Google’s relationship status with Samsung – it’s complicated

Samsung accounted for over 40 percent of all Android smartphones sold last quarter, increasing Google’s fears that the Korean giant is becoming to big for an “open” platform. Apple and Samsung together have enjoyed almost 100 percent of smartphone margins as other brands struggle to make money. And most of them use Google’s Android platform. Yet, Samsung is the only Android vendor that is selling any significant number of smartphones and making money off them. Google makes money by serving mobile ads on these devices via Google Search and YouTube and also collects user behavioral information via Search, Maps and other Google apps that are pre-loaded on all Android devices. But with Samsung dominating the space, Google fears it could flex its muscles and ask Google for a more favorable revenue share.

Currently, Samsung gets 10 percent of ad revenues Google makes from Samsung’s Android devices, WSJ reports. However, Samsung reportedly is not content and feels it deserves a bigger share considering it is single-handedly driving Android sales. Samsung accounted for 40.2 percent of all Android smartphones shipped in the last quarter of 2012 with Huawei coming second with 6.6 percent.

Google is currently encouraging other vendors to develop better Android smartphones to compete with Samsung. Its acquisition of Motorola is also considered to be a hedge against Samsung. Motorola is rumored to be working on a secret X-Phone Android smartphone, which could be unveiled at this year’s Google I/O event in May. However, it will be difficult to match Samsung’s marketing and global distribution might. Another factor in Samsung’s success is it makes Android smartphones across the price segment with multiple variants localized for every market. It has the manufacturing capabilities and Samsung itself manufactures most of the expensive components used in smartphones including the processor, display and memory.

Samsung has nothing to lose when it sits on the negotiation table to discuss revenue share. Google, on the other hand, has everything to lose. The worst case scenario for Google would be if Samsung decides to use a forked version of Android like Amazon does for its Kindle tablets. Samsung is already building capabilities for such a scenario. Its TouchWiz user interface has matured and has no resemblance to Google’s stock Android UI. It has already developed a Siri-like voice assistant and has been adding new software features with every new flagship product. If and when Samsung decides to have an Android app store of its own instead of Google Play, developers would flock to it considering Samsung’s sales figures, unlike other brands/platforms that are struggling to attract developers.

That is not to say that Samsung would go the forked route but it’s something that would be playing on Google’s mind at the negotiating table.