Samsung's (NASDAQOTH: SSNLF ) first attempt at wearable computing, its Galaxy Gear smartwatch, looks like a failure. It isn't that consumers aren't buying the device -- it's that, of those who do, many are returning it: according to Geek.com, more than 30% of them.
Samsung has a history of releasing flawed products, then improving them substantially in future years. That will likely be the same for its Galaxy Gear. I can't imagine Samsung giving up on its smartwatch, but for now, it looks like neither Apple (NASDAQ: AAPL ) nor Google (NASDAQ: GOOGL ) has much to fear from Samsung's device.
The Galaxy Gear has been almost universally panned
If Geek.com's report is true, it's hardly surprising. Reviews of Samsung's watch have been lukewarm at best; most reviewers have concluded that the device's numerous faults fail to justify its $300 price tag. At issue has been a sluggish interface, poor battery life, lack of apps, and near-total reliance on whichever handset the watch is paired to.
Right now, that handset is the Galaxy Note 3, the only Samsung phone with which the Galaxy Gear works. In the coming weeks, Samsung plans to add support for some of its other phones, and maybe handsets made by other manufacturers. But it isn't clear how that would work -- the Galaxy Gear relies on Samsung's proprietary software, including S Voice and its own app store.
A successful Gear could've dealt a blow to the Android ecosystem
If the Galaxy Gear had proven to be a solid product, it could've put pressure on Google's larger Android ecosystem. Samsung already makes about 40% of the handsets that run Google's mobile operating system, and a must-have watch could've increased its market share further still: A would-be smartphone buyer, choosing between Samsung's Note 3 and Sony's competing Xperia Z Ultra, might've opted for Samsung's device as a way to get the Galaxy Gear.
Back in February, The Wall Street Journal reported that Google is concerned about Samsung's dominance. Samsung's position could allow it to negotiate a better deal with Google or fork Android totally -- removing Google's apps and services entirely. That's probably a worst-case scenario, but Samsung is clearly trying to build something of a separate ecosystem around Google's Android. Samsung held its first developers' conference on Monday, introducing five software development kits (SDKs) in an attempt to encourage developers to optimize their software for Samsung's devices.
Was Samsung trying to beat Apple to the punch?
Besides Samsung, the failings of the Galaxy Gear may have been because of Apple -- that is to say, Samsung may have rushed its Galaxy Gear to the market, hoping to beat Apple to the punch. Despite Apple's reputation for secrecy, there have been widespread reports that Apple is working on a smartwatch of its own.
If Samsung's watch had been a major success, it could've robbed Apple of some iPhone sales. Customers who want Samsung's watch would've had to buy its phone -- possibly forgoing the purchase of Apple's iPhone in the process. Moreover, it could've weighed on general sentiment, both among consumers and investors.
Samsung popularized the larger-screen smartphone, and nearly every other handset manufacturer has followed. The notable exception has been Apple, with CEO Tim Cook arguing that larger screens require unfortunate trade-offs. Regardless, the larger phones have been a hit with consumers, and Apple shareholders, including hedge fund manager David Tepper, have said the company should release a larger phone. Although Apple continues to sell millions of iPhones, eventually, the lack of a larger form factor could entice some consumers to switch.
The same might've been true for a smartwatch. Had Samsung hit a home run with its Galaxy Gear, it would've been yet another area where Apple was seen to be falling behind. With Samsung's device coming up short, it leaves the door open for Apple to make its smartwatch the first "must-have" device in the category.
Samsung's blown opportunity
Samsung had a real opportunity with the Galaxy Gear. If it had released a solid product, it could've cemented its control of Google's Android, while making Apple's (likely upcoming) watch look like a me-too product. As it stands, it appears to have released a lackluster device, one that few will buy and many seem to be returning.
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