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Sunday, 27 January 2013 13:18

Samsung's new challenge: To win customer loyalty

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Samsung Electronics has built global leadership in mobile phones, but in a fickle industry looks more vulnerable than its nemesis Apple without an 'ecosystem' - software, services, content and customer support - to keep its users loyal.

 

"They need to move out of that mentality of just selling people a device," says Rachel Lashford, Singapore-based managing director of mobile for Canalys, a consultancy. "They need to get their head around the idea that they're no longer just a hardware company."

The ecosystem standard has been set by Apple: offering mobile users downloadable programs and content - such as iTunes for music and the App Store for programs - which are best, and often only, accessible via and across Apple devices. This binds users to Apple and makes them more likely to buy another Apple device - an iPhone user buying an iPad, say.

"Apple's greatest achievement beyond the design of the device has been the development of its ecosystem," said Scott Bicheno, UK-based senior analyst at Strategy Analytics.

While Apple has been slow to make some of these services available in some parts of the world - it only recently unveiled its iTunes Store across much of Asia, nine years after its US launch - it is still ahead of rivals.

Samsung's efforts to build something similar have been at best halting.

Music Hub, a service combining downloaded music and streaming, was launched in July but is only available for US users of its new top-end phone, the Galaxy S III. Early reviews are mixed. It is also building an ad network via a partnership with OpenX, a service that Mar Pages, Singapore-based principal at Delta Partners, likens to Apple's iAd. These services allow application developers to embed adverts in their software.

Dilemma
But there's only so much Samsung can do to build on top of Google's open platform Androidoperating system, which already offers users well-established services such as Dropbox, which moves files seamlessly between devices and users.

"I wonder what Samsung could do which would offer conspicuous value over the likes of Dropbox," said Strategy Analytics' Bicheno, noting Apple's ecosystem is largely a way to sell hardware. "This is the dilemma they face."

It wasn't always so. In 2010, Samsung launched its own mobile operating system called bada, and wooed developers and users with tools and an app store. Bada has steadily gathered users but accounts for less than 3 per cent of devices shipped, according to technology consultancy Gartner. Android accounts for nearly two thirds.

The company's efforts to make bada more popular were hampered by its own focus on hardware sales, said Karthik Srinivasan, who worked as a product manager at Samsung's Media Solutions Center in Bangalore. His team would submit proposals for services and apps only "to be stumped when the question came back from Korea: How many more devices can you sell next year based on these services?" he told Reuters.

Samsung has not abandoned bada, but its emphasis on Android alienated its fan base and developers. "The top management may have had focus," said Srinivasan, who quit the company last year, "but it was dispiriting to see the company was making very good Android devices and promoting them more than bada ones."

Samsung said in January it planned to merge its operating system with Tizen, an open source platform promoted by Samsung and chipmaker Intel. It hasn't issued a press release about bada since November 2011.

Samsung declined to comment for this article.

Olympic sprint
Samsung can be fast and decisive where it senses an opportunity that fits its broader strategy of brand building.

When Bangkok-based start-up Fingi turned to Galaxy smartphones for its hotel concierge service this year, Samsung's local operation was quick to help. Fingi's software allowed a Thai hotel to offer guests a Galaxy on check-in which they could use to open doors, control air conditioning, lighting and TV and order room service.

When Samsung's UK operations heard about Fingi they decided to use it to help promote the Galaxy S III at the London Olympics, said Carl Rubin, Fingi's vice president of business development. Within weeks, he said, Samsung had struck deals with hotels and helped set up the technology to make it work. "They turned on a dime and got this done," he said.

The Fingi initiative made use of the near-field communication chip inside some Galaxy devices, a hint of where Samsung sees more opportunities. Delta Partners' Pages says Samsung recently hired one of Visa Inc's mobile payments executives and patented the words "Samsung wallet."

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