Can Samsung Conquer The Final Frontier?

Samsung: Unquestioned hardware prowess, but software?

Samsung: Unquestioned hardware prowess, but software?

Samsung’s chief strategist Young Sohn mentioned last week about the importance of a software ecosystem that Samsung can curate and control. Samsung is by far the top hardware maker worldwide, trumping Apple in smartphones and making massive inroads against Lenovo, Dell, HP and Acer in laptops. This is, still not considering the massive number of TVs and monitors that the korean giant ships. Samsung’s leap to leadership does not bear the same romance that Apple’s rags to riches story holds but Samsung’s immense growth is not surprising.

 

 

Semiconductors

If you would flip back a couple of decades and look at the growth of DRAMs and microprocessors, Samsung’s name was always there. In fact, most of the time your device is probably made up of Samsung components. The details are interesting but too long for this short post to hold. Samsung’s semiconductor design and production prowess saw it catch up and leapfrog top memory makers around the globe. It then did what was thought impossible (in the memory market) by consistently holding onto its #1 lead and stretching it further.

Where it all began: Semiconductor dominance

Where it all began: Semiconductor dominance

 

With design teams working on 3 generations of each product line concurrently, it achieved incredible ramp up production efficiency and its time to market blew its competitors away. I had a holiday job (about 10 years ago) in a local production firm that built Motorola phones for export to the United States. I was shocked at the number of parts that were built by Samsung. At times, that Motorola phone felt as if it was a Samsung phone in a Motorola case. That was in the 1990s-2000s. Fast forward a decade or two, Samsung is still by far the top component maker. Multiple Apple products (‘i’ products and also Macs) utilize Samsung components. The same can be said of other laptops and desktops that sport Samsung memory chips and SSD drives.

 

 

Consumer Electronics

Samsung’s move from being a component producer to a manufacturer of consumer end products came first in the form of home appliances and more notably TVs and monitors. Just like how Asian brands come to fore, Samsung was noted for its cheap but good screens and other appliances. I personally owned 3 Samsung monitors, all of which are still serving well. They were great screens in really cheap bodies. The stands were shaky but I was getting good value for pretty massive screens. The days of dominance in Sharp, LG, Panasonic and Sony TVs were then interrupted with a flood of Samsung devices. They were competitive enough to wedge a portion of this highly competitive market and then, again, take the lead.

 

Samsung was competitive enough to wedge a portion of this highly competitive market and then, again, take the lead.

 

 

Smartphones

Samsung is not new in the phone production market. It had previously produced both candybar and clamshell dumbphones. It wasn’t anywhere close to Nokia but it was one of the few recognizable Asian brands. When Apple changed the direction of smartphones in mid 2000s, Samsung wasn’t big in that game. HTC and Motorola were the brands that went huge on the competition spurred by Google’s free licensed Android. Compared with the dozens of models being churned out by forerunners HTC and Motorola, Samsung produced just 2 to test the waters of a new smartphone paradigm. We all know how that turned out. It leapfrogged everyone including then market leader Apple. Samsung has an uncanny ability to come from behind quietly, take the lead and then extend it without losing its grip.

What Samsung has proved for the past 3-4 decades is that it is king in hardware. It has unmatched foresight, incredible production optimization and is able to translate these strategies to capture multiple hardware markets. But can it do software?

 

 

Comparisons: Sony & Apple

Sony: Asia's best shot at a hardware to software crossover.

Sony: Asia’s best shot at a hardware to software crossover.

Sony is the only Asian manufacturer to push a software ecosystem that has gained some level of success. Yet, Sony better known as a company on the wane. Its dominance as a consumer facing brand in the 1990s and 2000s faced limits to growth in its preference to concentrate on hardware margins (familiar story, Apple?).

Apple on the other hand is facing somewhat of a Sony problem but has evaded the early hurdles by at least opening its iTunes market to more than just iOS and Mac devices. Its iCloud services are firmly stuck on Apple-only platforms which has limited its use to consumers who use different brands of hardware. Apple has two things going for it on the software side: iTunes content & iOS apps. The former is something that I believe Apple should bang on moving forward. The success of iOS apps came mostly because it was first to the market. It has over 600,000 apps but has already been matched by Google’s Android with the same number. Many iOS only apps have moved to accommodate Android because Android has captured 75% of the market with iOS at 14%. Marketshares like these are not favorable for iOS app growths. This is why iTunes and media content is the only way forward for Apple, if it is willing to ditch its hardware-first philosophy.

 

Sony and Apple top the market in their prime but the issue is that their prime periods are fairly short lived.

 

The cases of Sony and Apple show that it is often difficult for hardware makers to bridge that gap into software. Sony and Apple are by no means flops. They topped the market in their prime but the issue is that their prime periods are fairly short lived. This is mostly due to the constraints of a hardware focus. Considering software companies like Google and Microsoft, you do expect these types of firms to have sustained growth and relevance compared to hardware makers.

 

Can Samsung Do It?

The question for Samsung is if they can pull yet out another surprise. Samsung has successfully crossed more markets than any other hardware maker including Apple. But software is a very different beast. Samsung was pushing its own BadaOS before succumbing to a ready made solution in Android. Even if Samsung miraculously manages to produce a compelling software platform – will its ecosystem be able to withstand the dominance of Android, iOS and Windows?

Google’s offer of a free software platform is something that Samsung may regret jumping on. After all, profits can be made in hardware but true staying power comes from a software ecosystem. Android means that Samsung is ceding control of long term growth to Google. As a top manufacturer, it cannot continue in that manner any longer. Moving to Windows is not an option, it needs its very own.

 

Android means that Samsung is ceding control of long term growth to Google.

 

Samsung may have given up on BadaOS but it is not simply daydreaming on the software front. Its investment into Tizen (an open Linux platform championed by Intel and led by the Linux foundation) shows that it is placing some focus on moving to its own ecosystem and software platform. Tizen is nothing more than an alpha, very long term substitute. Nevertheless, Samsung is thinking ahead, showing the same foresight that has granted it leadership in more markets than any hardware manufacturer.

Can Samsung conquer software? It is very difficult but I won’t bet against a firm with a track record like theirs.

 

 



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