Android Partners Learn that Free Cost More Than Expected

Android being “free” may turn out to be true after all. Google (NASDAQ:GOOG) has seen two major setbacks recently: the first, Apple’s (NASDAQ:AAPL) success in the patent dispute over HTC, ^[1] and second, the ITC ruling that Motorola infringes on Microsoft’s (NASDAQ:MSFT) patent. ^[2] The continued attacks on Android’s patents can lead to doubts among its OEM partners whether their licensing and opportunity costs outweigh the supposed free nature of the mobile OS.

See our full analysis for Google’s stock

Apple and Microsoft Have Different Motivations, But Same Consequence

What’s interesting in Android’s patent saga is how Google’s biggest rivals, Apple and Microsoft, differ in their objectives.  Apple is sitting comfortably on $80 billion cash, not actively seeking out any licensing fees. It’s fiercely guarding the iPhone and iPad and all of its injunctions have demanded a ban on devices that may be infringing these patents.

Microsoft, on the other hand, seems more than happy to act as a licenser, which was made clear in its agreement with Samsung in September. ^[3] And it makes sense for Microsoft to do so as it follows the licensing model for its flagship business of application software as well.

This presents Android’s OEM partners with two problems: one, licensing fees make their devices more expensive, which can lead to a loss in market share and lower profitability; and two, enforced bans would make manufacturers lose out on entire markets altogether, which represents a significant opportunity cost.

Google’s Search Market Share Still Safe

Patent problems notwithstanding, we expect Google’s mobile search market share should continue to dominate given its strength in search and users like it. A homegrown mobile OS would definitely help, but Google continues to push ahead with building great search apps for other devices like the iPad. The only credible threat could be from the Nokia-Windows phone, which so far has not demonstrated its competence in the booming smartphone market.

We currently have a price estimate near $628 for Google’s stock, which is in line with the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Slashgear: ITC Rules in Favor of Apple, Bans HTC Devices in US [↩]
2. AllThingsD: ITC Initial Ruling: Motorola Infringes Single Microsoft Patent, But Not Six Others [↩]
3. Microsoft News Center: Microsoft and Samsung Broaden Smartphone Partnership [↩]