Like Apple, Should Google Be Worried About Samsung?

Mobile is quickly becoming two duopolies in hardware and software. On the hardware side, Apple (AAPL -1.22%) and Samsung continue to gobble up all of the industry's gross profits while shipping over half of all smartphones. Within operating system platforms, Apple iOS and Google (GOOGL -1.23%) Android are leaving very little for the other players.

A tale of two duopolies
Here are IDC's estimates on both fronts for the fourth quarter, starting with smartphone vendors:

Source: IDC.

Here's the software side:

Source: IDC.

While Samsung's rise is a clear threat for Apple, you'd think it's all good news for Google, as the South Korean conglomerate is Android's most successful champion right now. If you cross reference the figures above, you'll notice that Samsung is now shipping roughly 40% of all Android devices worldwide -- a huge figure for a commoditized OEM selling devices with open-source software.

Samsung does ship Microsoft (MSFT -1.27%) Windows Phone devices, but the vast majority of its product portfolio runs Android. There were only 6 million Windows Phone or Windows Mobile devices shipped during the quarter, and we already know 4.4 million of those came from Nokia (NOK 2.03%), leaving only 1.6 million units from other OEMs like Samsung and HTC. Samsung's success is very much predicated upon Android, and more importantly for Google, vice versa.

A tale of two vendors that Google over-relies on for mobile ad revenue
Since Android is open source, an OEM could theoretically gain too much power over the platform. That's something that's been troubling Big G of late, according to a recent Wall Street Journal report. The next most prominent Android vendor is Huawei, which ships just 6.6% of all Android devices. The fear is that Samsung could leverage its dominant position to extract more out of Google, in the form of higher ad revenue sharing agreements.

Android chief Andy Rubin reportedly expressed concerns in an internal meeting that Samsung could pose a threat and that the search giant's controversial acquisition of Motorola helped somewhat mitigate this risk. That's one reason why the "X Phone" that Motorola is working on is so important.

However, Samsung could also shift the dynamics of the broader Android army if it demands earlier access to new software updates before rival hardware vendors, which would make the playing field rather uneven.

As it stands, Google relies primarily on both Apple and Samsung for mobile ad revenue as the two dominant vendors. Analysts estimate that Google will also pay Apple more than $1 billion next year in traffic acquisition costs in order to be the default search engine on iOS, up from an estimated $877 million this year.

A tale of two partners that could see a falling out
Samsung has also expressed interest in other platforms, not only with its launch of new Windows Phone 8 devices, but also with its transitioning its Bada platform into Tizen, another open-source platform made from Nokia and Intel's Meego platform of years ago that Samsung also backs. Samsung is planning on launching new Tizen devices this year.

While Google and Samsung have been quite cozy for the past couple years as they jointly ride Android to success, they each have different incentive structures in place that could create tensions in their relationship. Both companies are well aware of the risks that they face by relying too heavily on one another.

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