Samsung hints at smartphone overhaul as profits fall; time to embrace pure Google?

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Samsung seems to be doing some soul-searching as profits from its smartphone business slip away.

In an earnings call on Thursday, the company’s head of investor relations, Robert Yi, said Samsung’s response to cheaper handsets from Chinese brands like Xiaomi “was not quick enough,” and promised more “efficiency” in the future, according to the Associated Press.

On the same call, Samsung’s senior mobile communications vice president Kim Hyun-joon called out “somewhat weak” high-end smartphone sales. “We will fundamentally reform our product portfolio,” he said. In other words, Samsung is finally acknowledging the squeeze that industry observers have been talking about for months.

Why this matters: Even if you don’t care about Samsung’s bottom line, the admission of failure likely means that change is coming. While Samsung has staked its success on addressing every possible market with a different device, from oversized plastic-clad flagships to metallic alternatives to camera-centric models to low-cost compact handsets, clearly this model is no longer working. What’s less certain, however, is whether Samsung can find a way to stand out in both the high-end and low-end markets.

Samsung’s challenges

With its flagship Galaxy S and Galaxy Note phones, Samsung’s main competitor is the iPhone. But as of this fall, its main point of differentiation—larger screens—no longer exists, given Apple's release of two larger models. Apple still makes nicer-looking phones—though the Galaxy Note 4 is a step in the right direction—and in terms of raw power, Samsung and Apple are neck-and-neck.

Meanwhile, Samsung is behind Apple in software and services. Its Wallet app is extremely limited in use, and its S Health app has less interplay with third-party fitness services compared to Apple Health. Its ChatOn messaging app is not integrated with core messaging like Apple’s iMessage, and its multimedia efforts are in transition. Although Samsung makes solid phones with lasting brand appeal, even Android enthusiasts are starting to favor competing phones like the LG G3.

In emerging markets like China, Samsung is facing an even broader assault. Competitors like Xiaomi are succeeding at selling low-priced phones at low margins, with no reservations about aping the style of bigger brands like Apple (and Samsung).

In the earnings call, Samsung didn’t say how it might respond to these threats, aside from more metal designs (the company announced the metal A3 and A5 phones Friday) and new gimmicks like flexible displays. How it’ll address its software and services problem remains unclear.

So here’s one wild, maybe even impractical idea for Samsung: Undo ill-fated software experiments like S Health and Samsung Wallet—they’re clearly not working—and embrace stock Android. Use the company’s colossal marketing power to show people the beautiful side of Android that’s so often unseen by the average user, and put weight behind services like Google Health and Google Wallet. Make them competitors to Apple’s own services, in a way that’s possible only with the backing of Android’s biggest hardware partner. Give Google whatever hardware help it needs to make those services hum.

Also, it couldn’t hurt to cut down on the gadget spam.

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