Behind Samsung's push to rule the world

Samsung wants to be all things to all people. CNET's Shara Tibken went to South Korea to discover how it does just that.

A display in Samsung's phone museum in Gumi, South Korea, shows every mobile device the company has made over the years. It builds dozens of models annually but now focuses its line around its Galaxy Android smartphones. Shara Tibken/CNET

Editors' note: Be sure to catch the other stories in this package: on the many pieces of Samsung Group's empire , on road-testing Samsung's S Translate app , on TVs and appliances in a Q&A with co-CEO Boo-keun Yoon , and on how Samsung torture-tests its products .


SEOUL, South Korea -- "It sounded like a toilet."

Samsung Electronics sound designer Myoung-woo Nam is describing the not-quite-right noise his team created for the Galaxy S3, at least initially. Here, in a dimly lit room on the eighth floor of a Samsung skyscraper, in the heart of Seoul's trendy Gangnam district -- yes, that Gangnam -- a team of audio designers create sounds to capture what they describe as the overall theme of the device, whether it's for a Galaxy phone or the just released Samsung Galaxy Gear.

Each has its own challenge. Some sounds require a 40-piece orchestra; others come about using household items such as straws and drinking glasses, which ultimately solved the toilet problem. But more on that in a moment.

For its follow-up phone, the Galaxy S4, the team wanted to create "the sound of light." It used synthesizers, and then, as it always does, tailored tones for different parts of the world. After all, what's pleasing in one country might offend in another -- as Samsung discovered when Japanese women thought a whistle it considered using for messaging on the Galaxy S4 sounded like a catcall.

The takeaway? Details matter. A lot. As Sujin Park, a senior member of Samsung's design strategy team, put it to me, "Localizing is our strategy."

It's a strategy that, over the past few years, has helped Samsung soar to the top of the smartphone world. Unlike its fierce Cupertino, Calif., rival, Samsung wants to be everything for everyone. A bigger screen? You can get it from Samsung. A stylus? Sure. Want a flip phone? No problem.

This is the Samsung Way: Do it all, and do it fast. Really fast, even if you're following the market Apple created and sometimes, as a jury determined, stealing its ideas. In the year it takes Apple to release a new iPhone, Samsung typically unveils three or four "flagship" products, adding up to several dozens in all. That speed, coupled with its fierce commitment to quality and marketing heft, has lifted this sprawling South Korean empire from niche player status in just half a decade.

Now, Samsung has added something else to its playbook: Do it first. The Galaxy Gear, its big push into wearable tech, came out while the pundits were still guessing about what Apple might do. And in early October, Samsung introduced the Galaxy Round, a smartphone with a curved display bent at the vertical axis. The Gear is off to a slow start, to put it kindly, and who knows if people will care about the Round's quasi-tubular look. But to the top brass at Samsung, it almost doesn't matter.

Young-hee Lee, head of global marketing for Samsung's mobile division (left), and designer Zac Posen display the Samsung Galaxy Note 10.1 in New York on Aug. 15, 2012. AFP/Getty Images
"The idea is to be the fastest company," said Young-hee Lee, who heads marketing for Samsung's mobile business and, since joining from L'Oreal in 2007, has helped make the brand recognizable the world over. "React is not the proper word anymore. We should lead."

Seeking world domination
One way Samsung is trying to do that is through sheer heft. The company employs an army of 62,000 engineers, just short of the entire population of Palo Alto, Calif., and it markets their efforts like few others.

This year, Samsung -- which generated $210 billion in revenue over the past four quarters, roughly $40 billion more than Apple -- is on track to spend more than half a billion dollars on advertising in the US alone. That's about what Apple spends, but more than Nokia, HTC, and BlackBerry -- which made its big comeback push earlier this year -- combined, according to market research firm Kantar Group.

In part, Samsung is trying to combat the free attention Apple gets from its cult-like following -- a phenomenon that drives people inside Samsung nuts. For the latest iPhone launch, spies from Samsung's parent company visited a New York Apple store to try to understand just why so many people line up for hours, even days, in advance.

And on the day Apple unveiled the iPhone 5, just more than a year ago, a team of Samsung execs watched the event from a Wolfgang Puck restaurant in Los Angeles, turning it into a sort of war room. By the time Apple CEO Tim Cook wrapped up his presentation, according to Fortune magazine, the Samsung gang had drafted the beginnings of an ad campaign against Apple. When the iPhone 5 hit the market a week later, Samsung launched a TV spot mocking Apple fanboys.

Marketing only gets you so far, of course. You need great products, fierce R&D, and a manufacturing process that's fast and efficient -- all of which Samsung has developed through an approach that's uniquely Samsung: It does almost everything -- from building the parts to assembling the devices -- in house. That's made this sprawling enterprise surprisingly nimble.

