Samsung's Plan To Replace Android Has Hit A Snag, And Now Things Are Looking Bad For Next Year

It was a rough year for Samsung, but 2015 isn't shaping up to be much better.
After watching profits tumble this year due to increased competition from other Android phone makers, Samsung sits at an odd inflection point. It can pump out pricey, generic Android phones and watch cheaper phone manufacturers continue to eat its lunch, or it can start innovating in software and services and find new ways to differentiate its devices from the competition.

Samsung had one plan to do the latter, but it seems to be faltering.

Reuters had a big story last week on Tizen, a mobile operating system made by Samsung that was supposed to ship on at least one phone this year. But Tizen has hit a bunch of snags, and Samsung wasn't able to release the OS on a phone before the end of 2014. (There are rumblings a Tizen phone will launch in India soon, but nothing has been confirmed yet.)

Samsung's Tizen project is a way for the company to wean itself off Android, which is controlled by Google. Manufacturers may be able to use Android for free, but it comes with stipulations, including using Google's suite of services like Gmail, Google Maps, and the Google Play app store.

That means there isn't much difference between a Samsung phone or one made by a company like the Chinese startup Xiaomi, which makes phones just as powerful as a Samsung's but sells them for about half the price. Its companies like Xiaomi that are causing customers to buy cheaper phones instead of pricey Samsung phones, which has been devastating to Samsung's profits this year. (Xiaomi is now the third-largest smartphone vendor in the world by some estimates and rapidly gaining ground on Samsung an Apple.)

Samsung's big challenge next year will be to prove that its Galaxy phones, which are wildly profitable, can offer more than the cheaper Android devices out there. Tizen was one potential answer to that problem.

But Tizen is very similar to Android. I tested an early version of Tizen at the Mobile World Congress event in Barcelona earlier this year. Here it is running on a sample Samsung phone:

It looks and function almost exactly like an Android phone. But unlike Android phones, it doesn't have the robust ecosystem of apps and services Google can provide. That makes it tough to convince people to buy one over an Android phone. It's the same thing that killed BlackBerry and has caused Windows Phone sales to remain flat. People won't buy phones that don't have access to good apps or services.

Meanwhile, Samsung has tried to create services for its Android phones, but none of them have really taken off. There's Milk Music, which is sort of like Pandora, but not as good. There's also Milk Video, a streaming video service with a very limited selection. And ChatOn, Samsung's answer to iMessage, WhatsApp, and other popular messaging apps, is shutting down soon.

Still, the Tizen project is far from dead, and we'll probably see it ship on a few low-end devices in emerging markets next year. Tizen also powers most of Samsung's smartwatches. And even though Samsung has yet to make a smartwatch that can sell in significant quantities, I've heard we can expect to see more models in 2015 as the company continues to experiment. Finally, Tizen can control "smart home" appliances like light switches and washing machines. That "internet of things" trend is one of Samsung's big bets on the future.

But here's the reality for Samsung in the near term:

Profits tanked 60% last quarter for Samsung. This quarter might be a little better because of holiday sales, but I bet the launch of the big-screen iPhone 6 and iPhone 6 Plus won't help things. (Analysts are expecting a record quarter for iPhone sales.) And while Samsung enjoyed about three years of massive growth, the smaller Android manufacturers have caught up and figured out how to undercut Samsung on price.

The iPhone is still doing well because it's a unique experience in everything from hardware design to apps and services. Samsung phones still look like any other plasticky Android device out there and don't have any key differentiating software features. An Android phone is and Android phone. It really doesn't matter who makes it these days.

Tizen was one potential savior for Samsung, but now even that is flailing.