Too Much of a Good Thing: Samsung Sparks Google Anxiety

When George Washington, winner of the American War for Independence and first President of the United States, retired, he warned his fellow citizens to avoid the threats they faced, the most urgent of which he said, was ' no entangling alliances.'

Executives at Google may be starting to pay more attention to the writings of the old dude in the white wig. 

Samsung has been a perfect partner in Google's efforts to thwart Apple's further rise to dominance in mobile, arguably the most significant platform of this era and that of the immediate future. The issue, as the following article explains, is that Samsung now sells approximately 40 percent of the devices that use Google's Android software. The Android alliance has stemmed Apple's strategy and created a credible and robust alternative.

The question now is whether the Korean behemoth has become so important to Google that the latter is now more dependent on Samsung than is Samsung on Google.

As if to underscore the threat, Samsung and Visa have just announced a mobile payments partnership which directly threatens the Google Wallet initiative. Samsung, as the world's largest device maker, may be in a better position to strike new and alternative deals than is Google, potentially putting the two in the position of 'frenemies,' alliance partners who collaborate in one sector but compete in one or more others.

Google can not afford to become even more dependent on Samsung, but its alternatives are far from clear. The two companies need each other for the fight against Apple and for the present, that may have to be enough. But neither can be oblivious to the reality that future developments could pit them against each other. And as such things work, that is probably already having  a chilling effect on their relationship. JL

Amir Efrati reports in the Wall Street Journal:

Samsung Electronics Co. and Google Inc. together have stemmed Apple Inc.'s dominance in smartphones, but there is new tension in their partnership.
Google executives worry that Samsung has become so big—the South Korean company sells about 40% of the gadgets that use Google's Android software—that it could flex its muscle to renegotiate their arrangement and eat into Google's lucrative mobile-ad business, people familiar with the matter said.
Now, as top executives from the world's mobile industry gather in Barcelona, Google is meeting with other companies in hopes that their Android devices can keep Samsung's leverage in check by providing legitimate competition, the people said. The Internet-search company is hoping new Android devices from manufacturers such as HTC Corp. and Hewlett-Packard Co. can challenge Samsung, they said. Representatives for Google and Samsung declined to comment.
Inside Google, concerns about Samsung are discussed openly.
At a Google event last fall for its executives, Android head Andy Rubin praised Samsung's success and said the partnership had been mutually beneficial, a person familiar with the meeting said. Samsung's growing might—it shipped nearly 200 million more Android smartphones last year than the next-biggest Android-device maker—has boosted Google's mobile-ad revenue.

But Mr. 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, the person said. Google said Mr. Rubin wasn't available for an interview.
Mr. Rubin's comments to Google executives illustrate the company's increasingly complicated relationship with Samsung, just as Samsung gathers momentum in the mobile-device market against mutual rivals such as Apple.
Samsung last year shipped 215.8 million smartphones, virtually all of which were Android devices, representing 39.6% of the global market, according to research firm IDC. Apple shipped 136.8 million iPhones, or 25.1% of the smartphone market.
Samsung and Apple had been neck and neck in 2011, with each capturing around 19% of the surging market, IDC said.
Samsung has increased its lead in Android-based smartphones, claiming 40.2% of the market in the fourth quarter, up from 38.7% a year earlier, according to IDC. Huawei Technologies Co. was in second place, with 6.6%, the same as a year earlier.
In Android-based tablets, Samsung's share jumped to 27.9% in the fourth quarter from 15.6% a year earlier, according to IDC.

Investors watching what will become of the rivalry between Apple and Samsung should pay attention to the next few weeks. MarketWatch's Dan Gallagher joins The News Hub to explain why.

That moved Samsung past Amazon.com Inc., whose Kindle Fire tablet uses Android, to become the biggest maker of Android tablets. Amazon had 21.8% of the market in the fourth quarter, down from 34.5% a year earlier.
Samsung has particular power in its relationship with Google because Google applications that generate revenue for the Silicon Valley company, such as the Google Web-search engine and the YouTube video site, come loaded on almost all Android devices.
Amazon, however, uses a tweaked version of Android and doesn't load Google apps on its devices.
Several people familiar with the relationship between the companies said Google fears that Samsung will demand a greater share of the online-advertising revenue that Google generates from its Web-search engine.
Samsung in the past has received more than 10% of such revenue, one of the people said. Samsung has signaled to Google that it might want more, especially as Google begins to produce more revenue from apps such as Google Maps and YouTube, another person familiar with the matter said.
Outside observers are beginning to recognize the changing nature of the relationship. "There is a threat from Samsung to Google that is real," said Rajeev Chand, a managing director at boutique investment bank Rutberg & Co. "Over time, Samsung will be able to leverage its market-share dominance to negotiate better terms from Google."
That could include getting "better versions of Android software before other manufacturers," Mr. Chand said, as well as the ability to load more applications of its own choosing onto devices.
Google last fall said it is on pace to generate $8 billion annually in mobile-related revenue. That figure includes revenue from sales of its Web-search ads that appear on Apple devices, as well as music and video sales on Android devices.

Several analysts have estimated that Samsung generated about $60 billion in revenue from Android smartphone and tablet sales last year, up from around $30 billion in 2011. Overall, Samsung's revenue totaled more than $180 billion last year, up about 20% from a year earlier.
If Google's relationship with Samsung sours, Google's Android business could work with the company's Motorola unit—similar to how Apple's hardware and software units work together for iPhones and iPads—to make sure Motorola's Android devices are superior to the competition, people familiar with Google's thinking said.
Such a move could alienate other Android device makers, however.
Google has said it wouldn't show favoritism toward Motorola over other manufacturers.
Samsung is spreading its bets by making devices powered by Microsoft Corp.'s Windows mobile software, as well as with Tizen, an operating system that is being co-developed by Samsung and microprocessor maker Intel Corp.
Meanwhile, Google's Motorola has been developing what it calls the X Phone to compete with Apple's iPhone and Samsung's Galaxy S devices, people with knowledge of the initiative have said. Samsung said Monday that the Galaxy S IV will be unveiled March 14 in New York.
Motorola in December poached Samsung's vice president of strategic marketing, Brian Wallace, who had worked on the company's widely praised television ads for the Galaxy phone. Samsung, for its part, has been reaching into Motorola to hire engineering talent over the past year, people familiar with the matter said.
Google and Samsung still view each other as partners in the fight against Apple. This week, Samsung unveiled an 8-inch Galaxy tablet that would compete against Apple's iPad Mini.
Google has hopes for some new Android entrants such as H-P, a person familiar with the matter said. During the Mobile World Congress, H-P showed off its first in a series of Android tablets slated to hit the market starting this spring, priced aggressively at $169.99 for the basic model