Inside the Google-Samsung Tussle for Future of Mobile

In just 18 months as Samsung's VP-strategic marketing, Brian Wallace helped the company become the top-selling smartphone maker in the U.S. Market share more than doubled. "The Next Big Thing" campaign he spearheaded elicited praise from Madison Avenue and Wall Street . Finally, a company had started to vie with Apple for smartphone cred. Then, suddenly, he left. Mr. Wallace abruptly defected to Motorola Mobility in December to become the company's VP-global marketing. (Some of Mr. Wallace's former colleagues weren't aware he was leaving Samsung until the news broke in the media.) One of the architects of Samsung's marketing-driven resurgence -- a person privy to confidential development information -- had not just quit; he was heading to a competitor. Perhaps even more troubling, Mr. Wallace's new employer was owned by Google, one of Samsung's biggest partners. In moving to Google from Samsung, Mr. Wallace found himself in the middle of one of today's most complicated business relationships: the "frenemy." The two mobile titans are the latest to be branded with the term, a well-worn one in the tech industry. Samsung Exec VP David Eun even invoked "frenemy" to describe Google at the D: Dive Into Media conference this month. As friends, Google and Samsung formed a match made in Silicon heaven. Google provided a mobile operating system to rival Apple's iOS, for free. Samsung made mobile devices that could at least stand up to the best coming out of Cupertino. Samsung is , by far, the biggest provider of Android smartphone technology in the U.S. In December 2010, 19.1% of U.S. Android users were on Samsung phones, according to ComScore. By December 2012, Samsung had become the leading Android provider, at 37.8%. HTC was second, with 17.5% of all U.S. Android users. Research firm IDC said that 40.3% of all Android phones shipped worldwide in third quarter of 2012 were Samsung phones. Using Android software has allowed Samsung to integrate all of Google's popular mobile services into its devices, and in turn, make them more alluring to customers. Likewise, Samsung's success and ability to eat into Apple's market share has helped Google become the dominant leader in mobile advertising. Google accounted more than half of all mobile-advertising revenue in the U.S. and worldwide in 2011 and 2012, according to eMarketer. Underlying this prosperous, mutually beneficial relationship, however, the two companies have slowly started to infringe on the other's core competency. Google bought mobile-phone maker Motorola Mobility in summer 2011 and recently hired one of Samsung's top marketers to grow it into a profitable business. Samsung, meanwhile, has started working with Intel to develop Tizen, an open-source alternative to Android. Some suggest each move is a hedge. Samsung wants to be prepared should Google decide to restrict certain Android features to Motorola smartphones, and Google wants to own hardware in case Samsung decides to move all of its phones to Tizen (or a different platform it owns exclusively). With both moves, the companies are becoming closer to what Apple is : a vertically integrated tech company that owns and controls the software and hardware behind an array of consumer-electronic goods, enjoying the correspondingly high profit margins. But neither company can afford to compromise the relationship in the short term. Google's mobile-advertising business depends on the scale Samsung helps provide, and Samsung has yet to develop an OS on par with Android. Rather, what's occurred between Samsung and Google in the past year and a half is just the beginning of a competition that will play out over the next several years and eventually include smart TVs, internet-enabled home appliances and wearable computers. "If you follow the trajectories of these companies to their natural ends, there has to be some sort of breakup, some sort of different arrangement," said a digital executive familiar with both companies. "They're frenemies." When Google bought Motorola in August 2011, members from all parts of the mobile-technology industry assumed the software company would limit Android access to other phone manufacturers. Google was adamant that the purchase was solely for patents and that owning the device manufacturer would have no effect on how it would distribute Android. (Thus far, Google has upheld that promise. Nexus 4, the latest Android smartphone, is made by LG, for example.) Google's Motorola acquisition occurred around the time that Samsung was beginning to build out a series of smart campaigns that have helped it become the biggest brand in mobile phones. Chief Marketing Officer Todd Pendleton and Mr. Wallace started building it into the dominant phone manufacturer it is now in the summer of 2011. There were curious parallels between the two's work history. Mr. Pendleton joined Samsung in June 2011 after more than a decade at Nike . Mr. Wallace joined the company that same month after 11 years at Research in Motion (now