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Is Samsung's Galaxy S4 Bad News for Google?

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While at some level it seems strange to ask if the latest generation in the single best-selling line of Android phones could be bad for Google (NASDAQ: GOOGL  ) , Samsung's success with the Galaxy line gives it immense influence that shouldn't be taken for granted. Not long ago, The Wall Street Journal reported that Google had concern over Samsung's huge Android market share, while another source suggested that the purchase of Motorola Mobility had been to serve as "an insurance policy" against Samsung. With the release of the Galaxy S4, the influence that Samsung has over Android has the potential to rise even further.

As far as Google goes, Motorola is still struggling; further cuts to its employee base mean that its power as an insurance policy is waning. While the new Samsung smartphone doesn't appear to be the iPhone killer that many had hoped for, it promises to push sales even further. Ultimately, as the South Korean powerhouse continues to attract market share, Google investors should watch how the relationship between the two companies evolves.

The pre-release buildup
The Wall Street Journal recently reported on concerns developing over Samsung's ongoing success: "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." Google relies on search revenue to subsidize the Android software, which it provides to various hardware manufacturers as a way to drive its business. As Samsung's importance within that structure continues to rise, it puts the company in a uniquely powerful position. No other manufacturer is even in double digits for Android market share.

A recent piece in PC Pro suggested that Google executives had pushed for the Motorola acquisition to bolster the company's hardware portfolio and act as a buffer against Samsung: "Andy Rubin reportedly told employees that Google had bought Motorola Mobility 'as a kind of insurance policy' against Samsung's dominance." Until recently, Motorola's Droid Razr line had been among the top competitors for Android market share. Of late, the Droid line has significantly fallen out of serious contention.

So much has Samsung taken over as the first name in premium Android smartphones that HTC crashed the Galaxy S4's release party, allowing those gathered waiting for the event to demo the new HTC One. Passing out hot cocoa and snacks to event-goers, HTC explained that it wanted consumers to have a real chance to do a true side-by-side comparison. The company, which has been largely known for its understated approach to marketing, doesn't want to be left behind and is joining the fight against the Samsung advertising juggernaut.

The Galaxy S4 launch
Despite all of the buzz created by the rollout of the new device, one of the most curious observations made about the event was the role Google played. Gartner's Carolina Milanesi noted: "The story, though, is more about who Samsung is and where they want to be. It is clear today that they want to play in an ecosystem game, their own ecosystem. The word Android didn't come up once." This isn't the type of hype -- or lack thereof -- that Google would like to see from such a big event for an Android device. Rather that differentiating itself from Apple's (NASDAQ: AAPL  ) iOS by extoling the virtues of Android's flexibility, the event focused solely on Samsung's identity.

Apple has had its hands full with its South Korean rival, largely through the forum of advertising. Samsung has openly attacked the iPhone, claiming that "The Next Big Thing" is already here. While Apple regained the top sales volume spot in the fourth quarter with the release of the iPhone 5, you must wonder if it can retain the top spot now that the S4 is here. The new device is set to go on sale in late April and should present a serious challenge to all other options.

The verdict for Google
While Google continues to gain market share with Android, the nature of that market share must be kept in perspective. While a recent report from IDC suggests that 2013 will see Android tablets outsell Apple's iOS for the full year, the concentration of Android phones under the Samsung name must raise some concern. Beyond the premium Galaxy line, Samsung is highly competitive at the low end of the market, which is big reason its overall market share is so high. Attacking at both ends of the spectrum means that it may soon have the power to push Google.

It's too early for Google investors to be seriously concerned, but increasing concentration may end up affecting this critical relationship. Because the search company's business is focused on revenues from mobile search, a shift here could have far-reaching implications. As such, the next few quarter of sales data and market share information is likely to prove critical.

As one of the most dominant Internet companies ever, Google has made a habit of driving strong returns for its shareholders. However, like many other Web companies, it's also struggling to adapt to an increasingly mobile world. Despite gaining an enviable lead with its Android operating system, the market isn't sold. That's why it's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource.

Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 18, 2013, at 10:14 PM, Mrr82 wrote:

    This article seems very misguided. It's not google who should be worried, it's samsung. Samsung's size is not a benefit for them, it's a downside. Google has the market, not samsung. Nobody buys the samsung phone because of the phone, they buy it because of droid. Samsung is the one who should be worried. Google comes out with their own phone, and then starts charging Samsung to use android (and everyone else). That's what i see happening. What will Samsung use if they don't have droid? And who would use it? People will follow either droid or IOS. Samsung could start using Microsoft, but that would sink pretty fast, but would be a big boost for microsoft. Google is building a monster that they control completely. Everyone and their mom who uses samsung will switch to google when their phone comes out if Samsung doesn't still have droid, so they have no leverage.

  • Report this Comment On March 19, 2013, at 1:07 AM, cskusc wrote:

    Mrr82, your comments are also misguided. People by Samsung because they can see what Samsung's trying to do with their product integration. From Frige, TV, Cloud, Phone, Tablet, ...

    Android provided platform like Linux provide same platform for many various innovations. But it's no more than platform which collections of vendors uses and refine to define content which can be sold to consumers.

    Android by itself won't be successful unless there was vendor who has all the parts to compete with iPhone. That vendor was Samsung, it could change over time but there will be more innovation as long is it stays open. However at this point Android is going same fate as Java where one company controls in the end. Most Android phone vendors will look for alternatives like Win8RT/Win8 and/or Tizen or FirefoxOS. As whole web experiences moves to HTML5, Anroid could be dead.

  • Report this Comment On March 19, 2013, at 3:08 PM, EllieHawkins wrote:

    There are a couple questions here,

    First, is this a bad thing? Google has been the big kid on every block for too long, they dominate search engines and growing on browsers, not to mention maps and email. Some outside influence on their Android market is probably a good thing for all of us.

    Second, will Samsung be satisfied with influence or will they try and release their own OS?

    Regardless I'll be getting the new S4 cause it's the best smartphone available, just as soon as I can afford it. Come'on WishPlz tell me about that price drop. if you're interested.

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