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MSFT Turns up the Heat on GOOG and Android in Smartphone War

Microsoft (MSFT) makes most of its money from Windows and related software. Google (GOOG) makes most of its money from online advertising.

msft microsoft stockHowever, both GOOG and MSFT know that their future revenue is very much dependent on how these businesses integrate with smartphones and tablets, and that makes smartphones the battle ground of the future.

And some recent news over at Microsoft shows the tech stock is turning up the heat on its rival Google.

Sony (SNE) might ditch the Android OS for Windows Phone software in its mobile products going forward, according to reports. And while Sony is an also-ran for U.S. smartphone consumers, this move could help Windows eat into GOOG and Android market share abroad.

MSFT Stock Ties Hopes to Sony

Sony expects 2013 shipments to finish up 25% from last year to 42 million devices total. That’s not chump change in the war for global market share.

Naysayers will point to a little company named Apple (AAPL) that also happens to be a bit of a player in the smartphone space, and one with quite loyal customers. Furthermore, there’s the fact that SNE has essentially ceded the U.S. and Chinese markets to other hardware manufacturers.

But remember, we’re not talking about Sony beating Google here. We’re talking about Microsoft and all its partners — including Nokia (NOK) devices, which will be built under MSFT oversight now after a $7.2 billion buyout of the Finnish telecom’s hardware biz.

And don’t forget, HTC and Samsung (SSNLF) also make devices that run Windows Phone on them.

What’s Next for MSFT and GOOG Stock?

So what does this mean for MSFT stock and GOOG stock in the short term?

Probably not much. The Windows division just accounted for about 25% of total Microsoft revenue in fiscal 2013 and about 35% of operating income … and the flagship Windows OS alone accounted for about two-thirds of that success.

Similarly, GOOG stock remains heavily reliant on ad sales. About 90% of total revenue comes from ad-related businesses for the Internet giant, so a little scuffle over smartphone market share won’t hit the bottom line.

But longer-term, it’s clear that Microsoft is trying to get people comfortable in its ecosystem the same way Google is. And even a modest uptick in Windows Phone share could mean a huge revenue stream for MSFT via search with its Bing algorithm, premium software like Office and lesser add-ons like Skype.

GOOG stock has jumped 50% or so in the past year, handily outpacing the roughly 35% gains for MSFT.

But long-term investors need to watch this trend carefully. Because the war for future revenue is being fought now in the quest to own the operating system on new mobile phones.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

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