Author: The Business Insider

What’s the biggest difference between Microsoft’s newest mobile operating system and the Google version that it will be competing against (eventually)?

Microsoft will charge carriers for its OS, while Google is giving Android away for free. (The other big competitors, Apple and RIM, don’t license their operating systems to third parties.)

That’s just silly. Microsoft is dead in the water in this business. If it wants to get moving again, it needs to do everything it can to help itself. And in mobile software, that means competing with “free” with “free.”

Yes, giving a product away for free that Microsoft used to charge for will undermine Microsoft’s business model. But that’s eroding anyway. And, again, to come from behind in this business, Microsoft needs all the help it can get.

The good news is that Microsoft is so big that its new Windows Phone operating system has almost no chance of making enough money to move the needle anyway. So it might as well join rival Google in giving it away for free, in an effort to drive up device sales and market share.

During Monday’s keynote, Microsoft CEO Steve Ballmer announced that Microsoft would stick with its current Windows Mobile business model. That is, Microsoft would let handset makers license Windows Phone 7 Series in exchange for a fee.

Why bother?

“I think there’s something clean and simple and easy to understand about our model,” Ballmer said. “We build something, we sell that thing.” He added, “I think it’s not only in our best interests, but it’s … a simple model that’s easy for developers, handset manufacturers, and our operator partners to deal with, to understand, and to build from.”

Maybe so. But the problem is that the amount Microsoft can charge for a smartphone OS license is very low, and probably getting lower.

And even if the smartphone market grows significantly in the next few years, and even if Microsoft can capture a respectable share of the market, it stands to make a very small amount of money selling Windows Phone 7 software.

How little?

Not enough to represent a real growth driver for giant Microsoft. And therefore, not enough to justify charging a license fee — which is surely a deterrent when handset makers like LG, Samsung, HTC, Sony Ericsson, Motorola, and others choose which OS platforms to base their phones on.

To estimate what Microsoft’s mobile OS license revenues might look like, we ran the numbers with a variety of license fees, ranging from $5 (if Google’s strategy pushed Microsoft’s pricing down even lower) to $20 (if an intoxicated gadget maker fell so in love with Windows 7 that it would pay through the nose for it).

• A Microsoft rep wouldn’t tell us how much Microsoft’s hardware partners pay it to license Windows mobile software, but in the past, it ranged from about $8 to $15 per phone, according to research firm Strategy Analytics.

• We also estimated that the smartphone market would grow to around 250 million devices worldwide in 2011, the first full year that Microsoft’s new OS would be on the market, and that it might capture 5% to 15% of the market that first year, or roughly 12.5 million (conservative) to 37.5 million units (aggressive). The smartphone market was about 175 million units in 2009, according to IDC.

The results: Microsoft’s mobile revenue from license fees could be as low as $63 million, or as high as $750 million, across all those assumptions.

But a reasonable average is somewhere in the $300 million range, which is less than 0.5% of the $66 billion in revenue that Wall Street expects Microsoft to generate in fiscal 2011.

This suggests that mobile license fees will NOT be a significant growth story for Microsoft any time soon, and that unless our estimates are radically low, charging is a waste of time.

Instead, Microsoft should give Windows Phone software away for free, with the hope that manufacturers will use it to make more Windows phones than they’re previously planning to make, that they’ll charge lower wholesale prices for them, and that carriers will charge lower retail prices for those phones. That could drive up Microsoft’s market share, with little negative effect on Microsoft’s financial situation.

So how will Microsoft make money off Windows phones? Beats us. But it has to be a way other than license fees.

The options range from taking a cut from selling mobile applications, to subscription fees for Xbox live and Zune music accounts, to mobile search and display advertising, via Bing and potential ad network acquisitions. Sure, those revenue streams will be minuscule to begin with, too. But they will grow with time, and with a bigger user base, which the no-license-fee phone business should provide.

Or Microsoft could take the route that Apple, Research In Motion, Nokia, Palm, and others take, which is selling their own hardware and software. That can be tricky, but it can also be very lucrative: Apple generated more than $15 billion selling iPhones in 2009.

The rumor that Apple is building its own search engine “isn’t credible,” according to a source familiar with Apple’s operations.

Our source tells us “there’s too many options” for search on the market, so there’s no reason for Apple to build its own search engine.

Another reason Apple might not want to build its own search engine: It’s getting over $100 million a year from Google in its revenue share deal, according to our source.

For Apple, that’s not a lot of money. But, it’s enough that it doesn’t make sense for Apple to put considerable resources towards building its own Internet search engine. And, if Apple wanted more money or options, there’s Microsoft — with Bing and a big checkbook.

While Apple isn’t going to stomp into search, Apple’s deals with Google have become more contentious lately, as the companies are increasingly competing with each other.

Our source tells us when Apple first introduced the iPhone, it hammered out its deal for Google Maps in two weeks. When Apple prepared to launch the iPhone 3G with GPS a year later, it was a six-month process “full of acrimony” to get the maps deal finished.

Google wanted access to all sorts of data from the maps, but Apple didn’t want to give it up, according to this person.

When Apple’s iPad 3G ships in April, U.S. wireless partner AT&T will offer two data plans for the gadget, with different costs and monthly download allotments.

Specifically, AT&T will offer a $14.99 monthly plan that allows for 250 MB of data consumed, and a $29.99 monthly plan that allows for unlimited Internet consumption.

Which should you buy? That depends on how you’ll be using the device on a 3G network, of course. (We think most people will buy the cheaper iPad without 3G service, but many will buy the 3G model, too.)

