobile by giving away Android to any manufacturer for free, and making money off advertising and services. Given the HTC offer, it's a model that Microsoft seems to want to replicate. There's no way that Microsoft will be able to charge other manufacturers for Windows Phone software if it gives away the software to HTC, or charges an extremely low price.
HTC is a perfect place to start with the strategy, because it has faced sliding sales. Bloomberg says that it once was the top-selling smartphone manufacturer in the U.S, but has fallen on hard times, with a $101 million loss in the third quarter. It's now the number 8 maker of Android smartphones worldwide.
One irony here is that Microsoft already gets money from HTC for every Android phone the company sells, via a licensing deal for patents related to Android. Microsoft has such licensing deals with many makers of Android device. Horacio Gutierrez Microsoft Corporate Vice President & Deputy General Counsel, Legal & Corporate Affairs, said on a Microsoft blog in June:
"...we have successfully entered into license agreements with nearly all companies on the list of the world's largest Android smartphone vendors and their manufacturers. In fact, 80 percent of Android smartphones sold in the U.S. and a majority of those sold worldwide are covered under agreements with Microsoft."
Microsoft is making hundreds of millions of dollars from those deals, with one report saying that Microsoft received $792 million in patent royalties from Samsung and HTC in just one quarter.
So Microsoft can give away Windows Phone software for free to any Android maker it wants -- it's already getting money from them anyway. It's a smart strategy, and could well eventually make Windows Phone a player in the smartphone market.