Reports: Microsoft to invest in startup Cyanogen, which wants to disrupt Google's control of Android

Microsoft (NASDAQ: MSFT) is considering an investment in mobile startup Cyanogen, according to multiple reports. Cyanogen is seeking to chip away at Google's (NASDAQ: GOOG) control over the Android mobile platform by offering a modified version of the software.

According to reports from the Wall Street Journal and Bloomberg, which each cited unnamed sources, Microsoft is in talks to become either a backer or partner of Cynaogen. The reports differ on the details of how Microsoft and Cyanogen might work together though. Microsoft and Cyanogen declined to comment, according to the reports.

The WSJ 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.

Meanwhile, Bloomberg reported that Microsoft wants to work 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 One Drive, but Microsoft scrapped those phones in 2014 after its purchase of Nokia's phone business closed.

Bloomberg said Microsoft may invest in Cyanogen and strike a commercial partnership, and that the companies are discussing deal terms but Microsoft hasn't committed to an investment. Cyanogen is raising a round of financing that could value it at around $500 million, Bloomberg reported.

Microsoft supports its own Windows Phone platform for phones, but only has around 3 percent market share globally.

Cyanogen offers features and options not found in the official firmware distributed by Android device vendors. Cyanogen takes the Android source code and modifies it to let users customize the user interface. 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.

Google is facing an antitrust suit that claims the company forces its Android hardware partners to use Google Search, Maps and other services as default applications. Such restrictions in Android mean that for companies like Microsoft, users get less exposure to its Bing search engine and other mobile services.

Cyanogen's modified version of Android lets companies get around those restrictions. The firm also claims to have a volunteer army of 9,000 software developers working on its own version of Android, according to the WSJ.

"We're going to take Android away from Google," Cyanogen CEO Kirt McMaster told the Journal in a brief interview last week. The next day, at an industry event sponsored by tech website The Information, McMaster said Cyanogen had raised $100 million to date; previously the company had disclosed that it raised $30 million of funding. McMaster also said more than 50 million people use a version of the Cyanogen version of Android, most of whom have installed it in place of their phone's initial operating system.

Cyanogen is also working on deals with hardware makers to install the software on their devices, and it recently inked a deal with Indian smartphone maker Micromax to ship phones with Cyanogen's software. Cyanogen has also worked with OnePlus to ship its software in the company's One smartphone.

For more:
- see this WSJ article (sub. req.)
- see this Bloomberg article 
- see this Ars Technica article
- see this Business Insider article

Related Articles:
Google seeks to toss out antitrust lawsuit over default Android apps
New Google antitrust suit over Android could provide ammo to Microsoft, Oracle
Google pushes to dismiss U.S. antitrust suit targeting its Android practices
Analysts: 30% of Android phones in 2015 won't access Google services
Google documents reveal stipulations on Android phone makers accessing Google services