Google vs. Microsoft: Who's Winning?

Google and Microsoft are at each other's throats over everything from patents to Android and Windows Phone market

Google and Microsoft are at each other’s throats over Android.
The simmering rivalry between the two tech giants exploded this week, with executives trading barbs on Twitter and blog posts over patents related to mobile technology.

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This newest burst of aggression has its roots in a high-stakes auction that took place earlier this year. Microsoft and a handful of other companies submitted a $4.5 billion winning bid for some 6,000 patents and patent applications formerly owned by Nortel. Google wanted the same property, but its own bid of $900 million couldn’t quite seal the deal.

Now Google seems concerned that Microsoft and its consortium partners (which include Apple, not exactly the search-engine giant’s bosom buddy) will use those patents to sue Android manufacturers into the ground. Indeed, Microsoft is rapidly making an industry out of what it claims are Android’s violations of its intellectual property: in addition to squeezing royalties from any number of Android-device manufacturers, the company has filed patent-infringement suits against Motorola (maker of Android-based smartphones and tablets) and Barnes & Noble (which produces the Nook, an Android-based e-reader).

“Microsoft and Apple have always been at each other’s throats, so when they get into bed together, you have to start wondering what’s going on,” David Drummond, Google’s senior vice president and chief legal officer, wrote in an Aug. 3 posting on The Official Google Blog. “Fortunately, the law frowns on the accumulation of dubious patents for anticompetitive means—which means these deals are likely to draw regulatory scrutiny, and this patent bubble will pop.”

He went on to claim that the Justice Department is “looking into whether Microsoft and Apple acquired the Nortel patents for anticompetitive means.”

Microsoft executives felt compelled to fire back.

“Google says we bought Novell patents to keep them from Google,” Brad Smith, Microsoft’s general counsel, wrote in an Aug. 3 Tweet. “Really? We asked them to bid jointly with us. They said no.”

The same day, Frank Shaw, Microsoft’s corporate vice president of corporate communications, also Tweeted: “Free advice for David Drummond—next time check with Kent Walker before you blog.”

He included a link to an Oct. 28 email sent to Brad Smith by Kent Walker, Google’s general counsel, suggesting that “a joint bid wouldn’t be advisable for us on this one.”

Rather than let Microsoft blow a hole beneath the waterline of his tight little narrative, Drummond updated his original post Aug. 4: “If you think about it, it’s obvious why we turned down Microsoft’s offer,” he wrote. A joint acquisition of the patents “that gave all parties a license would have eliminated any protection these patents could offer to Android against attacks from Microsoft and its bidding partners.”

A number of analyst estimates have Android leading the mobile market. According to recent data from Nielsen, for example, Android held 39 percent of the U.S. smartphone market, followed by Apple’s iPhone with 28 percent, RIM with 20 percent, and Microsoft with 9 percent. Similarly, research firm comScore placed Android’s share of the U.S. market at 40.1 percent, followed by Apple with 26.6 percent, RIM with 23.4 percent and Microsoft with 5.8 percent.

Combined with Microsoft CEO Steve Ballmer’s recent admission that Windows Phone’s market share is “very small,” it seems Android is handily winning the mobility wars despite Microsoft’s patent maneuvers. That being said, Microsoft seems to have found a viable source of revenue in its latest string of Android lawsuits and “royalty agreements,” something the company is likely to vigorously push in quarters ahead; Jack Gold, founder and principal analyst of J. Gold Associates, recently theorized that Microsoft’s cash stream from Android royalties could even top that of Windows Phone.

Meanwhile, Google’s core business—search—continues to outpace Microsoft’s Bing, although the latter has enjoyed incremental market share gains over the past several quarters. Microsoft has demonstrated a willingness to burn hundreds of millions of dollars to keep itself in the search game, something that makes its investors nervous—but doesn’t seem to have any appreciable effect on Google’s ability to earn lots of cash from advertising.

So Android continues to handily dominate Microsoft in the actual mobility and search markets, but Microsoft has a variety of good legal cards to play in order to make life more difficult, both for Google and its manufacturing partners. In other words, look forward to some messy battles (and more irate blog and Twitter posts) to come.