Samsung (NASDAQOTH:SSNLF) investors are crossing their fingers that the South Korean tech giant's fortunes will change in 2015.
Over the past two years, Samsung has found itself in an increasingly precarious position in the global smartphone market. Under siege at the high end and low end of the market, Samsung has searched frantically for a way to quell this two-front smartphone war of attrition.
Samsung has developed several innovations it hopes will prove the silver bullet it so badly needs. However, after seeing one of these solutions, it seems Samsung's smartphone woes might be here to stay.
Samsung has spent several years quietly developing a proprietary operating system, Tizen. After years of delays and plenty of consternation in the media, the first Tizen-based smartphone, the Samsung Z1, finally reached market last month.
Aimed at first-time smartphone buyers in emerging markets, the Z1 launched in India and Bangladesh on Jan. 14 at an intentionally low price of $92. Although there have been unconfirmed reports of better than expected sales, many criticized the Z1's relatively unimpressive hardware and the lack of available apps as major factors working against Samsung in the fragmented and highly competitive Indian smartphone market. Still, this is likely just the first of the many efforts by Samsung to take Tizen to the mainstream.
Will it work?
Although you have to like Samsung's relatively low-risk bet in rolling out Tizen far from the high-end segment of its product portfolio that provides the bulk of its mobile profits, the OS is not likely to fundamentally alter Samsung's place in the mobile world.
Although technology buffs have for years called for the breakup of the Apple and Google mobile OS hegemony, it will be nearly impossible to achieve this in a practical sense. The reason, as former Microsoft CEO Steve Ballmer so beautifully put it, comes down to "developers, developers, developers."
In economics and technology, the "network effects" phenomenon states that users and producers of a good, software in this context, tend to gravitate toward the option that offers the greatest selection. In mobile operating systems, consumers want large numbers of apps to enhance their user experience, and programmers want as many users as possible who can access their products. It's a "chicken and the egg" dynamic that makes gaining market share for Tizen and other upstart software platforms a massive uphill battle. It's no accident that other powerful tech companies such as Microsoft, BlackBerry, Amazon.com, and Facebook have all proven unable to make more than even a moderate dent with their mobile operating systems. Understanding this, Tizen seems unlikely to succeed where these other highly able competitors have effectively failed.
Symptom of a larger problem
This small-scale Tizen experiment fits almost perfectly within the broader narrative of Samsung's recent struggles in mobile. Although there are a few other factors, Samsung's problems largely come back to product differentiation on both the hardware and software side.
Samsung rose to dominance as the first Android OEM to have a product portfolio that truly touched every price point in the then-emerging smartphone space. However, the intervening years gave rise to a host of other capable Android smartphone manufacturers that quickly mimicked Samsung's playbook. Since these players all used Android, Samsung could not offer a sufficiently distinct software experience. On the hardware side, many of these companies simply "borrowed" design elements from one another while using similar components. Samsung's smartphone got lost in an Android world where little differed from one OEM to the next.
This is why Samsung is widely expected to introduce a wraparound side screen for its upcoming Galaxy S6, and is also a major driving force behind its Tizen efforts. However, as I've said here and elsewhere, these efforts are not necessarily compelling enough to help Samsung reclaim some of its lost ground in the smartphone space. The moves might win customers on the margin, but they don't seem to me the kind of innovations that can fundamentally shift the balance of power back toward Samsung.
Samsung's comeback strategy is far from compelling. Curved screens and developer-less operating systems aren't likely to stem the tide of rivals, as upstart such as Xiaomi show no sign of slowing at the low end and Apple is eating Samsung's lunch at the high end with its larger-screened iPhones. While this first Tizen experiment will undoubtedly not be Samsung's last, I'm not holding my breath that it will help the company's comeback bid in the year ahead.
All this talk to Apple has made Andrew Tonner hungry for lunch, although he thinks Apple's probably won't make their way onto the menu. Andrew also owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Facebook, Google (A shares), and Google (C shares). 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.