For the vast majority of mobile device owners, Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android is a familiar operating system. As of Q2 2014, Android was running 84.7% of the world's smartphones, a stunning figure in and of itself. But Google's stranglehold on the smartphone OS market is particularly impressive when you consider that Apple's iOS commands the second position worldwide, with a meager -- at least by comparison -- 11.7%.
Mobile upstart Microsoft (NASDAQ:MSFT) remains a distant third in the smartphone OS race as of last quarter with a paltry 2.5% share, down from Q2 2013's 3.4%. In an effort to get a piece of the Android pie, Microsoft, via the acquisition of Nokia's devices and services unit, actually introduced a pseudo-Android phone earlier this year called the Nokia X. Though the Nokia X has since been cut from Microsoft's smartphone lineup, that hasn't stopped CEO Satya Nadella from exploring other routes to incorporate the world's most dominant mobile OS platform.
What's a Cyanogen?
A couple of reasons Google's Android OS is so popular is that it's free, and it's open source. For nontechies, open source simply means developers have access to the source code of Android's software, meaning it can be adapted and customized as a device manufacturer sees fit, within certain limits. That's a winning combination for all parties involved in the smartphone manufacturing process, and the results speak for themselves.
Of course, being free and open source also means Google is somewhat at risk, in that other developers could essentially use Android as the basis for building bigger, better, and more customized versions of the operating system, and offering that to smartphone users and manufacturers. As it happens, that's exactly what a small, relatively unknown company called Cyanogen has been doing for the past several years. And there are some well-known venture capitalists and tech giants, including Microsoft, that think Cyanogen's beefed up Android could eventually be a threat to Google itself.
Cyanogen's Android-based software, called CyanogenMod, is basically Android on steroids. Cyanogen has quietly gathered a team of thousands of independent developers who continue to contribute new code to beef up its OS. The result is a more customized, and customizable, Android that smartphone users can download today.
Cyanogen winning some powerful friends
Last year alone, Cyanogen brought in about $30 million in venture capital from some significant players, including Andreessen Horowitz and Benchmark Capital, and has plans to really kick its CyanogenMod OS into high gear with another round of financing. But it's not just friends with money to invest that are attracted to Cyanogen. Rumor has it that Nadella recently had a face-to-face chat with Cyanogen execs.
The reason Google is willing and able to give Android away is that it retains a certain measure of control of a user's mobile device. The "control" of Android that Google maintains is what allows it to drive search traffic and garner loads of user data to better target its ads, which in turn appeases Google's advertising clients. A glance at Google's impressive quarterly earnings reports, not to mention its staggering smartphone market share, makes it clear: giving away its version of Android is working wonders.
But for smartphone upstarts like Microsoft who, like Google, would like nothing better than to maintain some measure of control, the old-school Android just wasn't a viable option. Hence, Microsoft axing its short-lived Nokia X phone. But a souped up, fully customizable CyanogenMod version of Android? That's enough to get the CEO of the world's largest software company in for a face-to-face meeting.
Final Foolish thoughts
As impressive as Google's Android smartphone market share is today, perhaps even more remarkable is that it continues to gather steam. In 2013's Q2, Android was running 79.6% of the world's smartphones, and that was up from 2012's OS share of 69.2%. But for device manufacturers like Microsoft, all it could do was sit by and watch its own Windows Phone OS market share take a beating. Now with Cyanogen in the mix, Microsoft may be able to begin chipping away at the runaway smartphone OS leader, using a version of Google's own operating system. Wouldn't that be ironic?
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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