Google (GOOG) and Samsung are juggernauts in their respective industries. Together, they are an extremely powerful and successful combination. Their combined strength helps them dominate the smart device market.
According to the website BGR, Samsung shipped over 250 million smart devices in 2012. That represents about 21% of market share, and compares favorably to Apple’s 18%. And according to the research firm IDC, Samsung has been gaining market share in smartphones, while Apple has been losing ground. Most of these Samsung devices are shipped pre-loaded with the Google Android operating system. So, it makes sense that according to Strategy Analytics, Samsung raked in 95% of global Android phone profits in the first quarter of 2013.
The numbers show that the relationship between the two tech giants is profitable. But despite the obvious success, not all is well between Google and Samsung. Many tech analysts have been watching for signs of strain between the two. Google is growing leery of its partner’s power. Google is used to being a shot-caller…but Samsung is getting so strong that they no longer need to answer to anyone.
So there is some speculation that Google may sever ties with Samsung. The Wall Street Journal has reported that Google is nervous because Samsung makes 40% of all devices that use the Android OS.
And according to Strategy Analytics, Samsung now makes more money off of Android than Google does. This gives them an advantage and the ability to dictate terms of the relationship with Google. Samsung’s dominant position gives it leverage over Google…for example Samsung could potentially demand exclusive software updates before rivals get them. Google execs are also worried that Samsung might try to demand a larger share of device ad revenue.
There is some reason for Google to be leery of Samsung. The way Samsung dealt with Apple cannot make Google executives feel better about things…
Samsung had a relationship with Apple. At first, Samsung was just a parts supplier. Like most relationships, things started off great. The business relationship progressed over time…but then the honeymoon ended and eventually Samsung cut Apple off completely. They realized they didn’t need them anymore and so they ruthlessly kicked Apple to the curb. Samsung introduced their own Galaxy smart phone not long after spurning Apple. Unsurprisingly, Apple still seems bitter after the breakup.
Google must know the potential for humiliation is there. They do not want the same shoddy treatment. So, they have taken some steps to protect their business. Google acquired Motorola Mobility. This is a step toward vertical integration…and will help the should they decide on manufacturing their own devices. Google could hurt Samsung and other device makers if it decides to manufacture its own version of smartphone or tablets. That’s because it is possible, and pretty damn likely, that Google would give preferential treatment to its own devices.
For example, it would be easy for Google to make sure that the best parts of Android are available only for Motorola/Google devices. Of course, Google denies this and says that it acquired Motorola to add to its patent portfolio.
Unfortunately for Google, Samsung is in an extremely strong position. They are the dominate player in the electronics industry. And it seems like they will stay that way for some. And the reality is that manufacturing hardware is more difficult than developing software. There are wide moats around advanced hardware technology manufacturing.
In contrast, the barrier to entry for creating software is low. Any smart-ass teenage kid with a computer and some solid programming knowledge can build a basic app. The same cannot be said for the advanced hardware components that go into modern devices like smartphones and tablets.
Samsung has another built-in advantage. Obviously, they are based in Asia. That means that they have extremely close and long-term relationships with Asian parts suppliers. Specifically, high-quality Japanese parts suppliers. Google does not have the same relationships. And it takes time to build those solid relations, especially in Asian nations. Even with the Motorola acquisition, it will be much easier for Samsung to quickly develop an operating system than it will be for Google to make large quantities of devices.
So a Google and Samsung breakup would be big news. If it happens, it could benefit companies like Apple, Microsoft or Blackberry. Samsung executives can be loudly critical of software makers. And they seem to have no problem leaving business relationships when it suits their needs. Samsung is a scary potential rival for Google. So executives in Mountain View so have some reason to tread cautiously.
But although the two firms are rivals, it seems unlikely that they will end their partnership any time soon. It’s too profitable for both firms. The two giants still need each other and they are likely to remain intertwined in a beneficial relationship revolving around apps, services, and hardware. At least for the time being.
What are your thoughts on Google and Samsung?