Report: Microsoft declines to invest in $110M funding round for Android rival Cyanogen

Mobile startup Cyanogen, which is seeking to chip away at Google's (NASDAQ: GOOG) control over Android by offering a modified version of the software, is close to getting a new $110 million round of financing, according to a Bloomberg report. However, the report, which cited unnamed sources familiar with the matter, said that Microsoft (NASDAQ: MSFT) declined to invest in Cyanogen.

The report said that PremjiInvest, the investment vehicle of Wipro Ltd. Chairman Azim Premji, will be among the new investors, and the deal could value Cyanogen at $500 million or more. Microsoft decided not to invest after discussing the deal with Cyanogen, although it may still be interested in a commercial deal to get its software onto Cyanogen's operating system.

Microsoft and Cyanogen declined to comment, according to the report.

In January the Wall Street Journal reported that Microsoft would be a minority investor in a roughly $70 million round of equity financing that values Cyanogen in the high hundreds of millions of dollars. The report said the financing round could grow with other strategic investors that have expressed interest in Cyanogen because they also want to weaken Google's control over Android. Prior investors in Cyanogen include Benchmark Capital, Redpoint Ventures, Andreessen Horowitz and Chinese social networking company Tencent.

At the time, Bloomberg reported that Microsoft and Cyanogen were in talks, but that the discussions centered more on Microsoft working with Cyanogen to create a version of Android that's friendlier to Microsoft services. Before Microsoft purchased Nokia's (NYSE:NOK) devices business, Nokia had created a series of phones based on a modified version of Android that featured Microsoft services including Skype and OneDrive, but Microsoft scrapped those phones in 2014 after its purchase of Nokia's phone business closed.

Microsoft CEO Satya Nadella has embarked on a strategy to get the company's software on as many devices as possible and not just those running Windows. For example, last year Microsoft offered versions of its core Office programs on Android and iOS devices. Getting the company's software more broadly distributed could spur enthusiasm in Microsoft's products. Last week Reuters reported that Microsoft is going to enhance its Cortana digital assistant for its own Windows 10 platform and then offer it as a standalone app on other platforms including Android and Apple's (NASDAQ: AAPL) iOS.

Meanwhile, Cyanogen CEO Kirt McMaster has pledged to "take Android away from Google." In its Android-based OS, Cyanogen offers features and options not found in the official firmware distributed by Android device vendors. In the same way that Amazon (NASDAQ: AMZN) has modified the Android Open Source Project for its Kindle Fire tablets and Fire phone, and created its own application ecosystem, Cyanogen wants to create an alternative to Google's version of Android and the Google Play store. Such forked or modified versions of Android are also popular in China. Google is trying to counter that trend with its Android One program, which seeks to bring low-cost Android phones with up-to-date software and Google services to consumers in emerging markets.

Although Google distributes Android for free as part of an open-source project, it exerts control over the look and feel of Android phones that run Google services like Search and Maps. Part of that effort can be glimpsed in the "Mobile Application Distribution Agreements" OEMs have signed with Google, which require manufacturers to make Google Search the device's default search engine. The agreements even require placement of Google apps in certain locations on the device, such as having its Play Store icon "immediately adjacent" to the home screen.

In late February a federal judge dismissed a lawsuit that had accused Google of restricting access to rival apps and services on its Android phones, including Microsoft's Bing search engine. U.S. District Judge Beth Labson Freeman in San Jose, California said the consumers who had filed the suit failed to show that higher prices resulted from Google's contracts with OEMs.

For more:
- see this Bloomberg article

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