Is this the end of cheap smartphones?

Micromax and Spice have raced to the bottom of the smartphone price pyramid. Micromax launched its A60 at Rs 6999, only to be beaten by Spice with its Rs. 5700 phone. These are perfectly good phones in their own way, which come with touch screen camera and most importantly a very good operating system which provides a window to 200,000 apps. Android operating system has been a savior to low-cost smartphone phenomenon. Unfortunately it isn’t free anymore as the manufacturers thought.

Smartphones hardware is only relevant while buying a phone. Once the phone is bought it is the apps that take you through, probably to your next phone. There are only two app ecosystems which are competing with each other – Apple’s and Android’s. Apple’s ecosystem is the best any one can think of. Its closest rival is Android.

You might be all too familiar with the Oh! there is an app for that. Want to blacklist some callers? Check. What to whitelist some callers? Want your phone to ring only for certain callers? Check. Want a mosquito repellent? Check. Imagination is the only limit for apps and app ideas.

All the app goodness and the Android goodness at cheap prices might be short lived. While there is a rising optimism about the prospects of Android in emerging markets the enthusiasm might be ebbing away. Reason for this is Android’s stupendous success. And the cause is software patents or stuff Google doesn’t understand.

There is a saying in the software world : “You can’t write 100 lines of code without infringing on a software patent”

Android has million lines of code and it sure as hell has infringed on quite a few. When a company infringes on software patents, it pays up for that infringement. It can all be settled with money. Patent settlements are nothing new. Sun Microsystems has settled with IBM back in the 1980’s. Apple has recently settled with Nokia. Microsoft is silently chipping away profits from Android handset manufacturers. Microsoft on last count had 5 manufacturers who have agreed to pay royalties for every Android device they sell. Samsung is Microsoft’s next target. Oracle is almost breathing down Google’s neck to pay its due for using Java.

In this patent war, everybody has infringed on somebody’s patents. Google has infringed on Microsoft’s patents. But no one has infringed on Google’s patents. This is the saddest part of the story. Typically when a company infringes on a patent, it will look back at its treasure trove of patents and see what the rival company has infringed on. Both the company’s players play a little bit of bluff and little bit of poker and finally settle.

Google’s lawyers unfortunately don’t have this luxury. They go into the room without a treasure trove of patents. Google has 700 patents to its name. That’s the number of patents awarded to Microsoft in the last 4 months. Microsoft has 18,000 patents in total. Google has lost an opportunity to get a hold of Nortel’s 6000 patents in the $4.5 bn bit it lost to Apple, Microsoft and party. If Google had gotten a hold of the 6000 patents, then it can find some patents which Microsoft’s code is infringing and a dialogue would have ensued.

Now all the Android phone manufacturers will settle with Microsoft to pay royalties of $15 – $20 to Microsoft. A cost which no one has thought about when the decision of using Android was made. That royalty might be reasonable for high-end phones. For phones costing $100, paying a royalty of $20 doesn’t make any sense. Besides, no body knows who else would ask for a royalty later on.

The higher end phone manufacturers will diversify in to other operating systems like Windows Phone 7. The low end phone manufacturers might stick to an operating system which isn’t Android. Mission accomplished for Microsoft and Apple.