Samsung software bet rests on future beyond phones

June 16, 2014

By Robyn Mak 

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Samsung may be the world’s 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 Google’s 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, Samsung’s Tizen operating system looks like a Google insurance policy. The search giant’s Android software runs on 79 percent of the world’s smartphones, including Samsung’s, 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 Google’s lead in smartphones. Android phones are popular for two reasons: they’re 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.

It’s likely that Samsung is betting Tizen’s 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 world’s largest maker of smart- and flat-panel televisions. The hardware maker’s push into software also plugs into “the internet of things” 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, there’s financial logic too: slowing demand and falling prices may already be squeezing margins. Analysts at Nomura expect operating profit at the hardware giant’s 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.

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