Microsoft vs Google: Did Samsung Just Tip The Tablet Battle?

By Markets Fool.com

Google did the world a service but made its own business vulnerable when it decided to make its Android operating system open source.

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That decision likely helped the spread of Android, which has become the dominant operating system for tablets and phones. But its domination comes with a price. By leaving Android open for anyone to use as they see fit, Google makes it possible for adopters of the OS to forgo the search giant's tools.

Since Android is distributed for free, it does not make Google any money. The value comes from the OS being a platform to distribute the company's suite of apps and tools, along with the Google Play store. The problem the search leader has created for itself is that the brands using Android to power their phones and tablets do not need to keep the factory defaults.

This means that a major Android distributor can opt to remove the pre-installed apps or replace them with anything they want. Amazon has done this in a sense with its Fire tablets and phone, which use an OS based on Android but completely customized for the retailer's products. Now Samsung has dealt Google another blow, making a deal to install apps from Microsoft on some of its most popular tablets and phones.

The deal gives prime real estate on the Android home screen to the Windows-maker, which is something you can be sure Microsoft won't be offering Google any time soon.

A look at the deal
Microsoft and Samsung, which are rivals when it comes to selling devices, have pushed their differences aside and made a deal wherein a number of apps from the Windows maker will be pre-installed on many Samsung-made Android devices.

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Microsoft detailed the arrangement in a press release:

  • As disclosed at Mobile World Congress, Samsung will pre-install OneNote, OneDrive, and Skype on the new Galaxy S6 and Galaxy S6 edge.
  • In the first half of 2015, Samsung is planning to pre-install Microsoft Word, Excel, PowerPoint, OneNote, OneDrive, and Skype on select Samsung Android tablets.
  • Samsung Galaxy S6 and Galaxy S6 edge will also come with 100 GB of additional free cloud storage for two years through Microsoft OneDrive, allowing extra storage space.
  • Businesses that purchase devices through Samsung's business-to-business sales channels will have access to three versions of Office 365 -- Business, Business Premium and Enterprise -- coupled with Samsung's KNOX security solution. The bundle also includes a setup service from Samsung to help businesses get up and running with products, and provides ongoing support.

The deal does not specifically require Samsung to not install Google's suite of Office-like apps, but it makes it likely that if it does, they will be in less prominent places on the phones and tablets. This agreement is part of Microsoft's aggressive efforts to bring its software outside of the Windows ecosystem.

"Great things happen when you converge services and devices," said Microsoft Executive Vice President of Business Development Peggy Johnson. "Our partnership with Samsung is emblematic of our efforts to bring the best of Microsoft's productivity services to everyone, on every device, so people can be productive wherever, however and whenever they want."

Why this matters
As you can see from the chart below, Android tablet shipments will dramatically outpace Windows shipments this year and next. That means that Microsoft's best chance to sell more Office 365 subscriptions is getting its software in front of people using Google's OS.

Worldwide Device Shipments by Operating System, 2014-2016 (Thousands of Units)

Operating System

2014

2015

2016

Android

1,156,111

1,454,760

1,619,030

iOS/Mac OS

262,615

279,415

298,896

Windows

333,017

355,035

393,256

Others

626,358

380,545

261,155

Total

2,378,101

2,469,755

2,572,338

Shipments include mobile phones, ultramobiles (including tablets) and PCs

Source: Gartner (January 2015)

Samsung does not control the entire Android tablet (or phone) market, but it did have 14.5% of it at the close of 2014 according to Statista. That puts it behind only Apple when it comes to tablet market share. The numbers are even better for Samsung when it comes to phones, as you can see on the chart below.

Period Samsung Apple Lenovo* Huawei Xiaomi Others
Q4 2014 19.9% 19.7% 6.5% 6.3% 4.4% 45.7%
Q4 2013 28.9% 17.5% 6.4% 5.7% 2% 39.5%
Q4 2012 29.1% 20.9% 5.5% 4.6% 0.9% 39%
Q4 2011 22.5% 23% 5.1% 3.5% 0.1% 45.7%

Source: IDC, 2014 Q4

What should Google do?
This type of deal between Samsung and Microsoft undermines Google's efforts to grow its own business through Android. What Google should do is the one thing it's not likely to do -- require Android users to maintain certain default settings.

That may seem harsh, but is Samsung or any other major Android user likely to drop the OS because Google tightens up the terms? What would they switch to? The only viable choice would be Windows, and the market has not yet embraced the Microsoft OS for phones or tablets.

Realistically, if Google tightened the reins on Android and Samsung left, the company would simply lose market share to companies which already take the OS as-is without making any modifications.

Google has a solution, but it's one that's likely to lead to a negative backlash. It's also one that goes against the company's reputation as a good Internet citizen. That means that while the obvious way to end this problem and stop Microsoft's momentum is to forbid deals like this from happening, it's almost certain Google won't do that.

Instead, the company will plod along and fight a fair fight of its own making.

The article Microsoft vs Google: Did Samsung Just Tip The Tablet Battle? originally appeared on Fool.com.

Daniel Kline owns shares of Apple and Microsoft. The Motley Fool recommends Amazon.com, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.