Did Google manage to stop gradual Android take-over by Samsung? Q3 smartphone numbers say maybe

Staska  By on 14 Nov 12

The rise of Android over the last 3 years was nothing short of amazing.

Coming a year after the iPhone, it had crushed the incumbents – Nokia, Microsoft, RIM, etc; – and now dominates the smartphone market, with Apple as a distant second.

It was also a boon for consumers, who can now get a quality smartphone for as little as $200, pre-paid.

But as a business, Android was a lousy proposition to almost everyone involved, so far. After years of losses, two of the biggest Android champions and former mobile device stars – Motorola and Sony Ericsson – ceased to exist as independent companies, and now rely on the largess of their parents to remain relevant. Former world’s #3 mobile phone vendor – LG – went into multi-year period of losses, and only now is showing first signs of a turn-around. HTC, the company that rose to prominence on the back of Android, lost its way a year ago and is now rapidly heading into the abyss.

Even for Google, Android has been nothing but a huge money sink funded by the search/Adwords monopoly profits. Yes, I know that it’s a strategic long term investment. That Google needed Android to make sure smartphone platforms remain open to its services. That Google is supposed to recoup all the investment via ads on mobile, eventually. And it is a valid argument. But the opposite POV – that mobile advertising model that funds Google on PC/Web will never work as well in mobile – is just as valid today. Google may find a profitable business model in mobile eventually, or they may not.

The only company that has been making serious and sustainable profits with Google’s mobile OS – is Samsung, which has been taking over bigger and bigger slice of Android shipments each quarter. And I can’t imagine that folks in Mountain View are happy about this.

When Samsung launched its first major Android flagship – Galaxy S – it very quickly established itself as a major player, with about 20% of overall Android shipments. And since then Samsung has been rapidly increasing its market share. With the launch of Galaxy S2, Sammy took over ~40% of Android shipments, by the end of Q2 2012, when Galaxy S3 came along, it got to about 49%.

This puts Google execs in an awkward position. On the one hand – they must be happy that Samsung is so successfully pushing Android on all continents and at all price ranges. On the other hand – they can not be not worried about how dominant Samsung becomes. If no one else can make money with Android – how long OEMs will continue to invest in it, before inevitable shake-up happens? HTC is already trying to diversify away from it and is betting heavily on Windows Phone. What if the bet pays off, other Android vendors follow suit, and Samsung’s Android market share climbs to 60%, 70% or higher?

Samsung has been dabbling in mobile platform and software for years now. Bada, TouchWiz, Tizen – nothing much has come of those efforts, yet. And it’s an open question whether anyone else outside U.S. is even capable of creating a globally competitive consumer software platform anytime soon. Decades long U.S. dominance of software industry suggests otherwise.

But if anyone can do it – it’s Samsung. Earlier this year it made mobile software and services a major strategic direction for the future. Samsung’s previous strategic bets? Semiconductors (memory), TV’s and other consumer electronics, mobile phones. In every one of them, at first, Sammy was a scrappy underdog few incumbents paid attention to. I bet former Elpida, Sony and Nokia execs are still wondering what the heck happened. If, in a few years, Samsung is able to pull something like that with its software assets, while shipping 70% of Android devices, Google may be in for a rude surprise.

Imagine Samsung owned, Tizen based mobile platform, fully compatible with all Android apps. Then imagine that for some reason Sammy decides to go its own way sometime in late 2014. One day it just leaves Open Handset Alliance, and switches to Tizen on all of its new smartphones. If you are an average smartphone user, and if all your apps still work on the next Samsung phone, would you even care that it now runs Tizen and not Android? I thought so. 2/3ds of Android shipments gone in a flash.

Thankfully, this nightmare scenario seems a little bit less likely now, that Q3 2012 numbers came in. Samsung’s gradual take-over of Android may has been checked, at least for a little while. For the first time in many months Samsung’s share of Android shipments has seriously declined. From about 48-49% (depending on the source you use) to 41- 42%. And, what’s even better – we are starting to see some good signs of life from the rest of Android ecosystem. Sony was finally able to show some good sequential growth in Q3; LG grew Android shipments, eked some profits and promised more good news in Q4; big Chinese OEM trio – Huawei, ZTE and Lenovo – did even better.

Granted – sustainable profits for any smartphone OEM not named Samsung or Apple are yet to come. And one quarter does not make a trend. But it all starts with healthy growth.

Here’s to a renewed and profitable competition in Android land.

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  • studuncan

    Can you also put in actual numbers rather than percentages?

    ie did Samsung still grow its numbers, but others grew more?
    Might make the story less interesting.

  • http://twitter.com/Steve45879 Steve Thomas

    “Motorola and Sony Ericsson – seized to exist as independent companies”

    When a writer doesn’t understand the difference between ceasing and seizing, I wonder if they dropped out of school in the second grade or the third. Can I trust ANYTHING they are writing?

  • http://twitter.com/VikramTwtr Vikram R

    “for some reason Sammy decides to go its own way sometime in late 2014″ – what a terrible point! if it is not Google’s Android no one would buy Samsung phones. Samsung cannot keep up with the pace of Android and iOS, they don’t have good developer relations and are all seeing how the other OEMs like Nokia are doing without Android.

  • http://www.staska.net Staska

    Thank’s. Corrected

  • http://www.staska.net Staska

    Yes. Samsung did grow it’s numbers – from ~48 to 51 million Galaxies, while Android grew from ~102 to 121 million.

