Samsung has made a lot of money selling smartphones based on Google’s Android operating system. So why is Samsung trying again (and again, and again) to build out a competing operating system?
Android, which is open source, is free for Samsung to install on its Galaxy phones, Note mini-tablets, and other connected devices. It allows Samsung to outsource to Google the concerns of planning of future features, locking down security, and maintaining a marketplace, the Play Store, with more than 1.5 million apps. Best of all, it actually earns Samsung a cut of Google’s mobile advertising revenue.
So why would Samsung bother with its own operating system? Because it can.
Samsung has tried many times to launch a phone running Tizen, an open-source operating system it is co-developing with Intel. It has made many promises along the way, such as using the OS for its high-end flagship devices. This week, it revealed that it would instead chase low-end devices in emerging markets such as India—an acknowledgement that, despite its efforts, Tizen lacks traction. (Neither Samsung nor Google responded to requests for comment.)
The technology community has long questioned the merits of the Tizen project. On one hand, the mobile devices market is largely dominated by Apple’s iOS and Google’s Android, with Microsoft’s Windows Phone and the BlackBerry OS trailing far behind. A strong third player would heighten competition and spur further innovation, and Samsung—a massively successful manufacturer of devices around the globe—is best positioned to be it.
“If anyone can succeed at building that third ecosystem, it’s Samsung,” said Jeff Orr, senior practice director for mobile devices, content, and applications at ABI Research. “They make their own CPUs, modems, displays, software... It makes sense they would have a strategy to move away from Google, rather than locking themselves into something outside their own control.”
On the other hand, previous operating systems (such as the ill-fated Palm OS) failed to disrupt an apparent duopoly. Less than five percent of smartphones around the world use operating systems that aren’t Android or iOS, according to estimates by IDC, the market research firm. Does the Korean electronics giant really think there’s room for one more?
Consider the plight of Windows Phone. Microsoft (MSFT), no mom-and-pop shop, has just 3 percent of the U.S. Market and even less share globally. Or perhaps consider the mobile OS remainders bin: Palm, HP (after buying Palm), Nokia, BlackBerry, and a handful of others.
So hitching oneself to Android seems sensible. Yet while Google’s operating system is free, it is far from without constraints. For Google’s own apps and its Play Store to come pre-installed on a phone, companies like Samsung must sign “Mobile Application Distribution Agreements” that dictate requirements that Google (GOOG) has for every Android phone and tablet that ships from its partners.
Among them:
Those agreements, according to a September report from The Information, are intended to enforce “consistency in the software experience by device makers.” Even before the newer agreements, there have been “frequent fights about” modifications, “particularly between Google and Samsung,” according to The Information.
Other companies have grabbed Android’s open-source bits while avoiding Google’s demands. Among them: Amazon (for its Kindle Fire tablets and Fire phone) and the Chinese smartphone maker Xiaomi. Both technology companies offer versions of Android that look and feel different from Google’s unadulterated version, yet are close enough at their core that developers can easily convert their apps for use in the Amazon Appstore or Xiaomi’s MiMarket. In China, Xiaomi recently overtook Samsung by claiming 16 percent of the country’s smartphone market. In the U.S., Amazon’s Fire phone flopped.
So far, Samsung has succeeded in differentiating its Galaxy phones, Note tablets, and other products from Android-based competitors. Daniel Gleeson, senior analyst with IHS Technology, believes Google’s bundling is not really harming Samsung. “Google is simply better than Samsung at building those apps, and of course they are apps that are widely known and loved by consumers. Samsung’s strength is in its hardware engineering, not its software,” Gleeson said.
At the same time, Samsung has been pushing Tizen for use in other types of electronic devices such as cameras, watches, and refrigerators. The corporate market is also an option, says ABI Research’s Orr. Samsung has already made steps into enterprise security with its Knox and SAFE programs; it could conceivably work its way into the workplace where support for popular consumer apps is less of a concern and customization of the operating system is more highly valued.
“For Samsung to boost development (it must) take Tizen to new devices, and hopefully own that space,” IHS Technology’s Gleeson said. “Samsung will need to provide some compelling use cases where Tizen can out-perform Android.”
The clock is ticking. Samsung announced its lowest third-quarter operating profit in three years on Oct. 6, citing flagging sales of its top-end Galaxy phones, heavy marketing and price-cutting to fight the drop, and decreased component orders all around. What’s more, those results came before Apple (AAPL) launched its iPhone 6 and 6 Plus phones, which carry larger screens that were once Samsung’s sole purview and sold in record numbers.
A budding Tizen could be a success if it proliferates on devices where Apple and Google aren’t as entrenched. Samsung’s challenge is that those areas seem to be rapidly disappearing.
