Samsung Is No Threat to Google

NEW YORK ( TheStreet) -- One of the most recent "fashion topics" in the mobile computing competitive race is that Google ( GOOG) is somehow afraid of how large Samsung has become.

This nonsense would eventually die off on its own, but let me punctuate it right here before we have to hear about this highly exaggerated nonissue yet another time.

Here is the background: Android has 70% smartphone market share, and Samsung is the largest percentage of this 70%. Exactly what percentage it is differs from survey to survey, but suffice it to say that it is by far the single largest maker of Androids. Samsung also makes smartphones based on other operating systems such as Windows Phone and Bada, but those sales volumes are relatively minor compared with Android.

This is not materially different than the relationship Microsoft ( MSFT) has -- and has had for 20-plus years -- with the Windows PC makers. Once upon a time, say HP ( hpq) was or still is the largest maker of Windows PCs. Does this mean that HP is somehow a threat to Microsoft? Of course not. Never was, isn't today, won't be tomorrow.

There are some differences between the Windows PC world and this new Google-Samsung relationship:

1. Samsung already modifies the Android software. This is unlike the Windows world, where there was no such modification. However, everyone who has actually compared a pure Android Nexus device with a Samsung modification -- which it calls "TouchWiz" -- will agree that the Nexus is better.

In other words, the Samsung modification is "adding" negative value. It's worse. The sad fact here is that most average consumers are totally uneducated about this and have not compared the products. They buy what they're fed at the carrier stores, and that's not Nexus.

2. Samsung could modify Android even further. A company such as ( AMZN) already does this, having "forked" plain Android beyond recognition. At least Samsung's current "modification" is not so far away from pure Nexus that it is unrecognizable as Android.

But would this really be in Samsung's interest? Is the loyalty ultimately to Android or to Samsung? I argue it's to Android.

3. Samsung could pursue other operating systems further. This includes Tizen, which is already under development, and/or acquiring BlackBerry ( BBRY), which seems entirely possible. It's not clear that this would hurt Google anymore than any other scenario for those operating systems, however.

4. Samsung is investing more in various applications over and beyond plain Nexus Android. Recent examples include the S-pen (stylus) for the "Note" tablets/phablets and the new "Wallet" app, which is basically a copy of the Apple ( AAPL) Wallet app. So far, it's not clear that anybody cares about these solutions, at least until Google takes them and makes them part of "standard" Android.

How did Samsung end up in this pole position in the Android world?

1. Samsung is different than most other Android licensees because it has vertical integration for many components, from CPUs to displays/screens. It's not clear that this is a big deal, although it could be.

2. Other companies stumbled. From Sony ( SNE) to Motorola to HTC, Samsung's competitors executed poorly in the last few years. Motorola ended up getting acquired by Google, and is now run seemingly fairly independently from Google, with a verdict yet to be rendered except that Motorola seems to continue to be taking forever to bring new products to market.

Hey, it's not entirely clear why Samsung became so large compared to the other Android hardware makers. It seems to be a combination of a lot of little things, including luck and weak competitors. Samsung also clearly executed really well on most things all-around.

Easy come, easy go.

These conditions that led to Samsung taking the lead in Android market share appear to be fleeting, in principle. For Samsung to gain from here, or perhaps even maintain market share, it would need to continue to see competitors falter and for its own execution to be superior. Perhaps this could happen, but the odds are against it.

A few reasons:

1. Sony is getting its act together with its Z line of smartphones and tablets. After years of falling behind, SONY is at last competitive with the best.

2. Motorola may eventually cough up something unique thanks to its privileged position inside Google.

3. HTC is recovering from a poor two years with top-notch products such as the One smartphone.

4. Acer, Asus, Lenovo and others are tired of the shrinking Windows PC market and are devoting more resources to Android (and Chrome OS). These companies have operated at near-zero margins forever.

5. Newer Chinese competitors including ZTE and Huawei are making inroads beyond their home market. They are already beating many previously top Android competitors in volume shipments.

6. Google itself may push Nexus harder, with more partners and with its own hardware -- even aside from Motorola. Just look at the Pixel Chromebook for evidence of this kind of approach.

For all of these reasons combined, I believe that Samsung's share inside the Android world has either already peaked, or will soon be peaking. Keep in mind that Android as a whole has been growing rapidly, and likely will continue to grow rapidly -- both in terms of absolute numbers as well as market share, breaking through the already impressive 70% barrier.

This does not mean that Samsung will do poorly or that it is somehow a bad company. To the contrary. Samsung is great, has done great and will most likely be doing great in the future. It is just not a threat to Google, any more than HP was a threat to Microsoft Windows.

Nobody should take these comments as anything remotely negative about Samsung. To the contrary, I'm Samsung's biggest fan. In my opinion, Samsung has made the best smartphone of our time with the Galaxy Nexus, and it has made some of the best Chrome OS devices -- for which I have given the highest grades in reviews over the last two years.

Google and Samsung are friends. They are likely to stay friends. Both make superb, complementary products, and they will also have some overlapping products and strategies.

Mostly, though, Google is not losing sleep over how well Samsung has done in terms of selling Android smartphones and tablets. Google holds all the valuable software and service cards, and this will likely remain the case for a long time.

It's Apple that should be worried about Samsung, not Google.

At the time of publication the author had long positions in GOOG and AAPL and a short position in MSFT.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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