Samsung(NASDAQOTH:SSNLF) smart TVs recently unnerved consumers in a bizarre and dystopian way. Customers noticed that its terms of service warned that "if your spoken words include personal or other sensitive information" in proximity to the TV, they will be "captured and transmitted to a third party."
Although that sounded like a dire warning for viewers to self-censor their conversations in front of their TVs, Samsung later clarified that the TOS was only referring to voice recognition commands relayed to Nuance Communications (NASDAQ:NUAN)and that the data was merely collected to "evaluate and improve" features.
The misstep, while likely harmless, highlights another example of growing pains developing the perfect smart home.
The business of smart TVs
The concept of a "smart" TV has been around since Microsoft acquired WebTV in 1997. However, crippled PCs delivering limited Internet content to TVs were not appealing in an era of dial-up connections.
But as Internet speeds improved, the idea of an Internet-based TV became more practical. In 2010, Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Intel, Sony, and Logitech co-developed and launched Google TV, which integrated Android and Chrome into a lightweight OS for smart TVs. Last month, Google announced it would update select Google TVs to Android TV, a more streamlined OS.
Sony, Sharp, Huawei, and several other companies agreed to launch Android TVs, but Samsung -- the largest manufacturer of TVs in the world -- has not.
Samsung is developing its own rival OS to Android, Tizen, which it has already installed on its TVs, smart watches, cameras, and a new smartphone. In January, Samsung declared in a blog post that it would launch a "flood of devices" running on Tizen later this year.
But do consumers even want smart TVs?
In late 2013, an IHS survey found that 73% of respondents did not plan to buy a smart TV in 2014. Nonetheless, smart TV sales hit 90 million units that year and are expected to hit 228 million units by 2018, according to Futuresource Consulting.
The contradiction between consumer apathy and rising sales figures is due to the fact that smart TVs are simply replacing older, non-connected TVs in the market, regardless of consumer interest. As TV manufacturers tirelessly increase specs, the battle becomes more about keeping up with the competition than catering to specific consumer demands.
And as viewership of streaming services like Netflix, YouTube, and Hulu rises, the same users who did not care about smart TVs before now consider Internet connectivity an important feature alongside screen size, resolution, and price.
Understanding the master plan
Smart TVs, as I discussed in a previous article, are notoriously low-margin devices. However, Samsung intends to use its smart TVs, tablets, and smartphones as control hubs for future smart homes. Since Samsung also sells monitors, home appliances, printers, and medical equipment through its consumer electronics division, it could grow its footprint very quickly in this fledgling market.
To connect those dots, Samsung acquired SmartThings, an open platform for Internet of Things (IoT) devices, last year. Samsung also launched the SmartThings hub, which synchronizes data between smart devices and a mobile app, last November. Therefore, improving voice-recognition abilities, with the assistance of Nuance (the creator of Siri), could make its smart homes very user-friendly.
If Samsung glues this ecosystem together with Tizen and Nuance voice recognition, the potential is huge. Galaxy Gear smart watches, for example, could send notifications to smart TVs to remind viewers to exercise. Smart ovens could send notifications to TVs and watches when dinner is ready.
It is all about keeping up with Google and Apple
Google and Apple are both respectively expanding into smart homes with Nest and HomeKit.
Since Samsung needs to pull away from the Google ecosystem to survive the onslaught of cheaper Android devices, it also needs to give consumers a reason to buy Galaxy phones instead of iPhones, while also expanding Tizen in smart homes. If it can leverage its dominant market share in TVs to tether viewers to its smart home ecosystem, it could prevent Google and Apple from splitting the market, which Juniper Research expects to grow from $33 billion in 2013 to $71 billion by 2018.
Consumers might be alarmed that Samsung TVs can transmit unwanted data to Nuance, but this transition has been going on for awhile now. In the future, consumers could become fully dependent on smart home ecosystems from Samsung, Google, or Apple without realizing how they got there.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), Intel, Logitech International SA (USA), Netflix, and Nuance Communications. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Netflix, and Nuance Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.