Why Google isn’t worried about Android revenue

Not all investments are made with the expectation that a big payoff is around the corner. Google’s (s goog) decision to bankroll the development of Android was just such an investment, which makes the past week’s back and forth over just how much money Google has garnered from that investment quite silly.

For some reason, the Guardian (a partial investor in GigaOM, mind you) ran a story last Thursday purporting to have discovered how much revenue Google has earned from Android since its launch in 2008: $550 million. It derived that number from documents filed as part of Google’s legal battle with Oracle(s orcl) over Oracle’s claim that Android infringes patents related to Java, taking Google’s proposed royalty payments to Oracle should it lose the case as a baseline. Google declined to comment on the numbers and Danny Sullivan at Marketing Land quickly challenged the reasoning behind the Guardian’s figures, but he admitted there’s no way to know for sure when Google refuses to provide its own numbers.

The supposedly damning point is that Google’s revenue from Android pales in comparison to its mobile revenue in general, which is on a $2.5 billion annual pace driven mostly by mobile searches on iOS (s aapl) devices and in-app advertising through Google’s AdMob subsidiary. This, however, should come as no surprise to anyone who has followed the mobile market: over the last several years, iOS users have browsed the Web, downloaded apps, and otherwise engaged with their handsets at a far greater rate than Android users until recently.

The mistake is assuming that Google views this as a big problem, as if Android has been a waste of money because Google makes more money from its competitor. Would Google like to make more revenue from Android? Sure. Money is nice. But Android was a defensive move on Google’s part, and one that wasn’t primarily motivated by desire for revenue or profit.

Back Where It All Begins

Let’s recall 2007, which one day we’ll probably consider a pivotal year in the history of the tech industry. In January, Apple unveiled the iPhone, making it clear (to everyone but Research in Motion, anyway) that the company had come up with a mobile computing concept far beyond anything else on the radar.  In November, Google and its partners unveiled Android and the Open Handset Alliance, pledging to give other handset makers and carriers a modern mobile operating system to compete with the iPhone.

Five years later, Android is the only thing that has prevented Apple from completely taking over the mobile market.  All Google ever hoped to do was provide a shell-shocked smartphone industry with the tools to build a credible alternative to the iPhone that didn’t come with Apple’s tight-fisted control. The potential upside was that those partners would expand the overall pool of people with access to the mobile Web, therefore ensuring that Google could compete for mobile searches without having to kowtow to Apple.

As Apple CEO Tim Cook reminds everyone as often as he can, we’re still in the infancy of this mobile computing revolution. There are billions of people around the world who have yet to fire up their first smartphone, and over the rest of this decade we can be sure that those people will have at least two choices: iOS and Android.

Without Android, where we would be? It’s quite arguable that Android hurt the rest of the mobile industry more than it hurts Apple (again, see RIM(s rimm)) but its success has ensured that the world will have access to a modern mobile operating system governed by different principles than Apple’s. Sure, Android isn’t quite as “open” as Google might have once vowed, but for the most part, Android is a freewheeling development platform–for better or worse.

There’s no doubt that Android can frustrate those who want the best experience they can get in mobile computing. While it has gotten a lot better, it still seems like it was designed by robots rather than humans, and its wholesale embrace of wireless carriers — the favored punching bag of the modern mobile consumer — puts it in an awkward position among those who might ordinarily be sympathetic to its goals.

But Android represents mobile competition. No other mobile company has been able to provide credible competition to Apple: RIM is on the rocks, HP(s hpq) has given up on WebOS, and Microsoft(s msft) and Nokia remain an afterthought among consumers despite having built decent products. Google Chairman Eric Schmidt, having spent most of his pre-Google career prior chafing under the thumb of a computer industry dominated by a single company, realized long ago that Google was in a position to make sure that didn’t happen again.

No Owners, Only Spenders

Even if Google did generate more mobile revenue from Android than it did the iPhone, Google’s mobile revenue ($2.5 billion) is a very small part of its overall financial picture ($38 billion in total revenue during 2011). And while it seems like very old news, Android has really only been a mobile phenomenon since late 2010 and into 2011. Google can afford to take the long view on Android revenue given its overall financial picture and (as mentioned above) the fact that mobile growth has a long way to go.

This isn’t like Microsoft pouring money down the Bing drain in a fruitless attempt to dent Google’s search dominance: Android is actually the world’s leading mobile operating system, and the market itself is growing strongly. And even if Google derives most of its mobile revenue from iOS, it would be hard for Apple to drop Google: Google’s share of mobile searches is even greater than its share of desktop Web searches and when Apple started making noise about barring AdMob from the iPhone, the federal government raised an eyebrow. Meanwhile, Android Web usage is growing.

Google has a lot of things to worry about in 2012, but when it looks at its finances, its Android strategy isn’t one of them.