Samsung – Collision course
We 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:
o First: Viv is very good at interpreting and understanding natural speech.
o The system understands context in terms of previously asked questions and can unravel multi-part complex questions.
o If this works as advertised, it means that Viv is better at natural language than current market leader Google Assistant.
o Second: The company claims that Viv can be very flexible because the system is capable of creating its own AI models.
o 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.
o We suspect that the reality falls very far short of this lofty goal but even a small step in this direction is a big improvement.
o 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 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 we 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, we 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.
• We are starting to think of taking some profits even though the shares remain undemanding relative to its global peers.
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