Samsung software bet rests on future beyond phones
By Robyn MakĀ
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Samsung may be the worldās largest smartphone vendor, but the electronics giant is looking beyond phones. The company has launched the first smartphone that runs on its own operating system. Samsung is unlikely to challenge Googleās lead in handsets any time soon. But it may have more success with software that can control televisions, appliances and even cars.
At first glance, Samsungās Tizen operating system looks like a Google insurance policy. The search giantās Android software runs on 79 percent of the worldās smartphones, including Samsungās, according to Canalys. Though Android is free to use, conditions set by Google mean less control and flexibility for hardware makers. A lack of a credible alternative also means the Korean electronics giant and its peers have less negotiating leverage.
But Tizen is unlikely to challenge Googleās lead in smartphones. Android phones are popular for two reasons: theyāre cheaper on average and they offer users access to over one million apps. Samsung has yet to reveal the price for the Tizen phone, but the decision to launch in Russia will make it difficult to convince developers to make apps for a new platform with a relatively small market.
Itās likely that Samsung is betting Tizenās future will not be in smartphones. The open-source software is free and designed for different devices. Samsung is well positioned to bring Tizen to the mass market by installing the software on televisions, cameras and watches: the company is the worldās largest maker of smart- and flat-panel televisions. The hardware makerās push into software also plugs into āthe internet of thingsā hype of connecting everyday appliances and objects to a network. Gartner forecasts the number of PCs, tablets and smartphones will reach 7.3 billion in 2020, whereas the number of other internet-connected devices will hit 26 billion.
For Samsung, thereās financial logic too: slowing demand and falling prices may already be squeezing margins. Analysts at Nomura expect operating profit at the hardware giantās IT and mobile segment to drop 13 percent this year, while smartphone margins are forecast to contract from 24 percent to 17 percent in 2015. Betting on a future beyond handsets and hardware looks not only smart, but financially necessary.