SAMSUNG Electronics is the world's largest smartphone
manufacturer and biggest user of Google's Android operating system.
And, for some, that's the problem.
Samsung's meteoric rise - in the first quarter of 2011 it
shipped fewer smartphones than Apple, Nokia or Research in Motion, but is now
market leader - has handed it a dilemma.
Does it risk becoming a commodity manufacturer of hardware,
squeezed like the PC makers of old between narrowing margins and those who
control the software that makes their devices run, or does it try to break into
other parts of the business - the so-called mobile ecosystem?
"It comes down to this sense of what it is they want to
be," said Tony Cripps, principal analyst at Ovum. "Do they really
want to be one of the power players or are they happy enabling someone else’s
To be sure, Samsung isn't in any kind of trouble, and isn't
likely to be so any time soon. Later on Thursday, it will launch the Galaxy S3,
the latest addition to its flagship range of smartphones.
Juniper Research expects Samsung to remain the No 1
smartphone manufacturer this quarter. The next iPhone upgrade is expected
around the third quarter.
"Android has done wonders for them," said
India-based Gartner analyst Anshul Gupta.
But still the company has its critics. They worry that
Samsung has yet to address the central contradiction of it making devices that
use someone else's operating system.
By licensing the free Android OS from Google, Samsung saves
itself millions of dollars in software development costs and licence fees, but
leaves itself dependent on Google.
Horace Dediu, a former analyst for Nokia who now works as a
consultant and runs an influential blog at www.asymco.com, said a similar
debate went on at Nokia in the early years of the smartphone.
The conclusion, he said, was obvious: Microsoft had shown
that whoever owned the operating system could relegate every hardware manufacturer
to be a commodity player.
"So it's a puzzle to me now, years and years on,"
he said, "to see companies like Samsung continuing to operate within the
operating system and ecosystem that other vendors control."
And Samsung, of course, is not alone. Nokia itself has
abandoned its own operating system, Symbian, in favour of Microsoft's Windows
But the consequences for Samsung and other Android
manufacturers are visible: while each has customised the Android interface,
these are "veneers", in the words of Dediu, which "dissolve as
soon as you jump into an application of the core platform".
These tweaks also contribute to what is called
"fragmentation". As Google rolls out updates to its operating system,
they must first be tested and adapted by manufacturers against their own
customisations before being pushed out to the handset.
This slows down the update process and means many users are
stuck with earlier versions of Android. Nearly two-thirds of Android devices,
for example, run Gingerbread, a version of the operating system released in
This further weakens Samsung's efforts to differentiate its
phones beyond merely the look and hardware specifications. Analysts say
Google's efforts to reduce fragmentation by limiting what can be altered in
more recent versions of Android compound such problems.
Also, smartphones look increasingly similar as they shift
from keyboards to touchscreens.
All this creates a conflict of interest between the two
players that at some point may burst into the open. While Samsung says it has
welcomed Google's purchase of Motorola, a handset maker, because of the US
firm's commitment to supporting Android and its partners, it has also taken
steps towards some degree of independence.
For example it last year introduced its own Android software
store, Samsung Apps, which has about 40 000 apps - a handful compared to
Apple's 500 000 for the iPhone and 450 000 for Android.
And last month it announced its own mobile advertising
service, AdHub Market, apparently competing with Google's own ad distribution
network - its main source of revenue.
For bada or worse?
And while all but a fraction of Samsung's smartphones are
currently Android devices, the South Korean group has said it is committed to
creating devices for different operating systems - what it calls a
multi-platform strategy. Analysts said this has so far been half-hearted.
It has an operating system called bada, for example, which
was on fewer than 3% of the world's smartphones last year, according to
Canalys, putting it ahead of Microsoft's Windows Phone.
But that's nothing compared to Android, which was on nearly
half of all smartphones shipped. "They’ve tried to beat the drum for bada,
but it hasn't had much traction," said Jake Saunders, a Singapore-based
analyst for ABI Research.
Samsung says it plans to introduce more models, but has also
said it may roll bada into another operating system called Tizen, and is in any
case building an ecosystem that would improve compatibility between the two
It was keen to stress, however, that while Android was an
important part of its strategy, phones running Windows and bada operating
systems were equally important. Given that bada and Windows phones account for
less than 5% of Samsung's total phone shipments, it suggests Samsung will give
greater weight to Windows and bada phones in the months ahead.
But these are small steps given the scale of Samsung's
dependence on Android. Samsung, said Ovum's Cripps, is keenly aware of the need
to shape a broader strategy. "Especially in the last year there's been
quite a lot of thought internally about which way they go with this."
If it wants to avoid merely competing at the bottom end of
the market with ZTE and Huawei, analysts agreed it must develop an ecosystem
that embraces software, content, other devices and all the players that help
make that happen.
This would inevitably pit it against Apple, Amazon, Google
All have different
business models, said Cripps, but the same goal: to "own every element of
the consumer's online and mobile experience".
In some ways, Samsung is well positioned for this.
"Samsung is not just a phone maker like HTC so it does
have the potential to create platforms which deliver content and web services
to TVs, PCs, phones and media players, and connect them," said Caroline
Gabriel, research director at Rethink Technology Research.
This is Samsung's competitive advantage, said Gabriel, as
the world shifts more to web-based technologies like HTML5, which reduce the
relevance of individual operating systems and platforms like Apple's iOS and
Android. Instead, applications will be more like web pages, which can run on
Samsung can draw on its extensive supply chain,
manufacturing capability and research and development facilities to make this
happen, Gabriel noted, but its challenge is to overcome silo-like systems
within the company and to learn how to develop relationships with the outside
"Samsung has no track record of building a developer
ecosystem and even in the web that's going to be a challenge," she said.
"It may have thought Google would be a solution, but Google is too
Making it app-en
It also requires deeper changes, said Ovum's Cripps - not
only to be the first Japanese or Korean company to break into a world dominated
by US players, but to succeed where once-dominant players like Nokia, RIM and
Microsoft have stumbled.
"I can well understand any doubts they may have
internally about how they should push ahead with this," he said. "It
is genuinely very, very difficult."
Samsung has made some tentative steps, for example into wedding
its Smart TV business into partnerships with content providers.
And developers like Singapore-based Jon Petersen say the
company has put out feelers to outsiders to help work on software applications
- in apparent recognition of its own weaknesses.
Such weaknesses were visible even with the app it published
ahead of Thursday's S3 launch: nearly a third of reviewers gave it the lowest
rating, complaining it didn't work properly.
For now, no one denies Samsung's pre-eminence.
"The zeitgeist right now is definitely towards high-end
Android devices of which Samsung is clearly the leader so I don't think there's
any instant danger," said Cripps.
"It's more a case of what Samsung wants to be in five
years' time and planning towards that."
* Jeremy Wagstaff is Reuters Asia chief technology
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