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 Samsunghas 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 whatpercentage it is differs from survey to survey, but suffice it to saythat it is by far the single largest maker of Androids. Samsung alsomakes smartphones based on other operating systems such as WindowsPhone and Bada, but those sales volumes are relatively minor comparedwith 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 upona time, say HP ( hpq) was or still is the largest maker of Windows PCs. Doesthis 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 newGoogle-Samsung relationship:

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

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

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

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

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

4. Samsung is investing more in various applications over and beyondplain Nexus Android. Recent examples include the S-pen (stylus) forthe "Note" tablets/phablets and the new "Wallet" app, which isbasically a copy of the Apple ( AAPL) Wallet app. So far, it's not clear thatanybody cares about these solutions, at least until Google takes themand 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 ithas vertical integration for many components, from CPUs todisplays/screens. It's not clear that this is a big deal, although itcould be.

2. Other companies stumbled. From Sony ( SNE) to Motorola to HTC, Samsung's competitors executed poorly in the last few years. Motorola ended upgetting 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 tothe other Android hardware makers. It seems to be a combination of alot of little things, including luck and weak competitors. Samsungalso clearly executed really well on most things all-around.

Easy come, easy go.

These conditions that led to Samsung taking the lead in Android marketshare appear to be fleeting, in principle. For Samsung to gain fromhere, or perhaps even maintain market share, it would need to continueto 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 ofsmartphones and tablets. After years of falling behind, SONY isat last competitive with the best.

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

3. HTC is recovering from a poor two years with top-notch productssuch 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 manypreviously top Android competitors in volume shipments.

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

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

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

Nobody should take these comments as anything remotely negative aboutSamsung. To the contrary, I'm Samsung's biggest fan. In my opinion,Samsung has made the best smartphone of our time with the GalaxyNexus, 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 someoverlapping 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 valuablesoftware and service cards, and this will likely remain the case for along 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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