by Jean-Louis Gassée
Scroogled if you do, HPed if you don’t. To differentiate itself from aggressive Android competitors, Samsung would need to build its own mobile OS…but can it overcome the odds?
“Samsung execs don’t brush their teeth in the morning, they file them”. So goes the Valley lore, an expression of fearful admiration for the Korean giant’s success. The massive chaebol (the largest conglomerate in South Korea) is terrifyingly effective at dominating every industry it touches, from shipyards and power plants, to surveillance equipment, amusement parks, cars, and, of course, electronics.
When Samsung enters a market, the competition trembles. The TV set industry is one such example: Sharp remains on life-support after taking a $112M investment from Samsung two years ago (for a 3% stake). Sony has fared a bit better: When Samsung displaced Sony as the world’s number one TV manufacturer, the Japanese company was kept afloat by its life insurance business while CEO Kazuo Hirai worked on a much needed turnaround.
Smartphones offer the most vivid example of Samsung’s determination. As Android rapidly rose to prominence, Samsung saw an opportunity. Combining Android with its manufacturing might and gigantic war chest (Samsung’s 2013 marketing budget was $14B, the biggest in history, about the same as Iceland’s GDP), the company quickly became the world’s leading smartphone manufacturer, selling 300M units in 2013 alone — double Apple’s volume.
But Samsung’s handset business soon contracted. By the third quarter of 2014, Samsung profits had fallen by 60% and unit volume was down by 9% while all other major vendors went up. In the last quarter of the year, Samsung unit volume fell behind Apple (73M vs. 75M) and the Cupertino company reaped a huge share of all smartphone profits.
How did this happen?
Samsung is being squeezed.
From below, Samsung is being attacked by big-name Android players such as Huawei, Lenovo (which now owns Motorola Mobility), and fast-rising Xiaomi. From lower still, there are no-name Chinese handset makers using chipsets provided by Mediatek running on roll-your-own Android Open Source Platform (AOSP) forks.
One way out of the squeeze is differentiation, something Google isn’t keen on. If you want the full Google Mobile Services (GMS) suite, you need the official Android version: “GMS is not part of the Android Open Source Project and is available only through a license with Google”. Even straying too far from the Android look-and-feel can be a problem: A year ago, Google was accused of “strangling innovation” when it forced Samsung to “tone down” TouchWiz, a proprietary user interface layer. (The beauty and function of TouchWiz was debatable; it reminded some of the PC crapware of yore and it appears to have stopped working on recent Android versions.)
Ironically, one avenue of differentiation is The Apple Way: Samsung could take its future into its own hands and write its own mobile OS.
Regardless of its recent profit slide, Samsung is a rich, powerful, and determined company, one that knows the importance of smartphones. The company toyed with the idea of a mobile OS when it contributed to the Tizen software platform, but that project suffers from two unsurvivable birth defects: it’s a consortium, software by committee; and it runs on everything, from smartphones and tablets to refrigerators, Blue-ray players, AC units, wearable devices, smart TVs…
When we look at what it would take for Samsung to come up with its own mobile OS, the first thing to note is that “operating system” is a misnomer. Surely, iOS and Android are operating systems in the old-school “kernel” sense: They manage drivers, memory, input and output streams, user tasks, and the like. But today, an “operating system” is much more than just a kernel, it includes rich frameworks that support a wide range of applications, games, maps, social networking, productivity, drawing… Building these frameworks is a much harder task than adapting a Linux kernel.
And the OS is just the beginning. What Samsung really wants is its own ecosystem, a set of services that will ensure its autonomy, growth, and lasting importance. It wants its own app store, maps, music/video, cloud storage…
How long would it take for Samsung to build all of this? Three years, four years? Add to this the difficulty of “skating to where the puck will be”, to divine where the industry will land four years from now.
If that’s not enough, consider Samsung’s culture and management structure. So far, the company hasn’t shown a deep understanding of software: The Tizen affair shows that they look at software as some kind of commodity. Also, the Samsung culture isn’t geared for a four-year plan — an eternity in the rapid cycle world of TV sets and other appliances. Top Samsung execs would have to give the OS project leaders (project despots, more likely) the freedom and space to stay out of the usual political battles and top-level interference inside the huge conglomerate.
And then there’s Google. The cheap, no-name AOSP forks have been enough of an annoyance with their home-grown services that don’t feed into Google’s all-important data collection process. A Samsung OS would be intolerable. If the OS starts to take shape, Larry Page would pick up the phone, call Samsung Electronics Chairman Lee Kun-hee (or his son Lee Jae-yong), and offer a deal: If Samsung keeps using Android, Google will pass back a couple billion dollars a year in rebates, all in recognition of the value of the data that’s scooped up by Google Mobile Services on Samsung’s smartphones. After all, Google is rumored to pay Apple substantial sums for traffic brought by iOS devices, why not relieve Samsung of the burden of developing its own ecosystem – and give it a few billion to assuage its collective ego?
In summary, developing its own OS platform and ecosystem is a huge technical task, subject to the giant conglomerate’s cultural and political challenges and, in the end, very likely to be torpedoed by an attractive counter-offer from Google.
So, no, Samsung shouldn’t develop its own OS ecosystem.
Let’s consider a more realistic solution to Samsung’s shrinking marketshare problem, one that’s less glorious, but much safer: The Korean giant could use its hardware might to regain its domination of the mobile market. Samsung makes processors (including Apple’s), displays, batteries…most if not all of the hardware components of a smartphone and tablet. It could slowly develop cloud services that add value to its hardware, buy Here as its maps solution, make a deal with DuckDuckGo or Microsoft’s Bing for Search, and so on. As it becomes less dependent on Google, Samsung puts itself in a better position during negotiations…and all without the pain of having to develop an OS.
Finally, one other alternative: Microsoft’s mobile platform could certainly use some help…but I’ll leave that for a future Monday Note.