"It all comes down to execution," says Mark Newman, an analyst with Sanford Bernstein who worked in business strategy at Samsung between 2004 and 2010. "Nobody else has been able to do this."

In fact, the fear of stumbling on itself, under its own weight, and not the battle with Apple, is what some top execs say worries them the most.

"For us, the biggest hurdle ... would be internal," Boo-Keun Yoon, the head of consumer electronics and co-CEO, told me through an interpreter, sitting in his multi-room suite at Samsung's headquarters, known as Digital City. "That would be complacency, or being too proud."

Fish to phablets
Digital City is where it all begins. This is Samsung's campus of modern skyscrapers, parks, and basketball courts that, all told, make up a business park equivalent in size to 250 soccer fields. It's Samsung Electronics' company town, and it sits about an hour south of Seoul in a city called Suwon. The whole place feels like a large university, except it's not. The buildings all have signs, in English, that remind people to "Create," "Challenge," and "Innovate." People zip around on company owned bicycles. Artwork, including a giant, hot pink teddy bear, adorn parks and the sides of buildings in hopes they'll inspire the engineers on campus.

If it helps, why not? The 30,000 people who make their careers at Digital City are among Samsung's smartest -- those who come up with the ideas, experiment with out-there technology, develop products, fine-tune their work, and make sense of data and mountains of consumer research.

Digital City is also home to the company museum, celebrating Samsung's origins as a trading company that, beginning in 1938, sold dried Korean fish, vegetables, and fruit to China. It's not exactly the Silicon Valley two-guys-in-a garage storyline. In fact, Samsung didn't start selling electronics until 31 years later, in 1969. And it wasn't until the mid-1990s that the founder's son, Kun-hee Lee, then at the helm of the company, committed to making high-end products and shed Samsung's reputation for cheap goods. In 1993, during an executive retreat in Frankfurt, he told employees that they needed to "change everything but your wife and kids."

That proclamation wasn't enough, however. Early in 1995, Kun-hee Lee discovered that phones he gave as gifts didn't work. Enraged, he traveled to Gumi, home to Samsung's main assembly plant about three hours south of Seoul by car, and dumped 150,000 phones onto a field. Then, the story goes, he ordered employees to surround the pile, and instructed some of them to light the phones on fire and plow over the mess with a bulldozer.

Point made. Since then, quality has been part of Samsung's mantra. Still, its path to mobile success has been anything but smooth. While Samsung had been selling basic cellphones for years in the high-end market, the push to broaden its product line to address everyone, everywhere, began in 2007. Apple unveiled the iPhone that same year.

Cranking out more varieties at a faster pace was the job of the workers in Gumi, a place many of the 10,000 employees there also call home, and where memory of the handset bonfire still looms. Gumi wasn't what I had expected: The vibe is more Facebook than Foxconn. Workers, mostly in their 20s, live in dorms that resemble college housing -- at least from the outside. To live in those buildings adjacent to campus, they pay less per year than the cost of an unsubsidized Galaxy S4. There also are company-funded cafeterias, coffee shops, karaoke rooms, movie theaters, and fields for foot volleyball, a soccer and volleyball combo.

Samsung's headquarters in Suwon, South Korea -- called Digital City -- includes art work to inspire the company's engineers. Shara Tibken
The biggest change occurred on the assembly line. Before 2007, workers put together gadgets in standard, assembly line fashion -- each person responsible for one component, or task. To ramp up production, however, the company switched to a cellular system, in which each worker puts together an entire phone. It sounds more time-consuming, but it isn't. The approach has made Samsung faster at making multiple products, and it has made it easier to adjust production based on demand.

Yet that didn't mean the designs were great. Far from it. Looking back, Samsung's early Android phones were embarrassing -- bulky and unsightly physical buttons running on Android's half -baked software that looked amateurish beside the iPhone. Remember the Behold II and the Moment? Probably not, and Samsung would like to keep it that way.

"Our first Android smartphone for Orange, our operator partner, wasn't really welcomed, and the market feedback wasn't good," said Young-hee Lee, who was part of the executive team that helped turn things around for Samsung. "But we didn't stop there."

Hardly. The turnaround came on several fronts, as the team, led by mobile chief and now co-CEO JK Shin, refocused on a single brand, the Galaxy S. They emphasized the "three S's: screen, speed, and software," and out of that strategy grew a powerful franchise -- the Galaxy S line of phones -- that now, of course, is the only brand rivaling Apple's iPhone when it comes to buzz and anticipation.

It's Shin and his team who deserve much of the credit for Samsung's position in mobile today. Take how he and top US executives messed with the carrier-centric phone model for the Galaxy S3. Rather than rely on the wireless providers to promote Samsung products in return for exclusive agreements, Samsung persuaded all major carriers to sell the S3 even though they knew that rivals would get the phone as well. Even more daring, Samsung didn't show the carriers the device in advance.

