The first (proper) week in January always promises a deluge of stories from CES and one opening gambit is a content-based partnership between Samsung and Apple, which should probably have happened much sooner.
Beginning in the Spring, new Samsung Smart TV models will offer iTunes Movies & TV Shows and Apple AirPlay 2 support for Apple customers, while 2018 models will also be made compatible via firmware update. iCultists with Samsung TVs can access their existing iTunes library and browse the iTunes Store to buy or rent new content, while Apple content will also work with Samsung’s Smart TV Services, such as Universal Guide, Bixby and Search.
The iTunes Movies & TV Shows app will feature on Samsung Smart TVs in more than 100 countries, while AirPlay 2 support will be available on Samsung Smart TVs in 190 countries.
On the surface this could be a very positive partnership for Apple and Samsung, both of whom have struggled to make a significant impact when searching for diversified revenues.
“Fascinating move as both companies have struggled to make strides in services,” said independent tech and telco analyst Paolo Pescatore. “Arguably it is a smart strategic move for both companies which underlines the need for companies to work more closely together. Samsung has made numerous failed moved in video services while Apple is still seeking to crack the TV landscape.”
Looking at Apple to begin with, this is a move which should have perhaps happened a while back. Stagnation trends in the devices and hardware segments will not have surprised anyone in the Apple business, this is the reason why CEO Tim Cook has been emphasising gains in the software and services business units so proudly, but it is now abundantly clear the ‘us versus everyone else’ mentality which made Apple great will not work outside its traditional stomping ground.
Apple has seemingly long-defied trends in the technology world by swimming against the ‘open’ euphoria. This mentality dates back to its stubborn but brilliant founder Steve Jobs, who constantly resisted the idea of openness, instead tightly integrated Apple within Apple, creating a closed ecosystem which forces iLifers to buy more Apple products. Back during a 2010 earnings call, Jobs stated “open systems don’t always win”.
When Apple was creating wonderful products, with each new release offering a brilliant new feature, this was enough to ensure the loyalty of customers despite the closed nature of the Apple business. However, innovation in the hardware segment has stalled and the closed mentality does not work in the software and services world. What some proof? Have a look at the profit warning last week.
The profit warning was the first one released by Apple in 15 years, and despite progress being made in the software and services segment, the gains could not compensate for the downturn. Although Cook pointed the finger of blame at a slowing Chinese economy, the team could not convince enough consumers to buy the ludicrously priced flagship devices in other territories either. This is a wider trend in the hardware segment, consumers are extending the lifecycle of current devices, while some are leaning towards second-hand models, but the software and services unit could not fill the $5 billion hole created.
To make the content business work, Apple will have to become a more open company, adopting the culture which it has resisted for so many years, and in Samsung it has an interesting partner.
In Samsung, Apple has found something which its own smart TVs cannot deliver; scale. According to market research firm NPD, Samsung is the leader in the US premium smart TV market (August report), holding 34% market share. Considering just over 43% of Apple’s revenue comes from the Americas, this is potential a very positive catapult to secure additional services revenues from customers. And this is before we’ve even started talking about the other territories.
Samsung is another business which has struggled to make headway with alternative revenue streams, though its prominent position in the premium home electronics space offers an excellent opportunity for the aggregator business model. When looking for new money each business has to decide where it can add value to the ecosystem; sometimes it is offering new products in parallel segments, but occasionally it means helping other businesses achieve their ambitions. Embracing openness could be an excellent move here.
If Apple wants to make any meaningful impact on the software and services industry, it will have to move away from the closed mentality which brought it success in the Jobs era and embrace the idea of collaboration. It will certainly be difficult to redirect such a massive supertanker, but one thing is clear; the faltering hardware segment, as it currently stands, will not support Apple’s indulgent ambitions.