Steve Ballmer Willing To Pay $230 Per Phone To Beat Apple, Google
Nigam Arora Nigam Arora, Contributor
The question investors, technologists and strategists have long been asking is, “What is Steve Ballmer willing to pay to beat Apple and Google?” Now we have a small part of the answer, $230 per cell phone.
Microsoft (MSFT) is in a venture with Nokia (NOK) to gain market share for Windows phones in its battle with Google Android.
In the last quarter, Microsoft paid $250 million to Nokia. Nokia claims to have shipped 1 million Windows phones. It is not known how many of these phones are still sitting in inventory and how many were actually bought by consumers. In any case, it amounts to Microsoft paying Nokia $250 per phone.
As part of the agreement between the two companies, Nokia pays a license fee to Microsoft for each phone it sells. The exact details of the license fee are not known, but my estimate is that it is around $20 per phone. Several sources have reported that Microsoft charges between $20 and $30 license fee per phone.
Since the agreement between Microsoft and Nokia is designed for large volume production, the inference is that license fee from Nokia to Microsoft is at the low- end. So here you have it, Microsoft paid $250 to receive about $20.
It appears that a large number of phones that Nokia shipped were Lumia 700 series. You can typically buy these phones for about $50 with a contract. The Lumia 710 that a consumer bought for $50 cost Microsoft $230; it’s ironic for a company that once was the king of software.
The $230 number shows desperation, and there is no doubt that the Windows phone will live or die based on how well Nokia does. How does Microsoft justify taking such a loss? With about $50 billion in cash, $250 million is peanuts for Microsoft. Microsoft simply fell behind Apple and Google, and Ballmer recognizes that a big price has to be paid to catch up.