FinTech

Why You’re Paying Microsoft $5 Whenever you Buy Android Smartphone

 By Rarzack Olaegbe

Nigerians have more mobile money accounts in 2019 than in previous years. A new report from GSMA has indicated that this occurred before the Central Bank of Nigeria (CBN) issued licenses to the Payment Service Banks (PSBs). 

A PSB license allows a non-financial firm to maintain savings accounts, accept deposits from individuals and small businesses. The license also allows such a company to accept payments, cross-border and personal remittance and through various channels in Nigeria among others. This service is covered by the deposit insurance scheme.  Some of the mobile network operators [MNO] have PSB license. 

However, the World Bank Findex report has explained that the MNOs are able to give financial services access to over 40 million Nigerians who are excluded. In a 2019 State of the Industry Report on mobile money by GSMA in March, the report explained that the sub-Saharan Africa is the epicentre of mobile money with over 50 million registered accounts to take its total to 469 million in 2019.

A value of $456.3 billion was transacted and it represented 27.5 per cent of the $690 billion performed globally in 2019. Aha, you need a smartphone to execute mobile payment or mobile banking transactions. Let us separate these two. Mobile payment replaces your card. Mobile banking enables you to carry out a banking transaction on a bank’s website with a smartphone. A smartphone is the one tool connecting the transactions. And that is the tool that fetches Microsoft billions of dollars annually. 

Let us uncover some facts. According to the Nigeria Communications Commission [NCC] Nigeria has about 188 million active subscribers. Android smartphone is the dominant device in Nigeria, in China, in the USA, in India, and most African countries. Statista.com estimated that Nigeria has 40 million Android smartphones. The number will grow to 140 million in five years.  

Either for personal or business use, either for mobile money or mobile payment transaction, whenever you purchase a new Android smartphone or tablet, you are paying Microsoft $5. By extension, Microsoft makes $20 million dollars from Nigeria annually. Microsoft is likely to make $2 billion annually from Android. How does this happen? Before we get to how it is pertinent to digest some facts.

According to a market report, Android devices sold every year will increase. As at February 2020, Android is the market leader in the mobile operating system with a 51.8 per cent share. Nigeria leads among African countries with more Android devices. China has 851 million smartphone users. India has 374 million users. The USA has 260 million users. Wikipedia shows that around 250 million people own smartphones in Africa.

For many users, Android smartphone is the only way to access the internet. Globally, the latest figures show that the number of smartphone users will get to 3.5 billion out of a population of 7.7 billion people.  

This is how Microsoft makes its billions. Its financial agreement is all about patent royalties. Microsoft claims to hold software patents that Android infringes upon and Microsoft has threatened lawsuits against Android device manufacturers until Android settled. According to How-to-Geeks, it’s generally cheaper for Android to pay off “patent trolls” than to fight Microsoft in court and this is even true for a company with cash reserves as big as Microsoft’s.

How-to-Geeks informed that Microsoft has never had to defend its Android patents in court; rather than risk an expensive court battle with Microsoft, Android manufacturers just pay Microsoft for a license so that Android can get on with business. However, Microsoft has never officially revealed the details of its licensing agreements with Android device manufacturers.

In fact, Microsoft has told Android device manufacturers that Android infringes on its patents. To make things right, the device manufacturer needs to cut Microsoft in on the devices it sells. If the device manufacturer did not have a patent licensing agreement with Microsoft, Microsoft will sue Android.

While Microsoft hasn’t given up all the information on these licensing agreements, its corporate lawyers made a statement on the subject in 2011. The lawyers explained Microsoft’s philosophy concerning the negotiation of patent agreements with Android device manufacturers.

“Amidst continuing clamour about uncertainty and litigation relating to smartphone patents, we’re putting in place a series of agreements that are reasonable and fair to both sides. Our agreements ensure respect and reasonable compensation for Microsoft’s inventions and patent portfolio. The agreement enables licensees to make use of our patented innovations on a long-term and stable basis,” Microsoft lawyers stated.

In 2012, Microsoft announced that 70% of Android devices sold are covered by its patent licensing agreements. Microsoft and Android device manufacturers haven’t officially released any information on how much these patent royalty fees cost. Manufacturers are forbidden from releasing these details as part of the agreements.

However, the $2 billion annual figure maybe peanuts. If Android device sales continue to increase, Microsoft could be making many more billions of dollars annually soon. This is sure. Microsoft will make more billions. It is sure because Nigerians need access to the internet.

The easiest way to access the internet on the go is through a smartphone. 40 million Nigerians are in love with Android smartphones. Therefore, more Android smartphones will be sold. The reason is simple. We need to perform mobile banking transaction. We need to open mobile money accounts. The beat goes on. That is how we will keep paying Microsoft $5.

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