Why Google is afraid of Samsung

By Andrew Birmingham on Mar 4, 2013 7:23 AM
Filed under Mobility

When your partner gets big enough for you to fail.

Google executives have recently raised alarm bells about the looming threats posed to the company by its most important partner, Samsung, according to a report in the Wall Street Journal.
The WSJ late last week  reported comments by Google’s Android head Andy Rubin at  a company senior executive conference last year.

According to the report Rubin acknowledged  Samsung's importance and positive contribution to Google’s success.  But then the  WSJ noted, "Rubin also said Samsung could become a threat if it gains more ground among mobile-device makers that use Android, the person said. Mr. Rubin said Google's recent acquisition of Motorola Mobility, which makes Android-based smartphones and tablets, served as a kind of insurance policy against a manufacturer such as Samsung gaining too much power over Android."

And Google has plenty of reasons to worry, but three in particular stand out.

Firstly Samsung's market strength now is such that it might choose to develop and promote an app eco-system all of its own. It could do this simply by forking its own blend of Android and favouring its own apps over Google’s. 

This strategy has been deployed before - It’s precisely what Amazon did with Kindle.

Chuong Nguyen, writing for industry newsletter Gottabemobile noted ” Samsung is also looking to compete against Google by offering Hubs for music, media, games, e-books, and other digital content that would directly compete against Google’s Play Store. While not all of these Hubs come preloaded on devices from all carriers, Samsung does have the resources to build its own digital store front like Amazon did with the Kindle Fire tablets.”

As Nguyen then points out, Amazon is free to sell Kindle Fire’s for as little as $200, confident in the knowledge it can profit from digital sales.

The second issue for Google to contend with is Samsung’s threat to the Android eco-system generally. Instead of plenty of small nimble predators hunting down the likes of Apple, Nokia and Blackberry in the market, one giant predator has grown large and ravenous partly by cannibalising the other Android operators. Samsung now controls over 40 per cent of the Android smart phone market, according to IDC with second place Huawei Technologies languishing in single digits with less than seven per cent.

Having adopted a partnership strategy rather than building its own hardware (pre Motorola Mobile- more on that shortly) Google needs a vibrant channel to propagate Android.

The third threat to Google is the possibility of incurring higher costs around digital royalties. Google generally shares digital revenues of about 10 per cent with its Android partners. Samsung, with its dominant position, may simply hold out for more.

Complicating matters further for Google, its most likely response to any thermonuclear option from Samsung - to deploy Motorola Mobile as a platform firewall - risks exacerbating the very channel conflict problems it is trying to negate.

Analysing the potential conflicts last week Readwriteweb noted, "  If Google really wants to see other Android makers perform well, it needs to start offering auxiliary support in the advertising, marketing and developer sectors to raise the profile of non-Samsung alternatives. That creates a quandary. If Google actively helps other Android manufacturers, it risks alienating Samsung and instigating all the potential pitfalls ."

It remains an open question how all of this will play out. As the RWW asks in its conclusion " ...can Google really do anything to control Android? It could not stop Amazon from forking the operating system and cutting Google out of the equation. Can it really do anything to hedge against Samsung dominance?"

 
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