Even after Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) just released its new Android Wear OS for wearable devices and gave a brief preview of its new Android OS for smartphones at its developer conference last month, it's apparent Samsung (NASDAQOTH: SSNLF ) is still bent on promoting its own Tizen operating software.
Starting this week, U.S. owners of the original Gear smartwatch can now switch the watch's OS from Android to Tizen. It's a simple gesture, but one that shows Samsung may be increasingly dissatisfied with giving Google so much control over its devices.
Same goal, different direction
Samsung has built its mobile dominance on the back of Google's Android operating system, but the company has always tried to implement enough of its own OS tweaks to set it apart from competitors. Whether it's apps for its smartphones or user interfaces on tablets, Samsung has tried to make Android less about Google and more about Samsung.
The Tizen OS is part of that, though Samsung says it's always been a multi-platform company. The open source OS comes standard on the new Samsung Gear 2 smartwatch and adding it to the previous generation device shows Samsung is serious about spreading its use.
Fighting for a bigger slice
This month Samsung reported that its operating profit fell to about $7.1 billion for the quarter ending in June -- a 24% year-over-year decline. Part of the problem came from rising competition in Europe and China, as smaller companies release cheaper Android smartphones.
In the past, Samsung just pelted the market with different screen sizes and versions of its smartphones and enjoyed massive sales. But cheaper Android devices in China and other markets are eating into Samsung's sales, and the problem is growing.
That's one of the reasons why Samsung is trying to get Tizen off the ground. The company needs a new way to drive sales, and it's looking to the OS to do so. Samsung shipped about 31% of smartphones worldwide in Q1 2014 -- making it the biggest smartphone vendor. But in the first three months of 2014 its market share dropped for the first time in four years.
Though Samsung is still reliant on Android, the company announced back in June that its first-ever Tizen-powered phone, the Samsung Z, would launch in Russia in Q3. But the company has had a series of setbacks getting Tizen off the ground in smartphones, and earlier this month it scrapped its Russia launch plans and hasn't said when the Samsung Z will come to market now. Last year the company nearly launched a Tizen smartphone in Japan, but then stopped because of "poor market conditions."
Adding Tizen to the Gear smartwatches, possibly a new smartphone, and other devices like cameras and TVs all add up to Samsung's strategy of moving further away from Google in order to differentiate itself in an Android-dominated world.
Google's advertising ambitions
For Google, the company wants to keeps its Android system on as many phones, tablets, and wearable devices as it possibly can. The company generated 91% of its revenue from advertising last year, through its apps and services running Android and Chrome OS.
Google's revenue for Q2 2014 was just under $16 billion for the quarter, a 22% jump year-over-year. But even for a mobile juggernaut like Google, there are still hurdles to overcome. The company's cost per click dropped 6% year-over-year because people have migrated to mobile, where costs per clicks are less lucrative.
The wearble device market is expected to take off over the next few years, going from about a $5 billion market value this year to more than $12 billion in 2018.
Samsung wants to tap this market, at least partially, with its Tizen OS while selling Android Wear devices as well. As the market grows, Samsung could differentiate itself by developing Tizen into an Android Wear competitor. As for Google, it clearly wants to use the growing wearable device market to sell more ads across its platforms.
Aside from wearable device growth, investors should keep an eye on any news of Samsung actually launching a Tizen-powered smartphone and how many markets the company brings the device to. Right now Tizen isn't a real threat to Google's Android or Android Wear, but if Samsung has its way the OS could gain more acceptance over the next few years, and start impacting Google's advertising revenue.
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