Wait, Google earns four times more from iOS than Android?

What?s worth more to Google ? Android or Apple?s iOS?

The answer seems straightforward: Android, obviously. After all, Google has spent years developing Android and its associated ecosystem, and Android has long-since overtaken Apple?s iOS as the top-selling smartphone platform. Android is the core of Google?s mobile strategy, and although some players like Amazon hide Android under their own custom veneers, almost every Android device ties in directly with Google services like Search, Maps, Gmail, and more. Google may earn most of its money from search advertising, but Android is clearly Google?s most important play in the mobile arena.

And yet, a proposed settlement with Oracle reveals Google may have made as little as $550 million on Android through 2011 ? a figure that?s chump change in the scope of Google?s overall business. If Android is so important, why isn?t Google making much money from it?

Settle down

The startling figures on Android revenue come from Google itself, by way of a proposed settlement to its high-stakes litigation with Oracle over Java technologies. Both companies have been taking very hard-nosed approaches to the case ? frankly, Oracle knows no other way to litigate ? but the judge ordered Google draw up a settlement proposal in an effort to avoid a big messy trial, so Google (reluctantly) complied. Oracle, of course, immediately rejected the proposal as too low, ratcheting up pressure on Google to make its case before a jury. That trial now has a fixed start date ? April 16.

But Google?s proposed settlement is illuminating. In it, Google offered to pay Oracle $2.8 million in damages for infringement on two patents remaining in the case. The $2.8 million payment would cover the period from 2008 to 2011, from Android?s public launch through the end of last year. Going forward, Google offered to pay a combined royalty of 0.515 percent for every Android device sold until the patents expire: one goes dark in December 2012, but the other hangs on through April 2018.

In January of this year, Google said that it had activated some 250 million Android devices worldwide. If that figure is accurate and that that 0.515 royalty rate can be projected back on Google?s Android-derived revenue through 2008, then Google is essentially saying Android generated $543 million in revenue from Android from 2008 to 2011. The Guardian was the first to do the math.

There are a couple of important notes to go along with Google?s settlement details. First, the documents do not detail how Google has calculated Android revenue, only that they comply with figures calculated by Dr. James Kearl, a court-appointed expert. Second, in offering the proposal, Google is not saying it agrees with those figures, nor is it admitting it infringed on Oracle patents or copyrights ? for Oracle to get this deal, it still has to succeed in its infringement case. Basically, Google crafted the proposal primarily because the court ordered it to do so, not because it was interested in pursuing this particular settlement.

The Guardian took the math a bit further, estimating that the proposal?s figures imply Google makes slightly more than $10 per Android handset per year. This isn?t a simple case of dividing the $543 million by 250 million device activations: An estimated 90 million Android devices were activated in the last two years, and thanks to Android?s strong adoption many tens of millions of them have not been around long enough to have generated that revenue yet. However, projecting that rate forward based on recent data on Android activations, that means Google could see as much as $1 billion in revenue from Android this year. That sounds like a lot, but it likely would represent only about two percent (or less) of Google?s overall revenue for the year.

Google revenue from Android versus iOS

Here?s the oddity of the figures that apparently underlie Google?s assessment of Android revenue: In October 2011, Google CEO Larry Page claimed Google?s overall mobile business was then operating at a run rate of $2.5 billion per year.

Why the discrepancy? Google?s mobile business is substantially bigger than Android, and the elephant in the room is Apple?s iOS. Apple?s iPhone, iPad, and iPod touch devices all build in a number of Google services, including Google Search, Google Maps, and YouTube. Overall, Apple has sold more than 315 million iOS devices worldwide since the launch of the iPhone in 2007. While the majority of those iOS devices were purchased in the last 12 months, the long-term success of Apple?s iOS apparently accounts for the bulk of Google?s mobile revenue. And not just the majority: If Google?s figures are to be believed, iOS devices were worth more than four times as much to Google than Android devices since the launch of Android in 2008. To be sure, folks use Google Search from Windows Phone, Symbian devices, and perhaps even a BlackBerry or two. But iOS is undoubtedly the dominant source of Google?s mobile ad revenue.

Are these numbers to be believed?

It?s tempting to take Google?s settlement proposal figures at face value ? after all, they?ve been submitted to a court! But the proposal has to be considered in the larger context of Google and Oracle?s legal battle.

The case was launched in 2010, with Oracle claiming technologies at the heart of Android infringe on Java copyrights and patents, which Oracle acquired when it bought Sun Microsystems in 2010. Oracle opened the case with a broad legal salvo and eventually argued it was owed up to $2.6 bilion in damages, but in order to hasten proceedings, District Judge William Alsup has been requiring both companies to come up with ways to streamline the case. As a result, the case is now primarily about copyright, although two of Oracles patent claims remain in play.