    Some other numbers – Q4 2010 Sam – 7M, Android 30M, Q4 2011 – Sam 32M Andr – 76M

    Of course – they are estimates, since Samsung neither reports total smartphone shipments nor breaks them down according to OS. Based on various analyst reports

  • studuncan

    ~51M phones or Galaxy phones. Big difference.

  • http://www.staska.net Staska

    ~51M Android smartphones. They also ship Bada and Windows Phones +a whole lot of dumbphones

  • AndrewBarclay

    Staska is the worst writer in the world. He shows it time and time again

  • Walt French

    I don’t know much about Samsung’s culture. Obviously, they’re in too many businesses to count. (Heck, most people can’t even decode the spaghetti chart of cross-ownership and concentrated control of the World’s Largest Chaebol.)

    But let me wager that software and services such as music and app stores exist to serve the high-volume hardware sales, not the other way around. As long as fealty to Google only involves using their search and stores, Android continues to be a heckuva deal. And make no mistake: when it takes *Microsoft* years to get back into the smartphone business, and it is barely recognizable, rolling one’s own OS that consumers don’t know and might ignore as a cheap knockoff, is a daunting challenge.

    There are LOTS of interesting fringe issues that could blow up big time. E.g., Google might take Nexus worldwide, or to the $100 handset market (unlikely, but it might even contract with Samsung to do so). Some new form factor, or a suddenly-superb Siri, might re-define the mobile market. But for now, I’d put my money on Google continuing its kamikaze rush to universality, a business that Samsung will be happy to take a huge share of profits from.

  • http://www.staska.net Staska

    Did you read the “2014″ part? Or I stated upfront that it may not be possible to beat U.S. companies at consumer software platform game. Nobody did it yet in 3 decades of personal computing.

    But Samsung is investing a lot in software via Bada, Tizen, Touchwiz. Who knows what the results of that be in 2 or 3 years. And, if they also can fork Android, and kick out Google’s services. If they are doing 70% of Android device shipments at that point – I don’t think they will have problems convincing Android developers to move over to them.

  • http://www.staska.net Staska

    I am aware that software is really hard thing to do. And doing global, competitive consumer software platform is even harder. As I said in the post – the question is still open whether it is even possible to beat U.S. companies at this game anytime soon.

    But consider this. Google already screwed Samsung over with the first two Galaxy S launches. Forcing the delay and even halting shipments already in channel over Skyhook on Galaxy S. Then Wallet fiasco with Verizon – because of which Samsung’s Galaxy S2 didn’t get on the biggest U.S. carrier for holiday season, while Verizon Galaxy Nexus was very delayed and not really promoted too.

    And this year, with the new low price focused Nexus program Google is beginning to undercut Samsung where it matter’s most – profits on its high end devices. Samsung already said that Q4 won’t be as profitable as Q3 was. Most of that probably is because of iPhone, and Samsung was already selling Galaxy S3 incredibly cheap, to gain market share. But with Nexus 4 at $299/349 for a simlarly or better specc’ed model – that’s gotta look scary to Samsung. And what about the $199 price ceiling for the high end 7″ tablet? There goes another huge chunk of Samsung’s profits.

    Granted – Nexus is a lowish volume program so far. But Samsung has to wonder just where exactly Google is going with it in the next few years. And what, if anything, Samsung should do about it. And I won’t even start about Motorola, Google’s protestations about independence notwithstanding.

    So there already are a lot of tensions and differing agendas in Sammy/Google relationship. And I just can’t see those tensions subsiding instead of increasing. Where this would lead – we’ll have to wait and see. As I said – Q3 numbers may indicate that Samsung’s increasing dominance over Android trend may have been reversed. Or it may just be an abberation and the trend will resume. We’ll probably know in about 6-9 months

    Btw, one more thing. There is a rumor going around that Samsung wants to release SGS4 in early spring next year, with Android 5. And is pushing Google to get it ready by then. So far Google isn’t budging and is working on its own schedule. HEre’s one more possible tention to add.

  • zeth006

    Staska, not many people are capable of imagining new possibilities and considering that times can change.

    Back in 2009, I was among the few who predicted Google with its open platform and agnosticism toward brands would become the dominant player in the smartphone space. Of course, I had people laughing me off the stage. The idea that an unknown platform from a company more so known for e-mail and search could become so preponderant was beyond their imagination. Never mind that no one saw Samsung as a serious contender back then.

    These same people are now acting as though they knew Android would get to where it is today. Problem is it’s Samsung, and not Google, that led to Samsung’s success. Google doesn’t do any advertising for the Galaxy line of phones. Samsung does, and you can see from its heavy advertising budget it’s pulling itself by its own strings.

    Imagine if Samsung were to pour more money and resources into a Tizen-based OS. Imagine if they were able to create a developer-friendly ecosystem and promise that they wouldn’t try to shaft their developers as Apple often does. Things could very much change in 2014 and beyond!

  • zeth006

    A well-written analysis. I too have been suspicious about Google’s intentions behind subsidizing Nexus 4. Google plays this game where they pretend to be the objective supporter of an ecosystem that all are free to use. But with the Nexus 4′s pricing, they simply move the goal posts. I don’t think the $300 price point is a coincidence. Google is most definitely subsidizing that device with a boatload of cash up front.

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