Why Samsung needs to move beyond Android -- and Google

Computerworld - Samsung's relationship with Google continues to be baffling.

The two companies continually tussle quietly over Android, with Samsung experimenting with the Tizen OS in its new Gear 2 and Gear 2 Neo smartwatches while using Android as the base OS for its smartphone and tablet portfolio globally. (And it consistently modifies each generation of the Android OS with various Samsung customizations.)

It's hard to know whether the two companies quietly hate each other while remaining diplomatic in public as they wrestle over a variety of mobile initiatives in the spirit of "competing while cooperating."

Some economists call that "co-opetition." However you define it, this is a relationship that needs to undergo big changes in the next two years as Samsung tries to find ways to stay profitable beyond producing multiple new versions of its smartphones and tablets.

Just today, Samsung announced a new Samsung Galaxy Apps store with hundreds of apps that are separate from the Google Play store, which boasts well over a million.

At Google I/O last month, Google executive Sundar Pichai announced that the next version of Android, dubbed 'L,' will have a range of enterprise-focused security and management features, including a separation of work and personal data on devices. Samsung had been focusing heavily on making its own Android devices secure for enterprises with its Samsung Knox software for the last two years.

"We really want to thank Samsung for [carrying over] Knox to all of Android," Pichai said in a keynote address. "There will be one consistent experience."

Notably, Pichai didn't even mention Google's purchase in May of Divide, which makes enterprise software focused on helping companies deal with bring-your-own-device issues.

Divide was also not mentioned in a statement Samsung issued during I/O that said "part" of its Knox technology will be included in Android L (without a delineation of which part that might be).

At the time, Samsung's Injong Rhee, senior vice president of Knox, described the cooperation with Google over the technology as a "groundbreaking partnership with Google."

Pure Android and Samsung's Android

It's worth noting that whatever differences there might be behind the scenes, Android currently keeps Samsung and Google linked at the hips. Both companies heavily depend on the OS, which runs in 80% of all smartphones shipped. Samsung is by far the largest purveyor of smartphones and tablets running Android, which Google provides to Samsung and other vendors as an open source OS.

Even so, Samsung customizes its smartphones and tablets with a variety of user experiences and interfaces and its own software and apps. One example is the recent S Health app (the 'S' for Samsung) for tracking personal fitness that can be loaded on the Galaxy S 5 smartphone to connect via Bluetooth to the Gear 2 smartwatch. While the Gear 2 and its cousin, the Gear 2 Neo, both run on the Tizen OS, so does the Samsung Z smartphone, as will a TV that's expected in 2015.

In addition to the new Samsung Galaxy Apps store, there will also be a separate online Tizen Store for apps for Tizen devices from various manufacturers. Samsung collaborated with the Tizen Association in creating that store.

Meanwhile, Google separately keeps promoting new "pure Android" products like the Nexus line of smartphones made by various manufacturers, including the Nexus 5 built by LG, which went on sale last year for $349 unlocked. A big feature of such devices is that they get OS updates directly from Google, without having to wait for a manufacturer or carrier.

Google also has offered up a detailed approach to helping developers keep that pure Android look on their many apps.

Beneath calm waters

Behind this need to cooperate on basic Android, Samsung is privately concerned -- even angered -- that it has to step in line with Google in many areas of mobile technology, according to several analysts.

Samsung and Google won't acknowledge any differences when asked directly by Computerworld, but the differences are real, if well-masked, analysts said.

According to Jack Gold, an analyst at J. Gold Associates, whenever the two companies butt heads, it is really about them "being opportunistic" in a business sense. In other words, Samsung sees economic value in promoting some Samsung-specific apps or of having built Knox software more than two years ago.

With the creation of Knox, Samsung realized enterprise customers didn't feel Android alone was secure enough to gain traction with business users who were turning away from secure BlackBerry products and increasingly adopting iOS smartphones and tablets.

As for Google's move to buy Divide while in public paying tribute to Samsung's Knox, Gold said that Google was trying to help Samsung "save face" while appearing "magnanimous and not ticking off a key partner."

Gold is convinced that Google will rely heavily on Divide, not Knox, in the enterprise upgrade that's part of Android L. "Knox was really a one-off product that Samsung was making for certain devices, while Divide is more Android-general," Gold said.

But once Android L has Divide software included, Samsung won't be able to charge customers for Knox software, Gold predicted.

As for Samsung's future plans with Knox, a Samsung spokesperson said in a statement after I/O, "Samsung is committed to the long term evolution of mobile security and the ongoing development of Samsung Knox," adding that Samsung's list of enterprise and government clients "continues to grow rapidly."

Samsung's future with Google

Samsung recently predicted a drop in profit for the third consecutive quarter, and blamed slow smartphone market growth and other factors.

Some analysts pointed to a systemic problem Samsung faces, especially its reliance on Android and not its own software. That's a contrast with the likes of Apple, whose iPhones and iPads run exclusively on Apple's iOS.

Ben Thompson, in a Stratechery blog entitled "Smartphone truths and Samsung's inevitable decline," noted that Samsung's "fundamental problem is that they have no software-based differentiation" like Apple.

It could be argued that much of what Samsung has done with the creation of Knox, its various S apps and even the building of the Samsung Galaxy Apps store is an attempt to provide just that kind of differentiation from other Android device makers, and even from "pure Android" from Google. But so far, that hasn't been enough to boost Samsung's profits.

It's not clear what Samsung needs to do with software to reverse its decline. There's apparently no unique Samsung-specific OS in the works, although there is likely to be a further distancing from Android, and Google.

"I fully expect to see Samsung diverge from mainstream Android in the future where it serves their own interests," Gold said. "Tizen is not the best example of this, as I believe Tizen will have limited use and appeal. But in the coming world of the Internet of Things, you'll see other tweaks made to base-level Android beyond what Google has done with Android Wear."

Carolina Milanesi, chief of research at Kantar WorldPanel, said Samsung needs to go beyond being a frequent producer of new and multiple varieties and sizes of hardware in smartphones and tablets. That means ultimately separating itself, somewhat, from Google.

"The war in the end will be won on the mobile ecosystem and not on device sales and because of that, Samsung needs to go beyond hardware. App store, services, enterprise focus -- they all add hooks into the buyer on top of hardware. Samsung's need to go beyond hardware is clear from their financials."

Noting that the growth opportunity in smartphones is tightening, Milanesi said tablets are still hard to sell easily while wearables are so far just a niche market.

Vendors such as Samsung "need to think how else they can add value to what they offer to engage users," Milanesi said. "Samsung is too big of a fish in the mobile market to be totally dependent on Google."

Whatever Samsung does in the next two years, it should think big.

"I think Samsung needs to do something radical," said Bob O'Donnell, founder and chief analyst at Technalysis Research. "They have to do something like buy Netflix or Box or get into the services business or get into a software services play. But it can't be just a hardware play."

Growth rates are slowing for revenues for all kinds of computing hardware produced by manufacturers globally, including smartphones and tablets, and will be almost flat by the end of 2016, O'Donnell said.

"We're nearing the end of this big hardware growth cycle, which means many vendors have to rethink how they make money," he added. "It's not going to be easy for Samsung with their whole business in hardware with chips and displays and devices. That's been their bread and butter, but they just won't get the level of benefits that they've gotten in the past."