Cyanogen, the developer of a modified version of Android known as CyanogenMod, recently claimed that its OS had 50 million active users, making it bigger than BlackBerry (NYSE:BB) and Microsoft's (NASDAQ:MSFT) Windows Mobile (not Windows Phone) combined. That's up from 10 million active users at the end of 2013.
At first glance, CyanogenMod looks like just another version of Android. However, it includes tinkerer-friendly features like themes, an OpenVPN client, an unlockable bootloader, root access, the CPU overclocking options. Most importantly, it strips out many of Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) core services, which cripples the search giant's ability to monetize Android devices.
Earlier this year, Cyanogen CEO Kirt McMaster criticized Google for turning Android, an open source OS, into a "shell" for its own services, which gave it an edge over anyone who wanted to produce competing apps. Cyanogen's battle cry of a "Google-free Android" has gotten the attention of many companies. Let's see how these supporters are helping Cyanogen grow, and what it could mean for Google's future.
Losing control of Android
When Google first launched Android in 2008, handset makers eagerly installed the free, open-source OS for two reasons. First, they didn't have to spend any money to develop their own software. Second, Google would provide a unified backbone for downloading apps, which created a shared ecosystem among different OEMs.
But as the smartphone market became crowded and commoditized, margins declined. To squeeze out more profits, smartphone makers developed their own services and apps, many of which overlapped with Google's services. Samsung, for example, uses the Galaxy Apps Store, S Health, and Samsung Pay to respectively compete against Google Play, Google Fit, and Android Pay. Google, seeking new ways to gather more data from those users, added even more services to Android. It also tried to encourage OEMs in emerging markets to use stock Android with the "Android One" initiative, but many OEMs preferred to stick with their own UIs and apps instead of Google's.
Since most Google services are banned across China, the world's largest smartphone market, Chinese smartphone makers also had to develop their own Android-based app ecosystems. Many of those companies "forked" Android to cut all ties with Google. In the fourth quarter of 2014, 29% of all Android devices shipped worldwide were forked ones, according to ABI Research.
Exploiting the rift
The widening rift between Google and Android device makers created a big opportunity for Cyanogen. In April, Cyanogen signed a deal with Microsoft to integrate apps like Outlook, Office, Skype, Bing, OneDrive, and OneNote into its OS. This was a win-win situation for both companies -- Cyanogen gained a non-Google ecosystem, while Microsoft claimed a foothold in the Android market.
Contract manufacturing giant Foxconn also invested in Cyanogen during its round of Series C funding in March. Cyanogen also hired executives from Amazon and Qualcomm to strengthen its engineering division.
Cyanogen also partnered with Chinese handset maker OnePlus on the OnePlus One, which sold about a million units. That partnership ended afterwards, but Cyanogen is still partnered with Micromax, the largest smartphone maker in India, and Blu Products, which sells handsets in the U.S., Latin America, and the Caribbean. Blu's upcoming Cyanogen phone is expected to use Amazon's App Store instead of Google Play, and come pre-loaded with Microsoft services.
Cyanogen certainly looks like it's growing, but 50 million users is a tiny sliver of the Android market. Last year, over a billion Android smartphones were shipped worldwide. However, analysts cited by Forbes claimed that rising demand in emerging markets could help Cyanogen eventually reach one billion handsets -- more than the total number of iPhones sold to date.
That forecast might be too optimistic, but it's easy to see how Cyanogen could keep growing. Companies that don't want to spend money developing their own version of Android can use CyanogenMod as a "turnkey" software solution which doesn't require handset makers or their users to be tethered to Google. This complements "turnkey" hardware designs from Qualcomm and other chipmakers, which shortened the development cycle of smartphones and reduced development costs.
The bottom line
Cyanogen has a history of making bold, headline-grabbing statements. Back in March, McMaster told Forbes that his company was "putting a bullet through Google's head." The recent statement about CyanogenMod being "bigger" than BlackBerry and Microsoft also slyly compares its user base to Windows Mobile instead of Windows Phone. The company also doesn't generate any meaningful revenue yet.
However, Cyanogen's presence is hard to ignore. As the rift between Google and handset makers widen, smaller companies could turn to Cyanogen instead of Google. When that happens, the percentage of Google-free Android devices could rise, hurting Google's ability to monetize mobile devices and track users.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Google (A shares), Google (C shares), and Qualcomm. The Motley Fool owns shares of Amazon.com, Google (A shares), Google (C shares), Microsoft, and Qualcomm. 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.