Google Inc.’s Android is extending its lead over Apple Inc. in the mobile-software market at a rate that compares with Microsoft Corp.’s expansion in desktop software in the 1990s, Google Chairman Eric Schmidt says.

Booming demand for Android-based smartphones is helping Google(Nasdaq: GOOG)  add share at the expense of other software providers, Schmidt said Tuesday in an interview at Bloomberg’s headquarters in New York. Android snared 72 percent of the market in the third quarter, while Apple (Nasdaq: AAPL) had 14 percent, according to Gartner Inc. Customers are activating more than 1.3 million Android devices a day, Schmidt said.

“This is a huge platform change; this is of the scale of 20 years ago – Microsoft versus Apple,” he said. “We’re winning that war pretty clearly now.”

Schmidt’s remarks reflect Google’s growing confidence in its ability to attract users and advertisers as more customers rely on handheld devices and shun traditional computers. By giving away Android, Google cedes revenue to hardware partners, such as Samsung Electronics Co. Schmidt is willing to make that sacrifice because it drives demand for ads and other Internet- based services that benefit Google over time.

“The core strategy is to make a bigger pie,” he said. “We will end up with a not perfectly controlled and not perfectly managed bigger pie by virtue of open systems.”
During the hour-long interview, Schmidt also touched on topics as varied as taxes, the economy and Google’s growing roster of competitors.

‘Tragic’ Outcome

Schmidt, who was succeeded by Larry Page as Google’s chief executive officer in April 2011, said that economic growth is improving in the U.S. and China.

Still, the recovery would be threatened if U.S. lawmakers can’t resolve a fiscal policy dispute and forge a budget deal aimed at coping with a combination of tax increases and spending cuts scheduled to take effect in January.

“It will be tragic for the country if the sum of the government can’t resolve this,” he said. “You can think of what’s going on as one set of special interests versus another, and a big fight and they all have to feel like they’ve been heard.”

While China’s recovery shows signs of pickup, the prospects for Europe are less promising, he said.

Europe will undergo “difficult growth” for a “long time” as countries in the South grapple with debt, offsetting the effects of higher productivity in Northern Europe.

Google’s challenges in Europe extend beyond the economy. It’s facing scrutiny from antitrust authorities and regulators concerned about its tax policies.

Tax Shelter

The company avoided about $2 billion in worldwide income taxes in 2011 by shifting $9.8 billion in revenue into a Bermuda shell company, almost double the total from three years before, filings show.

Governments in France, the U.K., Italy and Australia are probing Google’s tax avoidance as they seek to boost revenue. Schmidt said the company’s efforts around taxes are legal.

“We pay lots of taxes; we pay them in the legally prescribed ways,” he said. “I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate.”

The company isn’t about to turn down big savings in taxes, he said.

“It’s called capitalism,” he said. “We are proudly capitalistic. I’m not confused about this.”

Twitter, Netflix

That competitive approach can be seen across the company. Schmidt touted other services, including Gmail, the Chrome Web browser and social-networking service Google+. The social service, started under Page, has drawn more than 100 million active users, Google has said.

It’s a “viable competitor to Facebook,” Schmidt said.

Facebook is one of four technology companies, alongside Inc., Google and Apple, that have created widely used platforms for communication and delivering content and information, Schmidt said. Companies that could eventually join those ranks are microblogging provider Twitter Inc. and movie- rental service Netflix Inc., he said.

Schmidt also reiterated his concern that the U.S. is headed for a shortage of the airwaves needed to cope with surging demand for wireless services.

“All the modeling says the existing strategy will run out of cellular bandwidth in 2016 or 2017,” said Schmidt.

As a member of a White House advisory group, Schmidt backs a proposal that encourages federal agencies and commercial users to share airwaves. Using smarter antenna technology, wireless customers could access airwaves previously unavailable.

Spectrum Sharing

“Today you get dedicated bandwidth on your phone, and your phone doesn’t say, ’Ah ha! I can go over here or over up here,’” Schmidt said. “Smart radios can do that.”
AT&T Inc., the second-largest U.S. wireless carrier, has opposed this approach.

“Full ownership of the spectrum has proven over time to be the best model,” AT&T Chief Executive Officer Randall Stephenson said at a conference in June.
Schmidt said the process wouldn’t be easy.

“Every space is occupied with a whole bunch of rules and property rights,” he said.