Samsung (NASDAQOTH: SSNLF) recently announced in a blog post that it would unleash a "flood of devices" running Tizen, its own operating system, later this year. Tizen currently powers some of Samsung's wearable devices and cameras, but the company now plans to expand that ecosystem with Tizen smart TVs and appliances. That plan complements Samsung's recent launch of the Z1, its first Tizen-powered smartphone, in India.
Expanding Tizen can help Samsung decrease its dependence on the Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Android smartphone market, where it has lost ground against cheaper Chinese rivals like Xiaomi and Lenovo. If Samsung ever replaces all of its Android devices with Tizen ones, it could own the third largest mobile OS in the world after Android and Apple's (NASDAQ:AAPL) iOS.
But Tizen's real strength isn't in mobile devices. Instead, it represents a way for Samsung to flank Google and Apple in the booming "smart home" market, which Juniper Research expects to grow from $33 billion in 2013 to $71 billion by 2018.
Consumer electronics and the Internet of Things
Many investors solely focus on Samsung's mobile business, which accounted for 52% of its revenue and 43% of its operating profit last quarter. That's why Samsung's loss of market share (from 32.5% to 23.8% between the third quarters of 2013 and 2014, according to IDC) was so troubling.
Yet many people overlook Samsung's consumer electronics (CE) division, which accounted for 24% of its revenue but a mere 1% of its operating profit last quarter. The CE division sells monitors and TVs, home appliances, printers, and medical equipment.
Many of those devices will eventually be tethered to the Internet of Things (IoT), a market which IDC forecasts will grow from $1.9 trillion in 2013 to $7.1 trillion in 2020.
Low margins, big ecosystem potential
Samsung manufactures roughly a fifth of the world's flat panel TVs, according to Strategy Analytics. Margins for TVs have dramatically declined over the past few years due to market commoditization, but newer smart TVs can act as central hubs for Samsung's Tizen and Android devices.
Since Apple and Google don't have big consumer electronics arms, they rely on partnerships with manufacturers of smart lightbulbs, smart locks, and other connected devices to advance its smart home plans. Samsung can simply sell those devices out of its CE business.
Apple's smart home platform, HomeKit, turns an iPhone or Apple TV set-top box into a universal remote for connected devices. Google plans to make Nest, the smart thermostat it acquired last year, into a central hub for smart devices.
The flaw with Apple's approach is that it will be narrowly restricted to iPhone owners, who account for 12% of the worldwide market (IDC), or a niche group of Apple TV owners. Google's strategy relies on consumers purchasing an unfamiliar smart thermostat to get the ball rolling. By comparison, Samsung can simply convert its newer TVs into smart home hubs.
How Tizen could grow
In the future, consumers might receive notifications from their Samsung oven, washer, dryer, refrigerator, or robot vacuums on their smart TV screens. This means that they would need to check on their appliances less often.
Samsung's own smartwatches and mobile devices could also connect directly to its TVs soon. The company turned the Gear into a remote control for its smart TVs in late 2013 via an app, but we still haven't seen a closer integration of health tracking features on wearables with smart TVs yet. Consumers can also mirror the screens of select Samsung Galaxy phones onto its smart TVs via a wireless hub.
If Samsung launches more Tizen devices and TVs, these products will operate under the same OS umbrella, which will make it easier to introduce better cross-device features. This means that TVs and smartwatches could work together and remind users to walk around every hour, and smart appliance notifications could be delivered directly to users' wrists.
Samsung took a big step toward linking all these devices together by acquiring SmartThings, an open platform for IoT devices, last year. Last November, it launched the SmartThings hub, which pulls data from their Samsung smart devices onto a mobile app. Pairing SmartThings with Tizen could eventually transform Tizen from a niche OS into a mainstream one for smart homes.
Don't count Samsung out yet
Apple and Google are well poised to grow their presence across the smart home industry, but neither company should ignore Samsung. Tizen doesn't have much of a presence on mobile devices yet, but if Samsung properly leverages its large CE business to spread Tizen across smart appliances, it could seriously hamper Apple and Google's IoT ambitions.