Google And Microsoft Just Changed The Devices Business Model

by: George Kesarios

As I have reiterated in past articles, after Google (NASDAQ:GOOG) bought Motorola and become a device manufacturer, it also became a direct competitor of every other Android device manufacturer, particularly Samsung (OTC:SSNLF).

The threat to Samsung's survival is very real at this point, because if for whatever reason Google decides to pull the plug on the Android OS and keep it to itself, Samsung and many other manufacturers will basically be in dire straits. While the possibility of something like this happening today is miniscule, nevertheless it is a possibility and a threat that Samsung and many other Android manufactures can not overlook.

As a response to this threat and as an insurance policy, Samsung and other device makers are pouring money into Android alternatives like Tizen. On the one hand Tizen does not need the array of Google services to operate and on the other it is very customizable.

While the global smartphone OS war has not started yet, many companies are preparing for the day that there will be all out war on all fronts. And personally I think Google will be the winner of this war.

However something strange happened yesterday. As you all know Microsoft (NASDAQ:MSFT) announced it was going to buy Nokia. And do you know what this means? It means that Microsoft will also become a devices manufacturer like Google. But it means something else also, it means that those few companies who were all worked up wanting to make a WP8 device, will now probably have second thoughts.

See, they will be in the same dilemma as Samsung with Google. If for some reason Microsoft decides not to license its operating system anymore, what will they do? Is it worth their while investing billions in infrastructure, only to see all that money go down the drain, if for some reason Microsoft decides it will be the only one to make WP8 devices from now on?

I know what you're thinking, it will never happen because both Google and Microsoft do not have the production capabilities and the supply chain know-how. That might be correct today, but how about 5 years down the road? If you are Samsung, can you afford not to have a backup plan?

And the only backup plan Samsung has is to make devices for Tizen. And now that Microsoft has become a device manufacturer also, the race will be on by third party device manufacturers (even low end companies in China) to counter a possible future threat of Google and Microsoft wanting to control the market.

And for those who still don't get it, Apple (NASDAQ:AAPL) has been doing exactly just that all along. If Apple can do it, then Google and Microsoft (or almost anybody for that matter) can also control the entire devices food chain, from software, to supply, to production. BlackBerry (NASDAQ:BBRY) is another company who also has the same model.

So is this the end of the smartphone Google open-source model? No far from it, because Tizen will probably be the next global smartphone OS. It is however a consolidation effort from both Google and Microsoft to have absolute control over their entire business. I personally think it is the right thing to do, because Apple has been very successful at doing the same exact thing. I don't see any reason why Google and Microsoft can't do it also.

Either way, especially as far Microsoft is concerned, buying Nokia (NYSE:NOK) was the right thing to do to be able to have full control over the business. If it fails in the future, it will be entirely its fault and no one else's.

The bottom line is that this business is changing and changing fast. As far as I'm concerned, the future in the devices business will be the Apple and Blackberry model, where companies control their entire business, including design, software, supply chain and manufacturing. Both Google and Microsoft have painted the picture on the wall for everyone who does not control their own destiny, mostly Samsung.

And if I'm right, Samsung is probably spending many tens of millions a year porting apps to Tizen, even as you are reading this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.