SEOUL - 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 ecosystem?"
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," says 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 license 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 favor of
Microsoft's Windows Phone. But the consequences for Samsung and other
Android manufacturers are visible: While each has customized 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 customizations
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 that was released in late 2010.
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 compounds 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 per cent 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 systems. 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
per cent 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."
EMBRACING ECOSYSTEM
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 and Microsoft. 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 any device.
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 world.
"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 controlling."
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 U.S. 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." REUTERS
Source: www.todayonline.com
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