Google?s proposed settlement applied only to the patent portion of the case: The copyright issues are not impacted. However, Google may have had an interest in presenting Android revenue figures that were as low as possible. Oracle wasn?t likely to accept a damages settlement from Google anyway ? Oracle wants an outright injunction on Android ? but by tendering an offer and having Oracle reject it, Google gets to paint Oracle as belligerent and unreasonable. That tactic may not not sway a judge, but a jury could be a different matter.

Oracle really wants to get this case in front of a jury. Juries are historically more favorable towards patent and copyright holders in infringement cases. To make its case, Google will likely have to roll out hundreds of pages of computer code and try to explain why they aren?t protected by copyright ? even though some have Sun?s name all over them. The trial is expected to take about two months.

Oracle?s copyright claim against Google and Android could be devastating. Google essentially has to argue that material related to an API specifications ? the actual calls programmers make to an operating system so their apps can function ? are not copyrightable. Back in December, Google tried to get Oracle?s copyright claims thrown out and Judge Alsup dealt Google a harsh blow. Alsup ruled names in the API materials are not copyrightable ? as a general rule, names aren?t copyrightable in any medium ? but denied Google?s assertions that specifications can?t be copyrighted and that, even if they could, Google?s use amounted to fair use. Alsup?s decisions aren?t final, but they means Oracle will be able to bring the questions before a jury.

If Oracle can win its copyright case, it can almost certainly get an injunction against Android. At that point, Google will have almost no choice but to negotiate a license to Oracle?s material ? Oracle will not be restricted to any previous court-approved estimates of damages or Android revenue. Oracle could demand the Moon.

Google has everything to lose when the case goes to trial, so anything it can do to paint Oracle in a bad light ? like having it reject a damages settlement proposal ? might help.

OK, but what if the numbers are legit?

If the figures from Google?s proposed damages settlement accurately reflect the revenue Google is deriving from Android, Google needs to work the Android ecosystem towards a revenue inflection point soon. Google?s bet with Android is based on quantity. Android devices may not earn Google very much money over the course of their useful lives, but if there are enough devices out in the world, the cumulative revenue they generate for Google ought to be substantial. If the damages figures are correct, that isn?t yet working out for Google.

Where does Google make money on Android? Google does take a 30 percent cut of every Android app sold, but the market for paid apps under Android just isn?t as robust as iOS ? and even Apple isn?t making major bank on content or app sales. Instead, Google?s revenue from Android derives primarily from advertising it serves to mobile users. That advertising primarily comes in Google?s own apps for Android: Google Search, Google Maps (filled with location-specific promotions), and YouTube. These are also the same services that generate mobile advertising revenue for Google on iOS.

However, Apple seems to be divorcing itself from Google services. The first move came with Siri on the iPhone 4S, which preferentially uses services like Yelp and Wolfram Alpha, falling back to a potentially-Google-powered Web search only when those options don?t seem like they?re going to work out. Apple?s new iPhoto for iPad drops Google Maps for Apple?s own mapping service based on OpenStreetMap; 9to5Mac reports Apple?s agreement to use Google Maps in iOS is due to expire this year. These moves are both comparatively small, but they represent threats to the revenue Google?s mobile business is deriving from Apple?s iOS. Given how much more revenue Apple?s iOS seems to generate for Google, changes don?t have to be very big for Google to feel them.

How Google is coping

Google is already working to derive more revenue from Android.

The most obvious is Google Play, Google?s new all-in-one store that not only serves up Android apps, but also music, movies, and books. By presenting a unified storefront, Google is hoping to encourage more Android device owners to spend more money ? and spend it with Google, rather than competitors like Amazon, Netflix, or Barnes & Noble. Of course, Google faces a bit of an uphill battle: Most consumers are used to Google services being available for free, but when they?re ready to spend money, they?re used to turning to other companies. In some cases, Google Play also still lacks the international infrastructure and broad content offerings of competitors, but it?s early days ? Google certainly has the expertise to catch up.

Also expect Google to amp up its advertising business. However, this does not necessarily mean presenting more advertisements to users via its mobile apps ? Google no doubt realizes if it over-saturates its offerings with advertisements, it devalues its own platform. Instead, expect Google to work hard to refine the demographic data and profile information it gathers about each and every users of Android and Google services. Advertisers are willing to pay a premium for highly targeted placements ? after all, it might not do any good to promote your new boutique to 10 million random Android users, but it could be very worthwhile to hit 200 who happen to live in (or regularly wander through) your neighborhood. Being able to refine demographic and user profile information is at the heart of Google?s new unified privacy policy.

Google Android business is still about quantity: It wants as many devices as possible out in the market, all generating revenue. But moves like Google Play and refined ad targeting are also about notching up the amount of revenue Google generates from each Android device. Sure, they may not make any difference at all for some Android device users. Folks with Nook Tablets and Kindle Fires may not see any change at all. But if Google can wrangle one more purchase a year from Android users, or ratchet up the fee it charges to send advertising to that user, Android?s per-device revenue to Google could surge.

This article was originally posted on Digital Trends

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