Samsung – Collision course

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I think Viv puts Samsung back in conflict with Google.  

• Samsung has taken a plunge into Artificial Intelligence (AI) with the purchase of Viv but this once again puts Samsung on a collision course with Google.
• Viv is a four-year-old AI company that was founded by the creators of Siri and aims to create an intelligent voice-based interface for third parties to connect their services to.
• The net result is that physical interaction with the device meaningfully decreases providing a big uplift in the user experience.
• Viv has two main assets:
  • First: Viv is very good at interpreting and understanding natural speech.
  • The system understands context in terms of previously asked questions and can unravel multi-part complex questions.
  • If this works as advertised, it means that Viv is better at natural language than current market leader Google Assistant.
  • Second: The company claims that Viv can be very flexible because the system is capable of creating its own AI models.
  • This represents a massive leap forward because one of the end goals of AI is to have a system where the intelligence can be used for multiple tasks as well as a system that can write the software itself.
  • I suspect that the reality falls very far short of this lofty goal but even a small step in this direction is a big improvement.
  • For example, Google’s AlphaGo, which beat the world champion Go player, can’t play chess even if it is taught the rules.
• The aim of Viv is to be so smart and to know the user so well that when third parties plug their services into Viv, there is a huge leap forward in the usability and intelligence of these services.
• One of the problems that Viv has been struggling with is hardware, as to really work well, it needs to be deeply integrated into the device.
• This is why Samsung is an acceptable acquirer for Viv as it is the number 1 vendor of phones, televisions, electronics and a large range of consumer white goods.
• If Samsung can embed Viv on its devices with a great user experience, then this could help it to differentiate its Android devices from others as well as provide more consistency across it’s the different devices it makes.
• Viv runs everything in the cloud meaning the dislocation of Samsung’s phones on Android and everything else on Tizen could also be much less of a problem than it is today.
• However, this puts Samsung once again in a position to compete directly against Google who will be aiming to have its Google Assistant front and centre of every Samsung Android device.
• The problem for Samsung is that it has already agreed not to compete with Google in the ecosystem (see Samsung & Google – Gorilla War) and Viv is clearly a competitor for Google Assistant.
• From Google’s recent product launch it is clear that Google Assistant is now seen as one of its most important services meaning that I can see Google modifying the Mobile Application Distribution Agreement (MADA) that all handset makers have to sign to deploy Google Play.
• This means that on all of its Android devices, Samsung will be obliged to deploy Google Assistant and set it by default to the detriment of Viv.
• For its other device categories, this will not be a problem but the mobile phone is by far the most important device that impacts the user’s purchase decision when it comes to the ecosystem.
• Hence, while Viv could be an interesting opportunity for Samsung to differentiate its devices, I can see it falling foul of the deal it did with Google in January 2014 limiting Viv’s impact in by far the most important device category.
• Samsung has been one of my top choices for 2016 but it is closing on my KRW1.8m fair value despite the continued bad PR around the Note 7.
• I am starting to think of taking some profits even though the shares remain undemanding relative to its global peers.