Samsung's galaxy of opportunity

Samsung's Galaxy SIII looks like a sure fire hit but the South Korean giant still has some issues to tackle before its mobile supermacy is set in stone.

Samsung’s newly-announced Galaxy S III Android-powered smartphone is sure to raise still further the company’s standing with the technology buying public and will play a major role in ratifying the Korean giant’s newly-won status as the world’s number one handset vendor. The attractively-styled device (in marble white and pebble blue only – what price a limited edition black version a few months down the line?) brushes aside criticisms of earlier models over build quality, especially towards the conspicuously plastic back panels sported by most of the range.

 In addition, the range of “human-centric” features Samsung has added to the base Android Ice Cream Sandwich user experience demonstrate a company thinking hard about the next generation of user interface design and unafraid to experiment. But are these characteristics enough to guarantee the company’s longer term success or does it finally need to bite the bullet and take a tighter grip on the ecosystem than its alliance with Google currently allows?

A sure fire hit

In all likelihood the Galaxy S III would sell well even without the massive helping hand Samsung is giving it in terms of marketing bucks. The company has been steadily building its reputation as the foremost provider of Apple-threatening Android smartphones since the launch of the first Galaxy S in 2010. That device’s slim-line form factor, high-end specification (especially its Super AMOLED display) and subtle customisation of the Android user experience via Samsung’s TouchWiz user interface set a new benchmark for Android smartphones that has remained true through the S II and now the S III.

The momentum that has built up behind Samsung’s efforts has grown and grown and there’s no immediate indication that it will suddenly collapse. Galaxy S III looks set to break Samsung’s own Android sales record in the months ahead. But let’s look further out and try to understand what happens next. Samsung has some major decisions to take in the next 12 months if any subsequent Galaxy S IV is to keep up the tradition.

Value-add concerns

Our greatest concern for Samsung is that while smart device purchasing behaviour is clearly heavily led by the design and specifications of the device itself, it is at least as dependent on the promise of what a particular device actually delivers the user in terms of functionality. Devices that lack integration with key applications, content, and services start with a disadvantage compared with the category benchmarks.

RIM’s and Nokia’s current predicaments and Palm’s nosedive into obscurity bear this out, all being at least partially attributable to a lack of downloadable applications (or least of the apps that users wanted). Neither did any of these companies really crack the magic formula for other forms of content, with no equivalent of Apple’s iTunes, let alone Google Play.

Persistent, high-profile marketing can go a long way in the short term towards rectifying a shortage of value add – at least for those mega-vendors that can afford it (Samsung is a worldwide partner of the London 2012 Olympic Games, for instance). However, this will do little to hold back the tide once user expectations for smart devices move on. This is even more acutely so at the top end of the market, which Samsung has so ably made its home.

Certainly it is here that Samsung’s only obvious smart device weaknesses lie. Its own value-added service offerings, largely in the form of various content “Hubs”, appear uncompetitive with those from rivals such as Apple and Amazon, for instance. As such, we expect to see Samsung dramatically beef up its content strategy during the next year, a strategy that at least involves little risk.

The platform independence question

Of more concern longer term is Samsung’s dependence on Google (and to a lesser extent Microsoft) for its device operating systems and much of its value add for consumers. This dependence both limits its ability to differentiate relative to other OEMs (which mainly use the same platforms) and dramatically scales back its influence over the broad ecosystem of application developers, content providers, and others.

This is not necessarily a problem; assuming Samsung is happy simply providing the means for Google to execute its Android strategy it can still have a very worthwhile business. However, it does mean that its fate is closely tied to that of Google and Android, whose own future success cannot be assured. It also clearly positions the company lower down in the value chain than either Google or Apple and paves the way for a more consolidated attack from below from others such as Huawei.

By pitching itself so successfully at the high end of the smart device market, Samsung has literally demanded itself to step up its efforts here. The company’s continued interest in the LiMo/MeeGo-derived Tizen software platform as a possible alternative to Android clearly indicates its awareness of this problem. Samsung iskeenly aware of this anomaly and we expect it to move to rectify the situation in the coming year.

Would such a strategy succeed? It’s clearly a high risk one where many “old-school” handset OEMs have tried and failed over the years. That said, Samsung has had a far better opportunity to observe and learn from its peers while gaining considerable experience with the market-leading smartphone OS. And if its commitment to taking on Apple on a marketing level is an indicator of what it might spend on developing a competitive platform and ecosystem then it has a better chance of success than any OEM since Apple itself.

 Tony is principal analyst in Ovum Telecoms’ Devices & Platforms group. 

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