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Why Microsoft invested in startup developer Cyanogen

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Microsoft invests in Cyanogen

On January 29, 2015, the Wall Street Journal reported that Microsoft (MSFT) invested in Cyanogen. Cyanogen is in the process of developing an operating system for smartphones and tablets that is based on the open source version of Google’s (GOOG) (GOOGL) Android. Unconfirmed rumors state that Microsoft will be a minority investor in a $70 million round of equity financing in Cyanogen.

If Microsoft’s investment in Cyanogen pays off, it will not only benefit investors, but also ETFs such as the Powershares QQQ Trust (QQQ) and the Technology Select Sector SPDR Fund (XLK), which have 8% and 9.61% exposure to Microsoft, respectively.

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Cyanogen aims to topple dominance of Android in mobile space

According to Cyanogen’s CEO, Kirt McMaster, the company has raised $100 million to date. Prior investors in Cyanogen include Benchmark Capital, Redpoint Ventures, Andreessen Horowitz, and Tencent, a Chinese social networking player.

As mentioned in the earlier part of the series, Cyanogen offers an alternate version of the Android mobile operating system that would be free of Google’s restrictions. Cyanogen has ~80 employees and over 9,000 software developer volunteers to develop the alternative free version of Android.

Microsoft aims to enhance its position in the mobile space with Cyanogen

Cyanogen claims that over 50 million people use a version of the Cyanogen Android operating system, and the majority have installed it in place of their phone’s initial operating system. To rapidly enhance the use of its operating system, Cyanogen hopes to strike deals with hardware makers to install the software on their devices. The company stated that it has recently signed a deal with Micromax, an Indian smartphone maker, to ship handsets with Cyanogen’s software.

With the investment in Cyanogen, Microsoft aims to be a part of the mobile ecosystem that offers a compelling alternative to its peers, Google and Apple (AAPL), that dominate the mobile space and are expected to do the same in the future, as the above figures from IDC show. With Cyanogen, Microsoft aims to better distribute its apps and services on smartphones.

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