While much of the talk surrounding Microsoft's acquisition of Nokia's mobile business surrounds the inevitability of end-to-end mobile business models, there's a vastly different lesson to take from Microsoft's acquisition. Along with Nokia's mobile business Microsoft got a 10-year license to a massive treasure trove of mobile patents.

The real money, however, isn't in Microsoft delving deeper into Android patent royalties. Rather, it's in letting Nokia do it.

The Money Is In Android

Let's do the math on Microsoft's mobile strategy going forward. Last quarter, Nokia shipped 7.1 million Windows-based smartphones, on which Microsoft made less than $10 per device. That's $71 million. Not bad, right?

Wrong. At least, by comparison with how much Microsoft makes from Android.

By some estimates, Microsoft collects as much as $8 per Android device. Lower, but since current shipping volumes of Android phones are so much higher than that of Windows Phone devices, that means Microsoft could generate $4.3 billion in Android royalties in 2013, and $8.8 billion by 2017. That's real money.

And while Microsoft has indulged in wishful thinking that with combined "synergies" it could generate $40 per Nokia device, that's still small compared to its near-term potential to FUD Android distributors into license agreements. Last quarter Microsoft's hypohetical enhanced margin would have yielded $284 million gross, or an annual run rate of $1.1 billion.

To get to this hypothetical synergistic figure, Microsoft actually has to sell something, which requires real work. To mint $4.3 billion from Android licenses? It just needs to send out lawyers.
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--jeremy