(Source: AndroidCentral)
New partnerships w/ OnePlus, Oppo, and Micromax have emboldened the aftermarket ROM-maker, which may have as many as 35 million users

The Information -- a paywalled Silicon Valley online newspaper -- is offering a dizzying twist the the story of CyanogenMod, Inc., maker of the world's most popular aftermarket Android replacement ROM, CyanogenMod (CM).

I. CyanogenMod Rejects Google?

The paper is reporting that Google Inc.'s (GOOG) Android chief Sundar Pichai made an "overture" which may have been the start of a bid to purchase the Android aftermarket ROM maker. And reportedly he was rebuffed.

The report states:

The Palo Alto- and Seattle-based company, called Cyanogen, is discussing a Series C round of financing with late-stage investors and some major tech firms. It is seeking a valuation close to $1 billion, despite barely generating any revenue. Several potential investors involved in those talks say the company’s chief executive disclosed to existing shareholders that Sundar Pichai, who oversees Google’s Android team, expressed interest in acquiring the firm during a recent meeting with Cyanogen’s leadership.

Thus far CyanogenMod has raised over $30M USD in venture capital.  It raised $7M USD from Benchmark Capital and Redpoint Ventures in a Series A financing round Dec. 2012.

[Image Source: CM] 

And last December it picked up another $23M USD in a Series B round of funding.  The Series B funding was led by Andreesen Horowitz, a venture capital firm cofounded by Netscape founder Marc Andreessen.  Other participants in the round included Benchmark Capital, Repoint Capital and China's Tencent Holdings Ltd. (HKG:0700).  It's unclear what that investment values Cyanogenmod at, but it was rumored to be valued at around $100-200M USD in the last round.

II. A Popular Hobby

The idea of an Android mod house being worth $1B USD sounds rather bizarre given its roots.

Android modding has been going on since the first commercial Android devices hit in 2008.  In many ways it is an embodiment of the independent spirit of the Android OS developer community who have turned to modeling to solve shared frustrations.

These frustrations include the slow pace of upgrades from OEMs/carriers, the inclusion of "bloatware" (a tactic commonly used by larger Android OEMs who include their own stand-in equivalents of core Google apps/services to try to snatch the cut Google normally gets), and carriers' decision to disable key features like the stock ability to rebroadcast youR cellular signal to create a local Wi-Fi hotspot.

CyanogenMod ("CM") was founded by Steve "Cyanogen" Kondik in 2009.  Mr. Kondik began part time work on the replacement ROMs in an effort to upgrade the firmware on his T-Mobile U.S., Inc. (TMUS) G1 ("Dream") from HTC Corp. (TPE:2498).  Reaching out to the XDA Developers community, he developed a devoted team of part time programmers.

T-Mobile G1

From 2009 to 2012 CyanogenMod was just one of dozens of similar hobbyist ROM projects.  But CyanogenMod slowly established itself as the most popular replacement ROM mod, thanks in part of its early adoption of helpful features like over the air updates and its quick turnaround in releasing ROMs for new releases on the main Android tree.

[Image Source: Android Guys]

Users' embrace of the ROM initially drew Google's ire early.  In Sept. 2009 Google penned a cease-and-desist letter to Steve Kondik and his team of modders.  In a post defending the legal threat, Google argued:

With a high-quality open platform in hand, we then returned to our goal of making our services available on users' phones. That's why we developed Android apps for many of our services like YouTube, Gmail, Google Voice, and so on.

These apps are Google's way of benefiting from Android in the same way that any other developer can, but the apps are not part of the Android platform itself. We make some of these apps available to users of any Android-powered device via Android Market, and others are pre-installed on some phones through business deals.

Either way, these apps aren't open source, and that's why they aren't included in the Android source code repository. Unauthorized distribution of this software harms us just like it would any other business, even if it's done with the best of intentions.

But facing an outcry from developers and some consumers, Google within weeks brokered a curious truce.  While it forbid CM to bundle apps in its firmware, it allowed CM installers to grab those apps from an official firmware and reinstall them.  The net result was basically the same as the original mod for users, but legally it allowed Google to toe the tightrope between placating carriers/OEMs and pacifying the developer/modder community.

CyanogenMod warranties
A legal threat from Google threatened to kill CM in Sept. 2009. [Image Source: CM]

There were still some concerns with regards to device driver licensing, but Mr. Kondik was surprised to receive help from Google engineers during his effort to rebuild the source tree of CyanogenMod.  He blogged of the pair's improved relationship:

A lot of people are helping to work many of these issues out, notably the guys from Google (Dan and JBQ) who manage the open-source project. Some great discussion and initiatives are happening like the Open Android Alliance and the Replicant projects. As much as it sucks to be sort of the “fall guy” for this, I can take it. Let’s fix the problems and move on.

