Google dominates mobile search courtesy of its Android operating system and deals with Apple on iOS, but its position could become tenuous as the value stack in smartphones shifts.
That's the gist of a research note from Bernstein analyst Carlos Kirjner. Today, it's clear that Google dominates mobile search. Kirjner outlines the mobile Internet stack and where Google fits.
In other words, Google has leveraged its desktop dominance to the mobile realm. However, Kirjner makes a case that Google may be a bit vulnerable. Why?
Google correctly saw that the iPhone could have been a monopoly and created Android. That move ensured that Google would control its mobile search fate. However, the worries for Google could occur in that device layer in the chart above. Should Apple and Samsung dominate the smartphone industry---not a stretch---both could charge Google more to be the default search.
In the longer term, assuming that search and discovery remains important in the mobile Web, Google's margins from mobile search will be dictated less by competition with Microsoft and other potential search providers, and more by the industry structure in the other layers.
And while we believe Google now is not under tremendous pressure, competition in other layers is fragile and could play out in ways that are detrimental to Google's interests.
For instance, Kirjner says that the carrier layer of the mobile stack may become smaller. Can Sprint and T-Mobile really compete with AT&T and Verizon?
The device market gets even trickier. Kirjner says:
In the device market, Apple is capturing a large and increasing portion of the value pool, which raises question about the long-term competitiveness of the Android ecosystem. Looking at the revenue and value shares captured in the device layer, it seems to us that the outcome where Apple and Samsung end up controlling, on a sustained basis, the near-totality of the smart phone market is not out-of-the question. In this scenario, Samsung, whose entry and current success in the smartphone segment was very much dependent on Google's Android, could turn around to Google and ask: "Who depends on whom now?
Note: The Bernstein analyst that penned this research note was Carlos Kirjner not Craig Moffett. The post has been corrected throughout.