YOON C Lee, a Samsung Electronics Co executive, is giving a tour of his US home in Oakland. He shows off his living room and foyer, then takes a look outside to check the garden. He considers turning on the sprinkler system before deciding the plants have enough water.
The thing is, he’s not actually in California. He’s 8,000 miles away with a reporter in a Seoul conference room. Lee, a tall, 49-year-old, is at a huge table fiddling with a Galaxy S5 phone that’s streaming live video from the US.
This is Samsung’s next big bet as it works to build a future beyond mobile phones, where earnings are tumbling. Lee and his colleagues are trying to create another hit from what’s known as the Internet of things, technology that stitches together phones, cameras, sprinklers and roads. If they succeed, the effort could propel sales of the company’s electronics, appliances and chips for a generation; if they fail, the troubles will likely deepen.
“Imagine if all the dumb things around you can be connected,” said Lee. “For Samsung, this is a big new opportunity, a huge paradigm shift. It will benefit us across all businesses.”
Samsung’s Internet push comes just as Apple Inc, Google Inc and dozens of others are sizing up the same opportunity. Tech’s giants are all vying for leadership and collaborating where necessary. The market for the Internet of things is projected to hit US$7.1 trillion by 2020, according to the research firm IDC.
In a sign of how seriously Samsung is taking the effort, the company is transferring about 500 engineers from its mobile-phone division and allocating them largely to the Internet initiative, according to people familiar with the matter. The shift also reflects recognition that the Suwon, South Korea-based company needs another hit after smartphones, they said, asking not to be identified discussing internal matters.
“This is a must-have market for Samsung,” said Neil Mawston, executive director of the research firm Strategy Analytics. “The Internet of things will be too big to ignore.”
The mobile-phone unit is faltering as Apple offers bigger screen iPhones similar to Samsung’s marquee Galaxy range and Chinese newcomer Xiaomi sells stylish phones at low prices. In the most recent quarter, Samsung’s mobile profit tumbled 74 per cent, dragging net income down by 49 per cent from a year earlier.
The Internet of things represents the third revolution in information technology, after the PC and the Internet, Michael Porter and James E Heppelman wrote in this month’s edition of the Harvard Business Review. Its implications go beyond the increasing number of smart, connected products in the world and are much more than simply a way to transmit information, they wrote.
With more everyday things connected to the Internet, products will have expanded capabilities and the data they generate may change how companies compete and the boundaries of competition, Porter and Heppelman said.
The Internet push is one of the first major initiatives under Lee Jae Yong, who has taken more of a leadership role since his father, chairman Lee Kun Hee, was hospitalised in May. The heir apparent, 46, has to calm investor concerns over the business outlook and his leadership skills.
Though Samsung Electronics is best known for its mobile phones, the Suwon, South Korea-based company makes everything from televisions and computers to washers, dryers and ultrasound machines. It’s part of Samsung Group, South Korea’s biggest conglomerate, that sells insurance, builds ships, makes howitzers and operates a theme park too.
Samsung Electronics’ latest push is designed to capitalise on its scope and strengths. Software engineers from the mobile unit are able to work directly with the development teams for TVs, vacuum cleaners and other appliances.
“Samsung, Apple and Google are all envisioning a world where things such as mobile devices and household goods surrounding us will speak to each other,” said Ko Seung Hee, a Seoul-based analyst at SK Securities Co. “Unlike the others, Samsung can offer a complete line-up of devices and appliances and that’s Samsung’s biggest strength.”
Samsung’s weakness has been software, which is important because it binds together the Internet of things. Google’s Android operating system, given away to phonemakers including Samsung, Xiaomi and Lenovo Group Ltd, is the most widely used on mobile devices. Apple’s operating system, which it doesn’t share, has most of the rest of the mobile market.
Samsung has been working with Intel Corp to develop its own operating system, Tizen, though the effort has gained little traction. The Korean company is using Tizen in its smartwatches and cameras as it seeks to reduce its reliance on Google.
“Samsung could divorce Google at some point, but considering their own respective interests, they need to sustain the marriage for a while,” said Claire Kim, a Seoul-based analyst at Daishin Securities Co.
Samsung has also joined Thread Group, led by Google’s Nest Labs, which builds new home automation standards. It also signed a global patent-licensing agreement in February with Cisco Systems Inc, which holds one of the biggest pools of patents in connected devices, to share technologies over the next 10 years.
Samsung has no illusions about the challenges ahead.
Rivals have tried cracking the market for the Internet of things for more than a decade. — Bloomberg