Samsung Challenge to Apple and Google Stumbles
Telecoms Balk at Korean Firm's New Tizen Mobile OS
Updated Feb. 2, 2014 6:02 p.m. ET
SEOUL—An ambitious effort by Samsung Electronics Co. 005930.SE -0.63% to roll out smartphones powered by a new operating system is on shaky ground.
The world's largest smartphone maker is investing a large amount of resources on an operating system called Tizen to challenge the mobile software duopoly of Apple Inc. AAPL +0.16% and Google Inc. GOOG +4.01%
But some of the world's major wireless carriers are beginning to pull their support of phones slated to run the platform.
Tizen (pronounced TAI-zen) also has had trouble attracting large developers of applications that are increasingly at the center of the user experience. That is leaving the fledgling platform in the hands of tiny, relatively unknown players, like Daniel Escobar, a 34-year-old developer in Atlanta.
The South Korean company is supporting Mr. Escobar's Maestro music-sharing service, which has about 30,000 subscribers, with tens of thousands of dollars in cash incentives and technical support to develop an app for Tizen.
The imperative for Samsung to figure out a mobile software and services strategy is critical.
Chinese smartphone makers—including a potentially strengthened Lenovo Group Ltd. 0992.HK -8.21% following its planned acquisition of Google's Motorola Mobility handset unit—threaten to push down handset prices and squeeze hardware margins. That would make software and services the industry's primary profit engine.
"Consumer needs are changing along with the changing times," Samsung co-Chief Executive Boo-Keun Yoon said last month. "I don't feel you can lead the market by focusing solely on software or hardware."
Samsung's best-selling smartphones currently run on Google's Android operating system and come preloaded with Google mail, mapping functions and mobile-ad searches. As a result, it is the Mountain View, Calif., company that is taking a cut of every purchase made on its app store.
If Tizen were to succeed, it would give Samsung its own stream of revenue from sales of third-party apps, software and services on its devices.
The potential is enormous. In its most recent fiscal year, Apple generated $16 billion in sales from software and services, including the iTunes and App stores.
Samsung, which has been developing Tizen with help from Intel Corp. INTC -0.81% and others, is pouring billions of dollars a year into software development more generally and devoting about 60% of its 67,000 research and development engineers to software innovation, with plans to hire another 800 engineers a year.
Samsung's longer-term aim is for Tizen—named to evoke a Zen-like "tying together" of different devices and functions—to serve as a unified operating system that can coordinate functions on every device a consumer owns, including a smartphone, refrigerator, television set and washing machine, all of which the company makes.
Prototype Tizen devices, one of which has been reviewed by The Wall Street Journal, look and feel similar to those running Android, with which it shares a common programming code base. But those involved in the project say the prototypes can't be judged as final products, and Tizen's central appeal is that it allows for more customization of the interface by carriers and manufacturers than are possible with Android.
Yet industry executives and analysts say it has been difficult to get Tizen off the ground.
NTT DoCoMo Inc., 9437.TO -3.49% Japan's biggest telecommunications operator and a close partner on Tizen, had been gearing up to announce its first Tizen smartphone in mid-January, with President Kaoru Kato rehearsing his presentation a month in advance, a person familiar with the matter said.
But on the day DoCoMo was set to release its device, it instead shelved its plans, citing a lack of demand in its home market for an alternative to Android and Apple's iOS operating system.
Two weeks later, Mr. Kato said at a news conference for DoCoMo's quarterly earnings that "Tizen continues to be extremely important." But, he added, "we will watch global market trends to decide on a launch."
DoCoMo's sudden about-face was the latest setback to the much-delayed Tizen project, which has its roots in another homegrown Samsung platform, Bada, that eventually was shut down. Tizen originally was slated for commercial release in 2012.
In the U.S., Sprint Corp. S -1.43% joined the Tizen Association in May 2012, saying it welcomed the broader consumer choice offered by a new operating system. But Sprint left last year and now is focusing its resources "on more immediate product launches," a person familiar with the matter said.
Spain's Telefónica SA TEF.MC -0.35% also exited the association, which oversees development of the operating system, and last year released the first commercially available mobile phone running on Mozilla's Firefox, another upstart operating system. Telefónica saw Firefox as a better way to make inroads in the low-end Latin American phone market, a person familiar with the matter said.
