The Wall Street Journal reported last week that Microsoft (MSFT) was part of a $70 million funding round for Android fork developer Cyanogen that values the company “in the high hundreds of million dollars”.
This means a minority stake in a company that has openly declared that it will take Android away from Google (GOOGL). No one knows if it will succeed in these efforts, but the company does have 80 employees and 900 software volunteers developing the platform. It also claims 50 million users, mostly in the emerging markets of China and more recently, India.
Its CEO Kirt McMaster expects to have an all-new OS in the next three to five years, but its own app store will be in place sooner: within the next 18 months.
Google has been increasing control over Android, making both hardware partners and carriers nervous. Android partners are forced to load Google search and apps, and the devices are tied to Google’s Play Store. This dependence gives Google leverage in revenue sharing arrangements and also facilitates Play Store sales.
The Android OS has a stranglehold on smartphone market share, although Apple (AAPL) did a good job wresting some in the last quarter. This is also a concern for hardware makers since Apple has its own walled garden. A competing platform could spur innovation and take back some share from Apple.
Microsoft’s insignificant share in the smartphone market has forced it to take an unorthodox approach. The company has several advantages in promoting an Android competitor.
First, if the warm relations with the current CEO continue, its IE browser and Bing search engine have chances of becoming the default on Cyanogen-powered devices. Browsers are one of the windows to the Internet and a search engine takes the process a step further. So its advertising revenue could benefit.
Second, Microsoft has been talking open-source for some time now and it has also taken steps to develop OS-agnostic apps and increase inter-operability between platforms. The idea as touted by CEO Satya Nadella is to get Microsoft software on as many devices as possible irrespective of the OS running them.
Third, Microsoft has been the reigning champion in desktop productivity tools but because of its limited presence on mobile platforms, it is in the process of losing mindshare. This is particularly true in emerging markets where Android has high market share and Apple is a strong challenger.
Fourth, Microsoft could be open to a Microsoft phone powered by the Cyanogen OS with more Microsoft apps preloaded. The company has done away with the Nokia brand, which had some leverage in some markets, but this is likely a good move since promoting a single brand is easier.
Microsoft is not the only company thinking along these lines – Amazon (AMZN), Samsung and Yahoo (YHOO) have also reportedly been looking to invest in the company.
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