For an idea of what the cheaper plan offers, here’s what 250 MB translates to:

* About 35 minutes of YouTube video at standard-definition
* OR about 8-10 minutes of YouTube or iTunes video at 720p hi-definition
* OR about 70 songs from iTunes
* OR a few thousand Web pages and typical email usage
* OR more than 4,000 Facebook photos

So, if you think a month’s worth of 3G access looks like this, then you should be fine with the 250 MB plan:

* Browsing a few dozen Web pages a day and typical email usage (without downloading big attachments)
* Looking at a few dozen Facebook photos a day
* Watching a few minutes of YouTube video a week
* Downloading a few songs and podcasts from iTunes per month
* Downloading a few small iPhone or iPad apps per month, light app usage

If you think you’ll be using more bandwidth than that over 3G, you may consider the $29.99 plan. Remember that you can cancel anytime, change plans on a monthly basis, or turn service off and on, because there is no contract. (And no “activation fee” was disclosed during Steve Jobs’ presentation.)

Remember, using the iPad in a wi-fi zone doesn’t count toward this limit. So if you’re going to be using the iPad primarily at home—the best use case—or at the office, or anywhere there’s wi-fi, you won’t need to worry about hitting the 250 MB cap. AT&T is also including free access to its wi-fi networks in its 3G plans, which includes Starbucks locations.

What happens if you go over 250 MB? Will AT&T stick you with unreasonable overage charges?

The company won’t say.

But our hunch, because this is prepaid service — no contract or credit check required — is that once your 250 MB are up, AT&T’s network meter will simply require you to upgrade to the $29.99 plan to continue using the Internet.

This seems the more consumer-friendly, responsible thing to do, and eliminates AT&T’s risk of offering you credit. But AT&T refuses to immediately give more information than what Jobs said in his presentation. So we can’t be sure.

ANCHORAGE, Alaska (AP) — A North Slope oil spill has been reported from the same pipeline that froze and ruptured in November.

Steve Rinehart, a spokesman for Lisburne oil field operator BP Exploration, says the new leak reported Wednesday is estimated at less than one barrel, which consists of 42 gallons. The November leak involved 46,000 gallons of crude oil and oil water.

Rinehart says the new leak had stopped by the time it was discovered at an elevated section of the 18-inch flowline during a regular inspection. The material splattered over a 2,000-square-foot area, landing on the edge of a nearby drill pad and the tundra below it.

Rinehart says the spill occurred in the out-of-service line more than a mile east of the site of the Nov. 29 leak.

The cause of the latest leak is unknown. A cleanup plan is being finalized.

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Apple watchers can now see how truly huge the company’s iPhone business has become, thanks to a new accounting method the company started using this past quarter.

In less than three years, the iPhone has grown to become Apple’s biggest business—up from zero.

Specifically, during Apple’s December quarter, the company reported $5.6 billion of iPhone-related revenue, up 90% year-over-year. That edged out the Mac business ($4.5 billion) and iPod business ($3.4 billion) for the second quarter in a row and the third time ever. It was the first time the iPhone has beat the Mac and iPod businesses by more than $1 billion each.

And this despite Apple missing Wall Street’s expectations for iPhone sales, thanks to increased competition from Google Android and other smartphones.

Why the new visibility? During the quarter, Apple started taking advantage of new accounting rules that lets it report the vast majority of revenue from iPhones and Apple TV devices immediately. Previously, it had to spread the revenue over 24 months to account for free software updates it would offer those customers.

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Google just put out an SEC filing saying founders Larry Page and Sergey Brin plan on dumping some of their holdings of the company’s stock.

When they finish selling 5 million shares apiece, they’ll still own 15% of the outstanding shares, but their voting power will have dropped below 50%. So they are ceding absolute control of the company.

From the filing:

Larry and Sergey currently hold approximately 57.7 million shares of Class B common stock, which represents approximately 18% of Google’s outstanding capital stock and approximately 59% of the voting power of Google’s outstanding capital stock.

Under the terms of these Rule 10b5-1 trading plans, and as a part of a five year diversification plan, Larry and Sergey each intend to sell approximately 5 million shares.

If Larry and Sergey complete all the planned sales under these Rule 10b5-1 trading plans, they would continue to collectively own approximately 47.7 million shares, which would represent approximately 15% of Google’s outstanding capital stock and approximately 48% of the voting power of Google’s outstanding capital stock (assuming no other sales and conversions of Google capital stock occur).

More kids are getting mobile phones: Last year, more than 35% of U.S. children ages 10-11 had cellphones, almost double the amount in 2005, according to Mediamark data, via eMarketer. And more than 5% of 6-7-year-olds had cellphones last year.

Takeaway: The audience for kids-focused mobile content, apps, and advertising is growing rapidly.

Since Microsoft’s Bing search engine launched last summer, it has gained market share at the expense of Yahoo. If the trends stay consistent, Bing could pass Yahoo in the U.S. by the end of November.

To be sure, some (most?) of Microsoft’s gains have come with an expense: The company is buying up toolbar deals to become the default search engine for more users — less-valuable, paid traffic that Yahoo seems happy to give up. And Microsoft has spent a lot of money advertising Bing.

But there’s no doubt that Yahoo’s declining search business, long term, is bad news for the company. Especially because its deal to farm out its search technology to Bing will only generate revenue for searches conducted through Yahoo, not through Bing, even though Yahoo is selling the ads on Bing.