Samsung vs. Google – Game of Thrones

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Samsung and Google will end up in a struggle for the user.

  • So far Samsung and Google have been on good terms given the symbiotic nature of their relationship.
  • The Android software has enabled Samsung to tick the software box and to make excellent margins on its hardware designs and innovations.
  • In return, Samsung handsets have had Google applications on them allowing Google to earn advertising revenue from cataloguing user activities.
  • The problem is that Samsung’s end of the arrangement is not sustainable as hardware is commoditising and unless something is done, its margins will collapse. 
  • Samsung has time to act (see here) but developing a software strategy takes time and this why I see Samsung starting to make its move.
  • The key to this is the developer.
  • The higher function APIs of Android are fragmented between different handset makers meaning that developers have to add tweaks to native applications to ensure that they run properly on different handsets.
  • Samsung’s rise to power as the dominant force in Android now ensures that a developer will make its app works well on Samsung devices before considering the others.
  • This gives Samsung the edge it needs.
  • With the developers following its master code line, it is in a position to begin making modifications to Android that suit its agenda.
  • Furthermore, it can now begin throwing out all of the Google applications and replacing them with its own.
  • Samsung could even go to the extreme of taking a fork of the Android code and creating its own version for its devices.
  • It would forgo the right to use the Android brand, but I suspect that the Samsung brand has a far greater influence on the purchase decision of the user.
  • Samsung devices already have a sprinkling of Samsung applications such as ChatON and the Samsung App store but now there is a music service called MusicHub powered by 7Digital.
  • The long game is clear. Displace all of the Google applications with worthy alternatives and migrate its user loyalty from hardware into software.
  • In the long run, I suspect Samsung looks to have most of Digital Life covered meaning that it would also be able to collect the user data and sell it on.
  • This combined with the ability to charge premium prices for its products (due to its popular user experience and applications) would provide the ability to sustain margins at current levels.
  • For Samsung to maintain its leadership in the handset market, it must become Google’s competitor and attempt to move in on its patch.
  • This is no secret and Google must see this coming.
  • Perhaps this is why it is holding onto Motorola Mobility.

 

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.

Blog Comments

I am not sure I agree with the summarize.
Replacing Android isn’t easy. Apps use not only local APIs that allow manipulation of the device, but also remote APIs that rely on external services provided by Google. The best example here is push notifications.
To shun Google’s own apps will be relatively easy. To get developers to add support for Samsung’s push APIs and to unique Samsung APIs is going to be a lot harder.
To get users to use something other than Google Play will not be trivial either – especially once you get users used to getting their apps from Play on a Galaxy phone.
To get developers to submit apps to Samsung’s store only, or even in parallel to Google is also not that easy. Amazon might be able to pull it off for Kindle because they are an e-commerce vendor, but does Samsung offer the same pull and clout?

I agree it wont be easy but this looks like where Samsung is heading. Samsung doese not have to replace Android just make it its own like Amazon has. The keu here is developers. As the dominant force in Android, Deveopers ensure that their apps work on Samsung devices as that is wher ethey will make most sales. That is only one step away from develeopers writing to Samsung’s APIs. Its goingto be a slow shift but one that is possible.

Considering Google’s argument that APIs are not copyrightable, I suspect Samsung could replicate them and provide some tools to almost automatically replace such APIs for the developers to adopt to Samsung’s fork.

Even if its version of OS stays behind one generation behind the latest, I doubt it matter that much for the users, based on the installed base statistics of Android in general. I suspect it will matter even less as the OS becomes more and more mature, with every generation starts offering fewer and fewer exciting new features.

Samsung’s pull for developers could be much greater than Amazon. It’s got higher volumes, much larger geographic reach as well as good brand name recognition for high end. It already dropped Android name from its marketing materials, so switching the users from Google Play to Samsung Store should be relatively easy, especially when Google Play icon is no longer pre-installed. “Oh, this must be the new name for the app store” and the customer moves on…

I think you have outlined Samsung’s long term strategy

Indeed, this is possible and desirable for Samsung. But it won’t be easy. Amazon was already a software powerhouse (although of the server variety) when it embarked on the Kindle project. I think Samsung still has a long way to go to evolve from Android customizations to full-blown Android forking and/or backend services and API provider.

That said, it would be quite the irony that the cash bleed that has been deemed the Motorola Mobility acquisition by Google ends up being its salvation table if indeed Google needs to cling to a it a few years from now to save Android from Samsung…

It would be ironic if Motorola Mobility turns out to have some use other than a blood sucking parasite.

Forking Android versus Tizen?

I agree that Samsung will need to differentiate with software sooner or later, or its margins will be squeezed. You said that Samsung could go to the extreme to fork Android (like Amazon did) and replace Google’s mobile apps with their own. This makes a lot of sense. However they are also investing in Tizen. How do you see Tizen playing out? Will Samsung replace Android with Tizen? or just fork Android? Forking Android seems much more appealing – but then why are they investing in Tizen?

Tizen,,,hmm…this is the end result of endless mergers of various industry consortia on Linux. Why go to all the hassle and expense of developing Tizen when you can take Android and make it your own for much less….plus I suspect that Tizen has so much legacy stuff in it that it will be a nightmare to disentangle,,,Samsung get annoyed everytime I question their commitment to it but they fail to produce any evidence to the contrary.

Google may close future versions of Android, making a fast follower fork difficult for Samsung. If its aim is to get out from under Google, going the whole hog might be a better investment, even though it will make app ecosystem more difficult to build.

If you are already talking about Tizen, there’s also the issue of Firefox OS and Samsung’s collaboration with Mozilla on the web browser front there.

I guess there’s one of two options: either stick to Android and enjoy the large number of developers and apps there (copying in a way Amazon’s strategy); or go for Firefox OS, where HTML5 and the web are the main vehicle for apps.

The Firefox OS option is an option to keep until it either dies or matures enough to make a difference, but it makes sense as an investment to lower the risks of using a single mobile OS they don’t control.

I think that many of these odd collaborations that Samsung does are a) to keep options open and b) to keep customers happy. Odds on any Tizen phone the company does sells in Japan with DoCoMo and nowhere else.

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