Samsung will get 'slaughtered' in 5 years, says the CEO behind one of the biggest Android software companies
Today, the mobile industry is essentially a two-horse race between Apple and Samsung.
Kirt McMaster, the CEO of Cyanogen Inc., doesn't think things will stay that way for much longer, however.
There's a big shift happening, according to McMaster, and it could leave companies like Samsung "slaughtered."
Cyanogen Inc. makes a forked version of Android known as CyanogenMod. It essentially lets you add new features and themes to your Android phone without compromising any performance.
CyanogenMod is incredibly popular among the hacker community, and it comes preloaded on the OnePlus One, which proved to be an extremely popular phone in 2014.
Cyanogen's current software is a bit niche - if you were to ask the everyday Android or iPhone user, they probably would have never heard of CyanogenMod. But the company is looking to change that soon, and in 2015 there's a chance you'll see CyanogenMod appear on dozens of smartphones overseas.
Cyanogen is now partnering with Qualcomm, a company that makes processors for almost every smartphone you'll find in any corner of the world, to appear on phones using its turnkey solution in emerging markets. A turnkey solution is essentially a package deal: Instead of just giving the manufacturer permission to use its chips, Qualcomm will provide the software, too.
This means Cyanogen will likely be able to reach a much broader audience than it does today. At the same time, this also means it should be much easier for manufacturers to build high-quality, fast-performing phones at a cheap price since they no longer have to hire software developers.
McMaster thinks the rise of these cheap smartphones over the next few years could make it much harder for companies like Samsung and Apple to hold their spots at the top. He also thinks there's a lot of room for another, more open operating system to compete with Apple's iOS and Google's Android.
We chatted with McMaster to learn about Cyanogen's plans. Here's what we had to say.
(Note: The following is a transcript of our conversation with McMaster that has been edited for length and clarity).
Business Insider: So tell me more about why you guys are working with Qualcomm. You said this means your software will be on a lot more phones around the world.
Kirt McMaster: The disruption in smartphones and the marketing associated with that [coming] from Samsung and other tier one OEMS has really been played out. In other words, the battle between moving from a 3- to 4-inch screen to a 5-inch screen, that's done. Everybody has a phone with a 5-inch screen. And you can now get a phone with a 5-inch screen that's sub-$140, etc.
The first disruption was moving from feature phones to smartphones, the second was app stores, and then form factors. We've seen Samsung and the Android ecosystem win on the form factor front to get great global distribution. Apple has caught up to form factor now with the iPhone 6 Plus with a large screen etc. The next major disruption is going to occur around the commoditization of hardware.
Over the course of the next 3-5 years, it will impact every market on the planet. It's mostly being felt now in emerging markets. The reason it's being impacted there is because of the turnkey model. It allows these local OEMs to arise out of nothing.
On the global platform, we see Xiaomi becoming the No. 3 OEM. Micromax is now No. 10. These guys are basically creating really cheap handsets that have really awesome performance. This is made possible because of Qualcomm's turnkey solution as well as Mediatek's.
One of the things Cyanogen does really well is optimizations at the low level, at the kernel level. Which means we can get performance out of these chipsets coming out of turnkey that make the device for all intents and purposes feel like a $600 iPhone.
The tier one OEMs like Samsung are going to be the next generation Nokias in the next five years. They're going to be slaughtered. We think long term Apple itself will have problems because they're just not good at competing at the low end.
BI: So you think Samsung will be toast in five years?
KM: It could get pretty bad pretty damn quick. This is often the case. Look what happened to Research In Motion (RIM). Look what happened to Nokia. Last summer Micromax surpassed Samsung as the dominant feature phone player in India. We're talking literally in eight months this occurred.
This is just one market. We see this happen all over the world. We see these local kings, [such as] Blu Products in Latin America [and] Cherry Mobile in the Philippines. All of these guys are arising. They understand local marketing and distribution better than any incumbent that attempts to move into the region. These guys are hustlers; they're fast moving. They know what it takes to influence market dynamics.
BI: In the past you said to The Wall Street Journal that you wanted to take Android away from Google. Can you explain that?
KM: It's not so much about taking Android away from Google. Android is now at a billion and a half or more users globally. It's going to go to well over more than five billion. In a market of that scale, keep in mind the growth in Android over the next five years is the widest, fastest, largest computing platform growth in the history of the known universe. So we have never experienced this kind of growth in a single computing platform that we will see over the next five years.
What does that mean? It means that in a market of well over five billion users, a handful of derivatives, not a billion, but maybe two or three derivatives of Android can work and have significant user bases [with] a couple of hundred million users. Xiaomi is going to be successful. There's no doubt we're going to be succesful and have a couple of hundred million users. Google will probably have a couple of billion users.
But if you're an operating system and you have a half a billion users or more, you can build a very unique interesting business. To be honest though, we think it's the open platform that's going to win. It's this notion of an open computing platform that's going to capture the hearts and minds and where the innovation is going to occur.
BI: Android is open source, but you don't think it's open enough. Why not?
KM: We're building a platform to open up Android so that we can open up services from third parties into the platform. Today Android and iOS are shells for [Google's and Apple's] services and everything else can be an application. [With] our model, Facebook doesn't have to build a Facebook phone. Amazon doesn't have to build an Amazon phone to get that level of integration in Cyanogen. We can make all of these things possible.
As an example, today if you use Google Now and say "Play X song," what happens is that song is indexed, Google searches and comes back and gives you a song in Google Play Music. And if you click that link, that query obviously favors Google's own services. In no way does the core natural language engine of Android, iOS, or Windows Phone know that Spotify may be the only way I interact with music. We can give Spotify that deep level of integration at the kernel level.
BI: Let's talk about Microsoft for a minute. The Wall Street Journal reported the company might be making a big $70 million investment in you guys.
KM: I'm not announcing who our strategic partners are, not yet. We will be making some announcements about our C round in the next few weeks. From an investment standpoint, we as a company are not interested in taking money from any strategic partner unless there's actually a deal in place that we're working with some of these companies. You can only imagine that there's a lot of interest in the world today to create a version of Android that's more open. And that allows for other parties to have some greater control of what is the largest computing platform ever.
We're talking to a lot of different people. And during the course of these conversations, some of these people have liked what we're doing and have expressed interest in possibly participating in future rounds of financing. Whether or not that happens now or later I can't talk about it. There's a number of significant parties that are interested in the company.
BI: So with this platform you're building, is your ultimate goal to compete with Android?
KM: Yes and no. We love Google services. I use Google services. We expect our users to continue to use Google services. What we're saying is on our platform, let's open it up. Let the user have a choice. Choose whether they want to use Google Maps or Nokia Here. Give them all the same system level access. We love Google services, we like the guys at Google and we hope to continue working with them going forward. We think that with Android at five billion plus users, Google has a huge opportunity. We think that we'll have a couple hundred million users, and Google should support us as well.