BlackBerry). Together, they proved to be a forceful marketing duo. Samsung's smartphone market share was 9.5% in mid-2011, according to ComScore; 18 months later it was 21%. Samsung, the No. 82 ranked U.S. ad spender, according to Ad Age 's DataCenter, is a demanding company culture. Agency executives who have worked with the company report long days, strategizing over holidays and working through weekends. The ends seemingly justify the means, as Samsung's commercials have been wildly popular. "The Next Big Thing Is Already Here" spot for the Galaxy S III -- which mocked Apple fanboys -- went on to become the second-most-viral ad video of the year. Online-video-analytics company Visible Measures said the video has been watched more than 71 million times. In the summer of 2012, Mr. Wallace caught Google's attention. The company began recruiting him to lead the global marketing team at Motorola Mobility, the phone manufacturer it had acquired the summer before. Google recruited -- and scrutinized -- Mr. Wallace heavily over the next several months, culminating with his leaving Samsung late in December. While Mr. Wallace was busy executing his Samsung marketing plan and being recruited by Google, Samsung was quietly teaming up with Intel to start building an open-source mobile-operating system as an alternative to Android. Android, while free to manufacturers, comes with certain parameters. Manufacturers that use Android and want access to Google Play and Google mobile services -- Google Maps, Google mobile search, Gmail and YouTube -- must run their devices through a test verifying each device's compatibility with Android. The compatibility test is to assure to app developers that their service will work seamlessly across all Android devices. But if a manufacturer customizes -- or "forks" -- Android beyond the compatibility limits, the manufacturer loses direct access to Google Play and Google mobile services. In September 2011, the LiMo Foundation -- short for Linux Mobile -- and the Linux Foundation announced the groups would combine their efforts on Tizen, an open-source mobile-software project. Samsung was a member of the LiMo Foundation board along with Panasonic and Vodafone, among others. Subsequently, Samsung joined Huawei, Intel, Sprint and others as part of the board for the Tizen Association, a group dedicated to "providing a fresh platform that offers a high level of flexibility," per the association's website. Christopher Croteau, director of platform and business development for the Tizen Association and managing director at Intel, said that Samsung has been "a robust supporter" of Tizen. According to Mr. Croteau, Tizen will afford the innovation opportunities that Android and iOS purposefully inhibit. "The general consensus is that Tizen is about flexibility, about innovation," he said. "[Mobile software] is a fairly homogenous situation. Android doesn't allow for a lot of innovation." Manufacturing companies are historically bad software companies, though. Building a popular operating system requires a massive number of user-experience experts, which most manufacturers don't have. "It's easier for a software company to build hardware than a hardware company to build software, unequivocally," Eric Litman, founder and CEO of ad server Medialets, said. More information on Samsung and Google's relationship will become apparent once Motorola releases its first phone post-Google acquisition and Samsung releases its first phone that runs on Tizen. Samsung is scheduled to make an announcement later this month regarding Tizen during a Tizen Association event at Mobile World Congress in Barcelona. Tizen is optimized for regions outside the U.S., Teri Daley, public-relations director at Samsung, said in a statement. Last summer, Motorola Mobility announced it was moving its offices -- and its 3,000 workers -- from far-north Chicago suburb Libertyville, Ill., to the top four floors of the Merchandise Mart in downtown Chicago. Google's Chicago office sits four blocks east. The move left some wondering why Google wouldn't put Motorola and Google in the same space. Kevin Willer helped found Google's Chicago office 12 years ago. Now, he helps run tech-startup incubator 1871, located just several floors below the space Motorola Mobility will soon occupy. Mr. Willer compares the tangling between mobile-phone makers and mobile-platform developers to the PC wars between Apple and Microsoft of the "90s. But he doesn't believe Google will make any rash decisions regarding how it handles Motorola. "Google could create all kinds of efficiencies if they put them together, but it's important enough to [Google] to show that Motorola is its own unit," he said. "Samsung has really been an amazing partner for them. I wouldn't think they'd want to rock the boat too much." Google might be closer to Motorola than ever, but for now at least, Google wants the world to know the two are separate.

Inside the Google-Samsung Tussle for Future of Mobile

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