Does Windows Phone Revenue Really Matter To Microsoft?

Few days ago SeattlePI ran a story that Windows Phone revenue is less than $613 million which is labelled as “abysmal“. The story led many discussion on Windows Phone’s revenue potential, its effect at Microsoft,etc.

Let me try to clear what they are talking about. Windows Phones are part of the Entertainment and Devices division at Microsoft. E&D division generated $8.716 billion in revenue for the 2011 fiscal year and in that Xbox platform generated $8.103 billion. So the rest of the division’s product including Windows Phone, Zune, Mediaroom, Surface and hardware generated $613 million. So they are making the point that Windows Phone’s revenue could be less than $613 million. Their number interpretation is correct, but the whole idea of the story is bad. My views on their story are:

1) Never compare  Microsoft’s Windows Phone OS licensing revenue to Apple . Apple sells the hardware, software and the whole ecosystem. Both of their business models are different.

2) On comparing with Google’s Android they noted:

Google doesn’t break out Android revenue. The mobile OS is free for phone manufacturers to adopt, and Google gets most of its Android revenue through advertising. In Google’s most recent quarterly earnings report, the word “Android” appears just three times.

If a word only appears 3 times in earnings report, it clearly does not  matter that much. How much is the revenue Google got from Android?  Give me numbers! Even if you consider Microsoft generates $400 million more next year through Windows Phone revenue, its a $1 billion business. What about Google? $0.

3) Mobile OS has become an extension of our PC OS. Currently Windows Phones act as an end point of all Microsoft services, weaving their three screens + cloud strategy. Just look what Windows Phone’s by default comes with, Hotmail, SkyDrive, Windows Live, Messenger, Zune, Xbox, Office, Office 365 and SharePoint. For every Windows Phone Microsoft sells, all these services get a great benefit of native OS integration.

4) If you still think that all these services and OS licensing revenue don’t matter, Microsoft, just like Google, can earn money directly from application and media sales and also from in-app advertising.

Not to mention that Google and its partners are spending/going to spend much more money in Android. Google may end up in paying $2-$6 billion damages to Oracle and its partners may end up paying about $60 for a patent licensed device !

In the end the story is indeed a non-story.  Microsoft is not going to spin of Bing and they are not going to spin of Windows Phone, and its investors fully understand that it is a strategic area.  Microsoft is also not going to go begging for money any time soon.

Like with most tech start-ups, at this early stage in the game for Windows Phone income hardly matters at all.