Making its public debut with the release of the HTC Dream/G1, Google’s Android mobile operating system has provided the search giant with a massively successful mobile ecosystem that, whilst doesn’t directly generate revenues through licensing, it provides smartphone manufacturers with a free, powerful and customisable software platform – generating millions of dollars in sales – and also helps possibly the world’s biggest advertising company dominate another advertising vertical.

It took just two two years for Android to become the world’s most popular smartphone platform, eclipsing Nokia’s Symbian operating system as Apple, HTC and Samsung began to make significant inroads into Nokia’s market share, a time when it was powering nearly 60% of all smartphones sold.

In the US, Android holds a 41.8% share of the market, followed by Apple’s iOS platform with 27%, highlighting the dominance and significant recent growth of both platforms. However, the significance of Apple’s share should not be underestimated, as the company has been be able to build its market presence with just one device – the iPhone – which is iterated once a year to a newer, more powerful model.

Google, on the other hand, relies on support from mobile vendors which have committed to the Android ecosystem to help build their smartphone portfolios. Samsung’s Galaxy S line of smartphones, numerous flagship devices from HTC and Motorola’s Droid range (in the US) have assisted Google’s attempts to popularise its Android ecosystem, a varying range of Google-powered handsets that fuse touchscreen technology with powerful applications and integrated services.

With Android’s success, Google has faced its fair share of problems. Over the past year, Google has found itself embroiled in privacy issues, sued over its use of Oracle’s Java implementation, the Android platform implicated in patent infringement lawsuits targeted at companies that use its software to power its handsets, all whilst other companies begin to fork their own versions of the platform, further fragmenting the ecosystem.

With 550,000 Android devices are activated every day, through a network of 39 manufacturers and 231 carriers, Google may well continue to build its presence in the smartphone and tablet market, but its dominance is far from certain. These are some of the issues Google faces in its struggle to remain the top smartphone platform provider.

Patent Issues

Whilst Google hasn’t been directly named in a patent infringement lawsuit by Apple, its operating system has formed the basis of many lawsuits served by its major technology rivals. Apple has accused both Samsung and HTC of utilising software (features found within Google’s Android platform) that infringe on patents associated with its iPhone and iPad devices and Microsoft pursuing legal action against Motorola, again for using the same software – both companies have sought sales and import bans on devices that are judged to be infringing on said patents.

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Apple has successfully won injunctions on sales of Samsung’s smartphones and tablets in Europe and Australia and has been able to ban the import of some HTC phones in the US.

Reacting to the problems that faced smartphone vendors when they used its mobile operating system, Google’s David Drummond, Senior Vice President and Chief Legal Officer, posted a blog post on the problems faced by these companies:

Android and other platforms are competing hard against each other, and that’s yielding cool new devices and amazing mobile apps for consumers.

But Android’s success has yielded something else: a hostile, organised campaign against Android by Microsoft, Oracle, Apple and other companies, waged through bogus patents.

Drummond continued to accuse its rivals of “banding together” to acquire Novell’s patent portfolio, a group that included Apple and Microsoft), and Nortel’s powerful set of wireless patents, which saw Apple, Microsoft and RIM form a consortium to outbid Google and purchase the portfolio for around $4.5 billion dollars.

Not only has Microsoft competed against Google for lucrative mobile patents, the Redmond-based software giant has also used its intellectual property to leverage licensing deals, forcing Android handset makers to license its patents and pay the company a fee on every Android device they sell. In May, we reported that HTC pays Microsoft $5 on each Android smartphone it sells:

It has long been known that Microsoft has regarded Linux-based operating systems (such as Android) as infringing on its intellectual property. But it’s thought that the reason why Microsoft has pursued Android handset-makers rather than Google itself, is because it’s easier to do that than take on the might of Google. And also, it’s partly because it puts a price on a big rival platform that is otherwise free to use.

Indeed, back in October, Steve Ballmer noted that “Android has a patent fee. It’s not like it’s free.” But up until now, it wasn’t clear how much that patent fee amounted to.

The report also reveals that Microsoft is actively pursuing other Android handset makers and it’s believed they’re seeking up to $12.50 in some cases.

Four smaller mobile companies have publicly announced they have begun to license Microsoft’s intellectual property also.

Microsoft’s actions obviously frustrate Google; it’s Chief Legal Officer noted that in some cases, handset makers were paying more to license Android (a free platform), thanks to Microsoft’s patent claims, than they were for the company’s own OS – Windows Phone 7.

He writes:

Patents were meant to encourage innovation, but lately they are being used as a weapon to stop it.

Compared to its rivals, Google’s mobile patent portfolio is small; Businessweek reports that Google has applied for or received a total of 307 mobile-related patents, compared with 3,134 for Research In Motion, 2,655 for Nokia, and 2,594 for Microsoft.

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Google buys Motorola Mobility

Feeling heat from its rivals and being outbid in its attempts to secure more of a foothold in the patent race, Google did something that not even the most seasoned mobile industry expert would have been able to predict – it bought mobile vendor Motorola Mobility, formally entering the smartphone business, acquiring 17,000 patents that the company had registered.

Google CEO Larry Page was quick to point out the move was not only to “supercharge” the Android ecosystem, but to better position the company from anti-competitive threats from its rivals:

We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to “protect competition and innovation in the open source software community” and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.

However, Google’s Eric Schmidt has moved to reiterate that the company’s Motorola purchase was also because of its product lineup:

“We did it for more than just patents,” Schmidt said in a conversation with Salesforce.com Inc. Chief Executive Officer Marc Benioff. “The Motorola team has some amazing products.”

As it stands, Google’s position in the market has not changed as a result of actions in the courts by its rivals. The search giant has still not been formally involved in direct legal action – although it could should new devices born from the Motorola acquisition be judged to infringe on the intellectual property of overs – with its recent public and business actions assisting in asserting its position in the market amongst its rivals.

However, wins by Apple or Microsoft in the courts could start limiting supply of Android devices, reducing consumer confidence in the platform. In such a competitive market, any potential blip could impact its growth and give its rivals an edge, something that Google will be preparing for behind the scenes, ready to deal with should the worst happen.