France's Orange SA, ORA.FR -0.94% another partner that had planned to release its first commercial Tizen smartphone alongside DoCoMo, said the speed of development at Tizen "is not as mature as we may have expected at this point." The carrier doesn't have a Tizen device in its current smartphone road map, an Orange spokesman said.
Samsung responded that it would evaluate product offerings in Japan and France with the mobile operators. Samsung said the company and its partners would offer a "sneak preview" of the newest Tizen devices this month on the sidelines of Mobile World Congress, an annual exposition in Barcelona for the global mobile industry.
Samsung's difficulty in introducing its own operating system comes amid a series of moves that appear to have improved an increasingly strained relationship with Google. While Google and Samsung continue to talk up the strength of their partnership in public, the two companies increasingly were stepping on each other's toes, pushing Samsung to accelerate its efforts to develop Tizen.
"Samsung can't have a future where Google owns the experience and Samsung becomes the dumb screen company," said Rajeev Chand, managing director at Rutberg & Co., a San Francisco-based investment bank that focuses on the mobile industry.
Samsung and Google last week said they had signed a wide-ranging cross-licensing deal on technology patents that covers the companies' existing patents, as well as those filed over the next 10 years.
Three days later, Google said it would sell its Motorola Mobility unit to Lenovo for $2.9 billion, ridding itself of a direct competitor to Samsung's Android-powered smartphones.
It was unclear whether Samsung's recent rapprochement with Google was driven by its struggles with Tizen.
"With Google we have a close relationship and we will continue to be an important strategic partner and collaborate together," a Samsung spokesman said. Samsung will continue to support multiple operating systems, he said.
Samsung's software pitch to third-party app developers, meanwhile, has been built around two of its biggest assets: its clout and its hefty cash reserve of $50 billion.
To attract interest in Tizen among third-party app developers, Samsung in October held its first developers' conference, at a hotel in San Francisco, where executives stressed Samsung's size and commitment to software. In November, the company held a Tizen developers' conference in Seoul.
Samsung and Intel also are sponsoring a contest that will dole out $4 million in prizes for Tizen app developers, a strategy employed with limited success by Microsoft Corp. MSFT +2.66% and BlackBerry Ltd. BB.T -3.56% —two other big names that struggled to break into the market with alternative operating systems.
But for some of the biggest, most established app makers—the ones most critical to Tizen's success—even cash incentives haven't been enough to stir interest in the fledgling platform.
Several months ago, Samsung offered the developers of one of Android's most popular apps, which has been downloaded more than 50 million times, more than $100,000, in line with similar incentives from Microsoft, to adapt its app for Tizen, according to a top executive at the app developer.
The company, which had collaborated with Samsung closely in the past, turned the Korean company down, concluding that Samsung's previous track record in software made it unlikely that Tizen could gather an audience, the person said.
"Software developers just care about the number of mobile phones on the market," Tizen Association Chairman Roy Sugimura said in an interview.
Mr. Sugimura said Tizen had about 6,000 apps as of December, a far cry from the nearly one million apps on Apple's iOS. "Such an attitude makes it very difficult for Tizen to get approval because right now there are no users."
So far, Samsung has had more success wooing smaller developers, such as Mr. Escobar in Atlanta.
Mr. Escobar said Samsung first approached him in late 2012 with a proposal that he create an app for his Maestro music-streaming service on a new operating system that it was developing. Mr. Escobar, who had already built a Maestro app for iOS and Android, said he was skeptical at first. He hadn't even heard of Tizen.
But Samsung agreed to cover his company's development costs, "and then some," he said. He said he also was impressed by Samsung's size and commitment to making Tizen succeed.
"At least in our case, there's far more to gain than there is to lose," Mr. Escobar said.
"We're not talking about a small company. We're talking about a company with hundreds of millions of phones being sold.…You can't walk away from those eyeballs."
—Mayumi Negishi in Tokyo, Sam Schechner in Paris, David Román in Madrid and Ryan Knutson in New York contributed to this article.
Write to Jonathan Cheng at email@example.com