Apple vs. Samsung and the reality of the Android ecosystem

A winter ago, I postulated that thanks to Samsung’s ability to build and source mobile components — from memory to processors to screens — the company would be able to become one of the leaders in the smartphone ecosystem. The battle, in fact, would be between Samsung and Apple,(s AAPL) something that we have reported multiple times over the past year or so. Lately that battle is actually between the iPhone and the Galaxy brands.
Last week my colleague Erica Ogg wrote that Samsung sold an estimated 87.6 million to 94.6 million smartphones in 2011 (though it made a lot less money than Apple, which sold about 58 million iPhones during the first nine months of 2011).
Of course, people didn’t believe me when I pointed out that HTC was about to hit the skids  — it eventually did — and that Motorola (s MMI) is going to become an albatross around Google’s (s GOOG) neck. It will — and the missing profit targets are only a start.
“A Googorola vertically-integrated smartphone line could counterbalance Samsung’s influence,” said Jean-Louis Gassée, a former Apple employee and more recently an investor in technology companies. I don’t buy his argument. How is it that the company that was perpetually in trouble starts doing well because someone else bought it?
It may not seem obvious today, but in a few years, as the rest of the world moves away from feature phones to touch-enabled, Internet-connected phones, we will see Huawei and ZTE, two Chinese companies, go head-to-head with Samsung. And they are so dominant in Africa and parts of Asia that we are going to see them become major players in the low-to-medium end of the market.
With the emergence of Huawei (which launched a really thin and cool Android phone on Tuesday) and ZTE, which have their roots in the telecom equipment business, one should expect HTC and Motorola (and the rest of the wannabes like Sony and LG) to get squeezed out of the market. Samsung will become the high-end Android leader while the two Chinese companies will become low-end giants before they start their eventual march up the smartphone food chain.
Antonio Rodriguez, an entrepreneur turned VC (with Matrix Partners), writes on his blog:

What all of the talk of Android momentum and inevitability obscures though is that the dream of a common Android that developers can write/deploy apps to and users can become familiar with is burning. More specifically, three events in 2011 burned it and we’re now holding on to a charred corpse that is quite different: an Android so splintered that it will make the glass on your Galaxy Nexus S2 Prime Pie dropped on concrete look like an ice skating rink.
The three events: 1. Google buying Motorola and alienating all of the tier one handset makers (none of which to this day have the spine to state it publicly but all of which have now come up with their “plan B”), 2. Microsoft extracting licensing fees from these same handset makers in the form of IP indemnification and 3. Amazon shipping a wildly successful, yet unidentifiable, version of an old Android build over the holiday . . . and making it a wild success. Of the the [sic] three, #1 was completely avoidable but the other two may just have been the name of the game when there is so much at stake in the fight of who paints the interface for the next generation of computing.

These changes mean challenges for the developers who now need to make some tough choices. Over the holidays a developer friend asked me which Android his startup should focus its energies on. Since his company is making apps focused primarily on the U.S. and European market, it makes no sense for him to start obsessing about Huawei or ZTE, at least in the near term. Motorola and HTC are slip-sliding away.
My answer to him was to go for Amazon’s (s AMZN) Kindle Fire for tablets and Samsung for the phones. Samsung and Amazon are both spending an incredible amount of advertising dollars to promote their platforms, and it makes perfect sense for small startups (depending on their regional focus) to tie their lot with them. Between those two platforms, he would be backing winners that would bring the highest return on investment for his little company.
That is, and will be, the reality of the Android ecosystem.