Is Samsung's Galaxy S4 Bad News for Google?

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 , Samsung's success with the Galaxy line gives it immense influence that shouldn't be taken for granted. Not long ago, TheWall 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 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.

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