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Samsung's Latest Move Proves the Company Needs Apple to Compete

By Chris Neiger - Jan 11, 2016 at 9:04PM

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The company will allow its Gear 2 smartwatch to pair with Apple's iOS, which indicates a small but significant change in Samsung's wearable tech strategy.

Source: Samsung.

Samsung (NASDAQOTH: SSNLF) made a short but very important announcement at the Consumer Electronics show last week. The South Korean-based conglomerate said that it would allow its latest smartwatch, the Gear S2, to work with Apple's (AAPL 2.14%) iOS. This means that the company's high-end smartwatch now has the ability to be paired with an iPhone, where before it could only work with Android smartphones. 

At first blush, that doesn't sound like a big deal. After all, plenty of smartwatches that aren't built by Apple already work with iOS. But this is the first time Samsung's allowed its smartwatches to do so, and it shows just how much the company is in need of Apple's mobile dominance. 

After more than two yeas in the smartwatch space, Samsung's failed to garner much interest from wearable tech consumers, while the Apple Watch has quickly become the smartwatch of choice. Samsung thinks pairing its Gear 2 watch with iOS may increase consumer demand for its wearable tech. 

It's a move that comes not only as Samsung is losing the wearable tech battle, but also as its mobile influencing is slipping. 

Samsung's mobile misses
Sales of the company's high-end devices have been slipping, putting pressure on Samsung's revenues. In 2013, the company earned about 66% of its total revenue from its mobile division, but that number now stands around 32%. 

While Samsung is still the leader by worldwide shipment volumes, the company has felt the pressure of Apple's rising iPhone sales in markets like the U.S and China. 

With the iPhones dominating high-end smartphones sales, Samsung has realized that it's going to need more than just its own devices to spur interest in its wearables.

Worrying wearable market share
The latest data from IDC shows that Apple shipped 13 million smartwatches in 2015, while Samsung trailed far behind with just 1.7 million. And things aren't expected to get much better for Samsung. 

IDC notes that by 2019, Apple's watchOS will take 51% of smartwatch market share, while Android Wear will take nearly 39% -- and Samsung's own Tizen operating system (which powers the Gear 2 smartwatch) will only take 2.8%.  

By tying its latest smartwatch to Apple's mobile OS, the company may be able to change its position in the smartwatch space. But it also may have the unintended consequence of giving Apple even more influence in the market. 

Looking ahead
No one is expecting Tizen-powered Samsung smartwatches to drive sales of Apple's iPhones, but Samsung's move sends a message, particularly to its Tizen developers, that Apple's mobile platform is the one that will drive wearable tech growth.

To boost its position in wearables, I think Samsung needs to turn its attention back to Android Wear for its high-end smartwatches, and away form Tizen. Tizen is Samsung's attempt to assert more control over its devices and distance itself from its need for Google, but so far that hasn't worked out for Samsung, and I'm skeptical that it ever will. Tizen doesn't have the extensive app network that Android Wear and iOS have, and the OS isn't as well known to consumers as Apple's and Google's platforms are. And considering that Android Wear smartwatches are already compatible with iOS, Samsung wouldn't be sacrificing its new strategy of allowing its wearables to pair with iPhones.

There's still plenty of time for Samsung to reposition itself in the wearables market (as it may be doing with wearable tech processors), but if it can't get its strategy right soon, Samsung will continue losing the wearable tech battle, and its mobile position will keep declining.

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. 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.

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