By 2013, Mr. Kondik he enthused in a blog:

We resolved the situation [of the cease-and-desist] by just backing these apps up during the install and not including them, and today we view Google as an important partner.

Thus CM was allowed to grow and thrive.  After hitting a million users in 2012, CM announced in early 2013 that it had 5 million users worldwide.

III. Getting Serious

Until 2013 the project was sustained by Mr. Kondik's spare time and occasional donations from his supporters.  But in mid-2012 he received an intriguing suggestion in a message from Kirt McMaster from Boost Mobile (a subsidiary of Sprint Corp. (S)).  

Steve Kondik and Kirt McMaster
Kirt McMaster convinced Steve Kondik (L) to commercialize his popular project. [Image Source: CM]

Mr. McMaster suggested that one potential route for CM's future was commercialization.  He helped arrange meetings between Mr. Kondik and Silicon Valley venture capitalists.  At a meeting in December, the project received funding commitments and by April 2013, a new commercial version of CyanogenMod had emerged -- Cyanogen, Inc.

At the helm as CEO was Mr. McMaster who accepted Mr. Kondik's offer to become CEO of the new firm.  In a December interview with USA Today he described:

Currently, we're like Android on steroids and LSD. There's a bunch of features that you can't get on stock Android ... that you just can't do with any other OS.

Excitement was high among investors, as well.  Mitch "Bizpunk" Lasky -- a former executive from the gaming industry and member of Benchmark Capital -- explained the decision to fund, writing:

According to reports, more than half of existing Android devices run an out-of-date version of the OS. Installing CM improves performance, increases data security, and insures compatibility with the tens of thousands of available Android apps. CM also eliminates the confusing bloat-ware that handset manufacturers increasingly load onto their devices. Some CM users have referred to the operating system as “Pure Android” and I think that captures the design aesthetic that founder Steve Kondik and his team have advanced.

Some weren't so enthused.  Ryan from Out of the Park Apps blogged that the decision to go commercial was "a betrayal to the spirity of Android".  He wrote:

Like you have been a lover of all things CyanogenMod for years. My first ROM flash was CM 6 for the Motorola Droid, I can still remember just how fricken excited I was to get off the stock nightmare and into something so much more usable....I honestly admired these guys and all their hard work.

[T]heir brand was built under the premise of an open and essentially not for profit environment.  CM Inc. took advantage of Android’s spirit only to now turn on it...

CM Inc. talks proudly about attracting investments due to their ability to disrupt the market, but I can’t help but think that’s a false sense of bravado given CM is literally riding Google’s coattails here. The reality is the CM team could never have launched an OS like Android on their own and I think they need to be reminded of that. Given my love for Android, naturally anything that could potentially impact it’s dominance is going to be seen as a threat to me.

Yes, open source is just that, open, but in my opinion this doesn’t feel right in the spirit of Android and I strongly believe one shouldn’t forget where they’ve come from...

Some open source commentators claimed CM's cake was a lie. [Image Source: CM/Facebook]

Likewise OpenNMS's Tarus Balog wrote:

It is with some disappointment that I read of Cyanogenmod’s descent into fauxpensource. Not only does it appear that they are doing everything they can to ruin any credibility with their community, it also means that I need to find a new operating system for my android devices.

But generally responses in a Reddit "ask me anything" (AMA) in September were supportive.  After all, Android itself was originally an open source before it was commercialized by Google, so many of the arguments against CM seemed to be more emotional than rational.

CyanogenMod staff
CyanogenMod's staff grew rapidly last year. [Image Source: CM]

The results of CM's investment were rapid.  By September 2013 it had 17 employees across two offices -- one in Seattle, Wash., one in Palo Alto, Calif.  By December it was up to 25 employees.  And since it's grown to employ nearly 50.

In Nov. 2013 it released a one-of-a-kind easy 4-step click-through sideloaded installer for Windows, which made installing a no-brainer for even less-than-tech-savvy users.  Originally an even simpler variant had been released via Google Play, but unfortunately that installer was pulled off the Play Store due to a dispute between Cyanogen and Google. A version was made available for Mac in beta form.

IV. Where CyanogenMod's True Value Lies

So why the sudden bid from Google?  

Sundar Pichai
Sundar Pichai wanted CM's goodies, reportedly. [Image Source: Reuters]

Well, one simple answer is "userbase".  CM's userbase gives it the potential of creating a full-fledged monetizable platform.  

In an era where mobile is king, maintaining a successful platform is one attractive route to profit in the long term.  Apple, Inc. (AAPL) and Google are already cashing in courtesy of their mobile operating systems, via mobile advertising fees and a cut of app purchases and in-app purchases.

