Later this year, Samsung (NASDAQOTH: SSNLF) will release more smartphones running its homegrown Tizen OS, according to a recent Reuters report. Samsung released Tizen in 2012, eventually installing the OS on smartwatches, smart TVs, and cameras. In January, it launched its first Tizen smartphone, the low-end Z1, which has sold 1 million units in India so far.
Samsung's Z1. Source: Samsung.
Tizen is still dwarfed by Android, which runs nearly 80% of smartphones worldwide, but Samsung's dedication to its own OS should worry Google (GOOG +10.00%) (GOOGL +10.06%). Samsung is the largest smartphone manufacturer in the world, with a near-25% market share as of the first quarter, and manufactures nearly a third of all Android devices worldwide. If Tizen ever replaces Android across all of Samsung's smartphones, it would could potentially become the third-largest mobile OS in the world after Android and Apple's (AAPL +0.44%) iOS. Of course, if users hate Tizen and simply migrate to other Android devices instead, the OS could die a quick death.
Why would Samsung ditch Google?
Samsung was heavily dependent on Google services when it launched its first Galaxy S smartphone in 2010. But as Samsung's market share grew over the years, it realized that it had to tweak the appearance of the OS and build its own app ecosystem to stand out in the crowded Android market.
Google, worried that Samsung's dominant market share would let it dictate Android's future, reportedly helped companies like HTC and Hewlett-Packard (HPQ +3.58%) design better devices to keep Samsung's growth in check, according to the Wall Street Journal. Google also set design standards for handset makers to discourage OEMs from completely altering Android's appearance.
In response, Samsung launched its own app store last year to lure users away from Google Play, and introduced rival ecosystem apps including Milk for music streaming, S Health for fitness tracking, and Samsung Pay for mobile payments. It also agreed to pre-install Microsoft (MSFT 3.90%) ecosystem apps -- including OneDrive, Office, and Skype -- onto its flagship devices. Those moves will likely cause Google to mine less data and generate lower revenue from Samsung devices. While those moves might decrease Samsung's dependence on Google, the South Korean company realized the only way to achieve true independence was to launch its own mobile OS.
Easier said than done
Yet launching a new mobile OS in a saturated market is tough for two reasons. First, developers want to make apps for established platforms like iOS and Android, which respectively had 1.4 million and 1.5 million apps as of May, to reach the maximum number of users. Samsung has never disclosed how many Tizen apps exist, but it admitted last year that developers would be "at the top in a half empty store" if they made apps for the OS.
Second, Samsung's market share fell 6 percentage points from the first quarter of 2014 to the first quarter of 2015. Replacing Android with Tizen on flagship devices could exacerbate that decline and push longtime users into the arms of rivals like LG, Xiaomi, HTC, or Sony (SNE +1.57%).
That's why Samsung has been conservative about introducing Tizen to consumers. It started slowly on smartwatches, cameras, and smart TVs, because they don't share a common app ecosystem with smartphones and tablets. The Z1, which cost less than $100, was aimed at first-time smartphone users in emerging markets who hadn't been spoiled by massive app stores yet.
What's next?
It's unclear how many new Tizen phones Samsung intends to launch this year, but SamMobile claims the next device will be the Z3. Rumors suggest the device will sport a 5-inch display, a Qualcomm quad-core Snapdragon 410 processor, 1GB of RAM, 8GB of internal storage, a 5MP rear-facing camera, and a 2MP front-facing camera.
That's roughly in line with the specs of other $100 handsets such as Google's Android One phones and Microsoft's low-end Lumias. Samsung's goal in this market is probably the same as that of Google and Microsoft -- to establish a brand presence with first-time smartphone users and use higher sales volume to offset lower margins.
Samsung continues to sell low-end Android handsets for emerging markets as well, but its interest in growing Tizen's market share conflicts with Google's plans for its Android One partners. With Android One, Google aims to reduce fragmentation in low-end Android devices with more stringent hardware standards and automatic updates to the newest versions of the OS.
Source: Samsung.
Samsung also plans to launch more Tizen-powered smart appliances like air conditioners, washing machines, and refrigerators in the near future. If those devices are connected to Tizen-powered smartphones and smartwatches, Samsung could establish a formidable presence in smart homes -- a market Google is also pursuing with its Nest thermostat and Dropcam cameras.
Watch your back, Google
Google investors shouldn't lose sleep over Tizen yet. It's a tiny OS that has more in common with "alternative" niche operating systems like Firefox OS than Android. However, investors shouldn't ignore Samsung's intentions to declare independence from Google. If that eventually happens, Google's mobile market share could tumble as Samsung gains a unified hardware and software ecosystem akin to Apple's iOS.
