Thursday, February 28, 2013

Google fears a monster its created itself: Samsung

Has Google created a monster? The Internet giant apparently feels that -- as hard as it might be to believe -- that Samsung's dominance in mobile has become such that despite the fact that Android was a major driver behind that growth, it's a bad thing. Reports of Google's anxiety first appeared in Monday's Wall Street Journal.

While Android is the number one smartphone platform in the world, and was tops in U.S. sales in the very recent Kantar Worldpanel Comtech 12-week sliding sales survey, much of that comes via Samsung, with other OEMs trailing badly. In fact, 40 percent of Android smartphones are currently manufactured by Samsung. Samsung also is tops among Android phone sales in virtually every important metric, including profitability as well as units shipped.

This is despite the fact that several other manufacturers make Android phones including Motorola -- which Google acquired to bolster its patent cache -- LG, HTC, ZTE, Pantech, and more, and that Android's rise was fueled by multiple form factors and designs.

Google’s worry, according to the WSJ, is that Samsung “has become so big… that it could flex its muscle to renegotiate their arrangement and eat into Google’s lucrative mobile ad business.”

In a way, Samsung's dominance offsets earlier fears that Google's acquisition of Motorola could lead to perks for that division. Instead, it seems it is possible that Samsung's market share is so high that Google might be forced to give it earlier access to new versions of Android, even if the manufacturer is not chosen to ship a new Nexus device, which is usually the way that a manufacturer gets an early look at a new version.

For example, the Nexus S and Galaxy Nexus were both Samsung devices, and as such were introduced along with new versions of Android. However, as Nexus devices, they shipped sans Samsung's TouchWiz UI layer, something that Samsung would love to install on an early, new version of Google's platform. Meanwhile, the Motorola Xoom (pre-acquisition) and LG Nexus 4 were alao shipped with new Android versions, with the Nexus 4 being the last Nexus smartphone to ship.

According to the WSJ's source, Motorola's acquisition was for more than just patents, although that was the public statement Google made. The source said that when speaking event last fall for Google executives, Android head Andy Rubin said Samsung could become a threat if it gains more market share. Rubin added that Google's acquisition of Motorola was seen as a kind of insurance policy against any single manufacturer -- such as Samsung -- gaining too much power over Android.

Outside the company, others are beginning to realize Samsung has burgeoning power over Google. Rajeev Chand, a managing director at boutique investment bank Rutberg & Co. said:
There is a threat from Samsung to Google that is real. Over time, Samsung will be able to leverage its market-share dominance to negotiate better terms from Google.
This is possibly the impetus behind the rumored and expected Motorola X superphone that Google is expected to unveil at May's Google I/O.

It's unclear what impact that phone will have. Samsung said on Monday that the its latest flagship phone, the Galaxy S IV, will be unveiled March 14 in New York.

If one has to measure the impact of a single phone against another, the Galaxy S series of phones is Samsung's version of the iPhone -- it has sold in similar, market-owning, numbers. Motorola has trailed badly among Android makers, and many are looking to March 14 as a first look at their next mobile device.

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