In a Samsung Galaxy far, far away... will Android still rule?

Samsung Electronics is the world's largest smartphone manufacturer and biggest user of Google's Android operating system.

And, for some, that's the problem.

Samsung's meteoric rise - in the first quarter of 2011 it shipped fewer smartphones than Apple, Nokia or Research in Motion, but is now market leader - has handed it a dilemma. Does it risk becoming a commodity manufacturer of hardware, squeezed like the PC makers of old between narrowing margins and those who control the software that makes their devices run, or does it try to break into other parts of the business - the so-called mobile ecosystem?

"It comes down to this sense of what it is they want to be," said Tony Cripps, principal analyst at Ovum. "Do they really want to be one of the power players or are they happy enabling someone else's ecosystem?"

To be sure, Samsung isn't in any kind of trouble, and isn't likely to be so any time soon. On Thursday it launched the Galaxy S3, the latest addition to its flagship range of smartphones. Juniper Research expects Samsung to remain the No.1 smartphone manufacturer this quarter. The next iPhone upgrade is expected around the third quarter.

"Android has done wonders for them," says India-based Gartner analyst Anshul Gupta.

But still the company has its critics. They worry that Samsung has yet to address the central contradiction of it making devices that use someone else's operating system. By licensing the free Android OS from Google, Samsung saves itself millions of dollars in software development costs and license fees, but leaves itself dependent on Google.

Horace Dediu, a former analyst for Nokia who now works as a consultant and runs an influential blog at www.asymco.com, said a similar debate went on at Nokia in the early years of the smartphone. The conclusion, he said, was obvious: Microsoft had shown that whoever owned the operating system could relegate every hardware manufacturer to be a commodity player.

"So it's a puzzle to me now, years and years on," he said, "to see companies like Samsung continuing to operate within the operating system and ecosystem that other vendors control."

And Samsung, of course, is not alone. Nokia itself has abandoned its own operating system, Symbian, in favor of Microsoft's Windows Phone. But the consequences for Samsung and other Android manufacturers are visible: While each has customized the Android interface, these are "veneers", in the words of Dediu, which "dissolve as soon as you jump into an application of the core platform."

These tweaks also contribute to what is called "fragmentation". As Google rolls out updates to its operating system, they must first be tested and adapted by manufacturers against their own customizations before being pushed out to the handset. This slows down the update process and means many users are stuck with earlier versions of Android. Nearly two thirds of Android devices, for example, run Gingerbread, a version of the operating system that was released in late 2010.

This further weakens Samsung's efforts to differentiate its phones beyond merely the look and hardware specifications. Analysts say Google's efforts to reduce fragmentation by limiting what can be altered in more recent versions of Android compounds such problems. Also, smartphones look increasingly similar as they shift from keyboards to touchscreens.

All this creates a conflict of interest between the two players that at some point may burst into the open. While Samsung says it has welcomed Google's purchase of Motorola, a handset maker, because of the US firm's commitment to supporting Android and its partners, it has also taken steps towards some degree of independence.

For example it last year introduced its own Android software store, Samsung Apps, which has about 40,000 apps - a handful compared to Apple's 500,000 for the iPhone and 450,000 for Android. And last month it announced its own mobile advertising service, AdHub Market, apparently competing with Google's own ad distribution network - its main source of revenue.

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