Since hitting 10 million registered users in December 2013, the userbased had grown to 12 million registered by June.  It's rumored to be approaching 15 million registered users.  CM's real world usage figures are even higher.  

CM allows users to opt out of having their devices "phone home" to its servers.  In a study a while back 3 out of 5 users selected to opt out.  If still accurate, this indicates that over 35 million people globall could be using CM.  While that's only a few percentage points of Google's roughly 1 billion Android users, it's certainly enough to get Google's attention.

CyanogenMod may boast as many as 35 million users. [Image Source: CM]

To put it another way, assuming CM gets valued at $1B USD and that it currently has around 35 million users -- 15 million registered; 20 million unregistered, that's roughly $28 USD/user.  By contrast Google is valued at roughly $390B USD and has 1 billion users, so that's $390 USD per user.  So the valuation isn't really that outrageous.

Second, there's the perception (as Mitch Lasky stated) that CM Android is "pure Android" and that has led to growing partnerships from OEMs.  China's Xiaomi Inc. used CM's technology in its own MIUI, and is thought to have a licensing relationship with the ROM-maker.  Oppo, another Android phonemaker, meanwhile, became the first to publicly license the ROM.  It announced a special edition Oppo N1 with CM preloaded last December.

Oppo N1

Since Oppo's offering, startup OnePlus has offered CM on its flagship device.  (Note: technically speaking, OnePlus is a subsidiary of Oppo.)

OnePlus One

The Information report indicated that CM had struck a deal with Indian phonemaker Micromax Mobile to produce an exclusive handset.  india is the world's fastest growing smartphone market and Micromax is the second largest OEM in India with roughly a 13 percent market share according to the Interactive Data Corp. (IDC).  
MicroMax CyanogenMod
India's Micromax has reportedly signed a contract with CM.

A deal with Micromax would be a blow to Google as it was relying on Micromax as one of three partners in India to help drive its "Android One" budget smartphone iniative -- in fact, Micromax was the showcased partner at Google I/O.

Further, the number of up to date mods has dwindled as licensing pressures have grown and as the complexity of Android OS has increased.  A year ago Gartner, Inc. (IT) analyst Brian Blau told USA Today:

There's kind of a whole underworld.  It totally makes sense, but they have a lot of competition.

But the competition has been dwindling as Google has upped the restrictions around android services with KitKat.  Today only four non-derivative competitors appear to support the latest and greatest build of Android (Android v4.4.4 "KitKat"): In some regards, Google's bid may resemble the famous Simpsons episode where Bill Gates offers to "buy out" Homer's nascent software business.  

The Simpsons - Bill Gates from chewisniewski on Vimeo.

No one knows what Google's intentions were.  But with CM appearing a threat, it might be easier to buy it now, and let it quietly wind down and die.

V. What's Next?

Tough questions await if The Information's account is correct (which it probably is, giving the paper's strong record).

First, if CM truly rebuffed Google it may have burned its bridge there, iceing an already at-times hostile relationship.  Given the public relations standpoint it might be impossible for Google to openly file a civil lawsuit against Cyanogen, Inc., but it could certainly look to add checks to its apps and services to ensure they can't run on CM devices.

CyanogenMod on device
[Image Source: DroidLife]

And that leads to the second major question -- how is CM planning to monetize?  There are obvious routes (maintaining an advertising program, starting its own app store), but all of these routes further increase the tension between Google and CM.  Also many of these options -- including developing replacement apps, replacement services, and an in-house developer program -- are dangerous as they may alienate some Android users and they will also take a greate deal of time and money.

One possibility is that CM could partner with a more established open source firm looking to get entrance into the mobile market -- such as Canonical, Ltd. (maker of Ubuntu), Jolla Oy (makers of the Meego-derived Sailfish OS), or the Mozilla Foundation (maker of Firefox OS).  Any of these would make sense as a partner because they lack users (which CM has), but bring with them a stable of functional apps which could slot in as replacements to parts of Android.  A CM-Firefox OS partnership, for example, would be a dangerous force indeed and could prove highly profitable for both companies.

Firefox OS
An ally like Mozilla might boost CyanogenMod's usage and safeguard its future.

And that gets back to a final question -- what is Mr. Kondik's true intentions and vision?  Some potential partners such as Mozilla or Canonical might find it difficult to swallow if CM's plan is to develop a for-profit platform, with proprietary components.  Indeed, CM certainly seems to be trending this way as it's switched some of its key services and pieces to the Apache license -- a more limited license also used by Google.


The future for CM is certainly bright and in the hands of its small but passionate staff.  But in order to be a billion dollar company, it must choose its direction carefully.  And it must move wisely both when it comes to making enemies and making allies, alike.

Sources: The Information, via FierceWireless

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