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Samsung Caves to Microsoft -- and That's Only the Latest Threat to Google

Microsoft (MSFT) and Samsung are cross-licensing their patents and Samsung will pay royalties on every Android smartphone and tablet it sells, according to a Microsoft press release. Plus, Samsung is talking up its Windows Phone plans.

Even if the Windows Phone love is mainly intended to placate Microsoft's lawyers, this is still plenty more bad news for Google (GOOG). One of its most successful Android vendors is crumbling under extensive legal pressure from Microsoft and Apple (AAPL). But that's hardly the only problem. Some major Android hardware vendors have begun to line up behind a mobile payment system that isn't Google's. Apple may be finding ways to make Google unimportant on the iPhone, which would mean cutting an important source of mobile revenue.

Lawsuits take their toll
No business likes to work with unnecessary costs. In the mobile device industry, where pennies per unit can add up, tacking on additional dollars is a significant burden. And that's what Microsoft's and Apple's patent infringement suits do. The cost of defense -- or, in the case of Microsoft, taking a license that easily runs $5 to $10 a unit -- is hefty.

Vendors have a more difficult time giving wireless carriers the discounts they insist on to carry units. An additional problem is the lack of certainty that the prospect of another legal wrangle brings.

It's been clear for a while that eventually the cost could get high enough to at least make some vendors think twice about using Android. Samsung has been particularly hard hit on the tablet front by Apple -- blocked from selling in Germany, for example. The more it leans toward Windows Phone out of necessity, the fewer units there are that run Android and give Google a chance to make some money on search ads.

Follow the money collection
Things could be worse ... and they are. Google launched its Wallet product on the Samsung Nexus S that Sprint (S) sells, using Citibank and MasterCard to process transactions. Google wants to get a cut of everything it can to diversify revenue sources.

But the Android vendors are not tying their lot to Google's. Most handset vendors, including those that use Android, will support the Isis system from AT&T (T), Verizon Wireless, and T-Mobile.

The list of names includes HTC, Motorola Mobility (MMI), and Samsung. Even though Google will acquire Motorola and could stick with its own service, that still leaves two of the top mobile phone makers playing the field. So much for that road to financial diversification.

Apple tries the search whammy
But perhaps the most disturbing development is Dan Frommer's observation that Apple is quietly pushing Google out of the way in iOS 5, the new version of its mobile operating system for the iPhone and iPad. Not that Apple has somehow blocked Google. It doesn't have to.

As Frommer notes, a new feature called Assistant teaches people to search using voice recognition. Assistant then performs a task like setting an appointment or finds the information in question, without using Google's services. Not that it affects Android users, but the iPhone and iPad crowd is large and not one that Google would want to see go elsewhere for information -- and the chance to amass user data and potentially deliver ads.

Google CEO Larry Page recently said that the company's biggest threat to success is itself: that the problems are always internal. That is true in a sense, but new threats can always arise, ones that disrupt existing business models. And Google is facing many of them at the same time.


Image: Flickr user Photos by Mavis, CC 2.0.
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