Samsung is tired of watching Apple run away with most of the money in mobile. Now, the Korean giant is making a big play to become like Apple -- a company that makes not only the hardware, but also the software and the store where you buy stuff.
Samsung also wants to be like Google and make money from mobile advertising.
In order to own the software platform that powers its phones, Samsung needs to drop Android. But can Samsung pull this off without wrecking a good thing?
Samsung's big play in Silicon Valley
Samsung this week announced something called the Open Innovation Center, which is located in two places -- Silicon Valley and New York City.
The purpose of the center, headed by former Google executive David Eun, is to enable Samsung to benefit from software innovation. The organization will act as an incubator, providing salaries and benefits to entrepreneurs while they semi-autonomously create new ideas within the company. It will also act as a venture capitalist, investing in outside startups and organizing software-company acquisitions for Samsung.
Samsung hopes the Open Innovation Center will accelerate the growth of the app ecosystem for its new Android replacement, called Tizen.
It's not complicated. Samsung wants to transition from a hardware company to a company more like Apple -- one that makes money from hardware, software, apps, services and advertising.
Here comes Tizen
Samsung is working with Intel to develop a Linux-based operating system called Tizen. The software is designed to power smartphones, tablets, smart TVs and even in-car devices.
It's a direct competitor with, and alternative to, Google's Android platform.
The first demonstration of Tizen running on actual Samsung hardware is expected to take place at Mobile World Congress this month in Barcelona, where I'm currently located and awaiting the big show.
(Tizen software has previously been seen only on "reference" hardware distributed to developers so they could build apps for it.)
It's not clear whether the Mobile World Congress demonstrations will be open to the public and the press, or if they'll be held behind closed doors for select partners only.
Samsung phones running Tizen are expected to hit the market by the end of the year.
It's not just about Tizen or smartphones
Samsung is by far the leading seller of television sets in the United States. Many of those TVs run Google TV software, which is based on Android and Google's Chrome browser.
Samsung is also the maker of some Chromebooks -- laptops that run a variant of the Chrome browser as a kind of operating system.
Tizen is designed to run on all these platforms.
Eun announced very clearly this week that Samsung's intention is to build a software ecosystem where TVs, laptops, tablets and smartphones all connect with one another seamlessly and easily, as Apple devices are supposed to do.
"All these screens are connected to the Internet, but they are not yet all connected to each other," he said. "Once we connect all these devices to each other, we will effectively have one of the world's largest platforms for distributing content, services and advertising."
In order to pull that off, Tizen will have to be super successful.
So what about Android?
It seems clear that Samsung is tired of being such a successful company in hardware, all the while watching Apple and Google run away with most of the money.
Samsung sells far more phones than Apple does, but Apple makes more than twice as much profit as Samsung. That's because Apple controls and owns the whole ecosystem. It makes money from hardware and software sales, and takes a percentage of app sales. It also controls the content business through iTunes. When Apple sells a phone, it uses that phone as a means of continually extracting money from the buyer through apps and content.
Samsung makes money from the sale of phones. But after that, Google and other companies make money from the user via advertising, content and services.
Google makes billions of dollars from advertising because it offers the services used by most users of its Android software.
Samsung, it appears, wants to be like Apple in controlling the hardware, software, services and content distribution, and also like Google in becoming an online advertising company. It's a rational desire. But can it succeed?
There are three basic directions Samsung can go in:
- It can continue to be a hardware company, making hardware that enables other companies to make money from services, content and advertising.
- It could switch from other people's software to its own, dropping Android and Google TV and using Tizen for mobile devices and smart TVs exclusively.
- Or it could offer a mix of other people's -- and its own -- platform software.
None of those options is a good one.
If Samsung doesn't move big into software, the company will continue to function mostly as a hardware maker. As phones, laptops, tablets and smartphones become increasingly commoditized over time, margins will shrink as they do with commoditized hardware, and Samsung's profitability in consumer electronics will decline.
If Samsung chooses Option 2 and drops Android, it will lose many of its best customers.
I did an informal poll on Google+, where some of the most active and influential Samsung smartphone fans congregate, and found that most of them like Samsung because the company is perceived as the best maker of Android phones.
In other words, their loyalty is to Android, not Samsung hardware, and those users will continue to buy what they judge to be the best smartphone, as long as it runs Android. I would expect the majority of Samsung customers around the world to continue to buy Samsung phones even if they were available running Tizen exclusively. However, I also believe the majority of big-spending users -- the ones who buy premium phones and plenty of apps and content and who are the best targets for advertising -- will drop Samsung when Samsung drops Android.
Again, Samsung will be left going after crumbs in the low end of the market -- and that's not the Apple model or the road to success.
Finally, and most likely, if Samsung goes with Option 3 and offers customers a choice between Android and Tizen, it will never get the Tizen app ecosystem off the ground. The best customers will choose Android because of the maturity of the platform and because of the existence of hundreds of thousands of apps for Android.
To emulate Apple and Google is to develop a platform and stick to it. You can't imagine, for example, Apple launching the iPhone in 2007 and telling users that it can run iOS, Android or some other alternatives. No, the Apple approach is to say: The phone runs iOS -- that's the only platform. The Google approach is to say: Android is our platform.
If Samsung offered its own software platform and alternatives, it's hard to see how the company would ever get the critical mass it needs for its own platform to succeed.
I think most users will welcome Samsung's new initiatives -- more competition and more options can only benefit users. But it's not clear how all this will benefit Samsung.
Samsung has a serious case of Apple envy. But you don't become Apple by offering users a choice of operating systems.
Samsung would have a better chance of inventing a time machine and going back to 2005 to launch Tizen and its Open Innovation Center before the iPhone even existed.
In other words, it's probably too late for Samsung to launch a mobile operating system that can beat Apple and Google.