Samsung & Google – Unlikely opportunity

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Samsung should capitalise on Google’s failures.

• Samsung is making a lot of noise around its reimagining of the camera and AI on its new flagship Galaxy s9, but if it really wants differentiation in 2018, it would be wise to capitalise on Google’s failure to successfully launch its own products.
• The Google Pixel 2 and 2 XL have been a disaster not because they were bad products but because of a series of schoolboy errors (see here) that completely masked some superb smartphone innovation and kept volumes insignificant.
• Two examples of this innovation are:
  • First, portrait mode: This feature is now common on dual camera devices as the difference between the foreground and the background can easily be calculated using two cameras.
  • The background can then be blurred to produce the pleasing portrait effect.
  • Google has managed to do this to a competitive grade using just one camera giving a substantial benefit (lower cost and more space) to any hardware maker that can deploy it.
  • Second, machine vision: Google launched Google Lens on Pixel devices and while it still needs some work, it is clearly the best image recognition that is available on a smartphone today.
• For me, these were two of the most significant differentiators for Pixel devices but because Google bungled many other aspects of the hardware, they are effectively absent in the market today.
• Consequently, I see an opportunity for Samsung to maintain differentiation on new Google features by doing what Google seems incapable and of doing so at massive volume.
• If the Galaxy s9 launches with Google Assistant front and centre instead of the dreadful Bixby, Google Lens and with portrait mode on its camera rather than a variable aperture (which no one is likely to care about), then I think Samsung will have achieved differentiation for 2018.
• This will help it hold share and margins for this year as its competitors will unlikely to have these features before 2019.
• Granted, next year would see all of its competitors doing the same but this is exactly what has happened with the edgeless screen differentiation that it created in 2017.
• Consequently, I think that a Galaxy s9 that launches with these features front and centre rather than a variable aperture camera and awful AI that no one is going to use, will result in a better selling, higher priced product.
• At the end of the day, hardware is ancillary to Google whose objective in life is to generate as much traffic as possible within its services, providing it with greater opportunities for monetisation.
• In that context, hardware is merely the conduit for its services which is why I have never really understood its expensive obsession with making hardware as it has no hope of becoming like Apple.
• Hence, it would make a lot of sense for Google to allow Samsung to deeply embed the services and AI that it has previously made exclusive for Pixel devices.
• Making hardware is what Samsung really knows how to do and I think that the Samsung Galaxy flagships would be much better products as a result.
• Samsung would also have the option to stop making investments (like its AI and Bixby) that actually have a negative return and generate higher margins as a result. (I would argue that Bixby has done more harm than good to the s8.)
• The other manufacturers would of course be put out if they thought that they were being unfairly treated by Google, but I think that they nowhere else to go rendering their displeasure irrelevant.
• Sadly, I suspect that Samsung is going to continue to think that it can make a difference in AI meaning lower profits for shareholders.
• Samsung has run far farther than I thought it would and is now an investment decision taken on semiconductors and panels rather than phones.
• Hence, I continue to prefer Microsoft and Tencent and specifically Baidu for AI.