TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

Google said that they are generating $2.5 billion of revenue from mobile devices, and some mistook that to mean Android is responsible for $2.5 billion of revenue. It isn’t—that includes search ad revenue, AdSense and AdMob, all of which also generate revenue from iOS devices, and purchases from Android’s app market revenue.

The Macalope points out just how small that means revenue generated from Android is:

“Mobile” does not equal “Android.” Some Android fan sites also got this wrong, but “mobile” means ad revenue from all mobile operating systems. Further, because we know that about two thirds of Google’s mobile ad revenue comes from the iPhone we can figure that Android is generating at most $833 million in ad revenue a year for Mountain View. That is, of course, chump change compared to what Apple makes on the iPhone. Still, Android’s winning. Somehow.

“…two-thirds of Google’s mobile ad revenue comes from the iPhone” is somewhat misleading, because Google actually said that two-thirds of mobile searches comes from iOS, but it should be accurate enough. As the Macalope points out, this means of Google’s $2.5 billion of mobile revenue, only $833 million of it derives from Android devices.

That’s just three percent of Google’s $29.3 billion of revenue in 2010, and the 2011 figure will be much higher—so the actual percentage of total revenue will be closer to two percent.

Without data on how much Google spends on developing Android, there’s no way to judge how profitable it is for Google, but however much it is, it contributes almost nothing to their profitability as a whole.

The typical argument made for why Google develops Android is it expands the mobile market, so there are many more people using Google search and other services from their devices, and thus generating ad revenue for Google—which is their entire business. Yet the above shows that even with 190 million Android device activations, Google is hardly benefiting from Android.

iOS has completely overwhelmed Apple’s prior businesses, while Android contributes next to nothing to Google’s revenue.

You decide who’s winning.