"They were all very resistant," said one person involved in the process, who spoke on the condition of anonymity so as not to upset Samsung or the carriers. "It was a complete flip from what Samsung had historically done."

Workers head to lunch on Samsung's Gumi, South Korea, campus. It's here that the company's newest mobile devices are tested and assembled. Shara Tibken/CNET
The fear came from Apple. The nationwide US carriers were reluctant to relinquish control to Samsung after they had given Steve Jobs free rein to oversee how Apple built and sold the iPhone. But Samsung persisted, showing the carriers its marketing plans, including its TV commercials. This helped the carriers feel like they were a part of the S3 rollout even though they had never seen the device.

It was shrewd, for sure. Ultimately, it helped Samsung create a focused marketing campaign around a single product -- yes, the way Apple does -- and it's a model now emulated by HTC and LG.

Samsung's big breakout came with last year's Galaxy S3, and that set the stage for the far-splashier unveiling of the S4 last March. Samsung -- doubtless thinking of ways to combat Apple attention -- put on a Broadway-like event ( offensive to some ) at New York's Radio City Music Hall. While the show went on for the world, complete with gaudy skits, things backstage were tense.

And Samsung had rushed to introduce the Galaxy S4 earlier than its predecessor, which meant engineers were tweaking features right up to launch. Some, such as the much-ballyhooed eye scrolling, didn't work so well. But that didn't matter -- Samsung was going to get the phone out on time.

'Perpetual crisis'
People inside Samsung describe the atmosphere as a state of "perpetual crisis," fostered by a persistent and underlying fear that the company might lose everything at any moment. There are no breaks to celebrate wins; there's only what's next. Perhaps it's baked into the culture. Or maybe it comes from sharing a border with North Korea, where an attack at any moment seems possible. Whatever the reason, Samsung, the workplace, runs with military-like order. It's not uncommon to see employees bow to their superiors.

Visitors to the Samsung D'Light showroom and store in Seoul, South Korea, check out an augmented reality display. Shara Tibken/CNET
Even with this emphasis on speed, details -- remember the toilet? -- can smash the company's plans at any moment. When Samsung launched the Galaxy S3 in "pebble blue," for instance, it used a manufacturing technique for the phone's back panel that made production faster, easier, and more reliable. But it also made the backplate color and finish appear different from the rest of the phone, making it look cheap.

The company went into mass production, and boxed up thousands of phones -- and then Samsung's top execs saw one of the blue Galaxy S3 devices. They demanded that the workers fix the back panels to improve the quality, even though that meant spending more money and delaying the release. Samsung dumped thousands of back panels, even taking phones out of the boxes as they were about to be shipped on planes.

"I had one of the originals in my office because they sent samples, and they came and got it," said one person involved with the device's development. "They said, 'we will not allow these to ever be exposed to the public.'"

Speed has taken its toll in other instances as well. Just look at the Galaxy Gear. As I wrote about the Gear in October, Samsung sped through the development process to get the smartwatch out in roughly a year, compared with the typical 18-month development time for a typical smartphone. Sure, it came to market early, but to what end?

After all, there were basic shortcomings. When the Gear launched, it wasn't compatible with other devices -- even those made by Samsung -- leaving the company open to criticism that it introduced the product too early. According to one insider, the company was so busy getting ready for the Note 3 launch in October that, the person said, "they just didn't have the bandwidth to get the other products done at the same time."

For its part, Samsung execs say they're unfazed by criticism. They insist they're committed to the smartwatch business, and, according to people familiar with the company's plans, are already working on an sleeker version with a higher-quality screen that's slated for a March release.

Samsung's operations include semiconductor manufacturing factories in Giheung and Hwaseong, South Korea. Shara Tibken/CNET
Samsung also plans to make "very significant changes" to its next flagship Galaxy S smartphone, says Samsung design head Dong-hoon Chang. And next on Samsung's checklist: shoring up the software and user experience, and rallying developers to its cause.

Samsung's missing link
The New York office of startup Boxee is unlike any you'll find at Samsung: Old desks, creaky wooden floors, and peeling white walls. Yet this was an important stop for Samsung's leaders one day last fall. A dozen execs, including co-CEO Yoon and HS Kim, the head of Samsung's TV business, met up with Boxee CEO Avner Ronen and his small team, who had developed a cloud-based digital video recorder for TV. Ronen shared his vision for how television and video will evolve, as did the Samsung team. Less than 10 months later, Samsung bought Boxee.

A game-changing purchase for Samsung? Probably not. But it underscores a shortcoming Samsung desperately wants to fix -- its need for partners developing cutting-edge tech and its need for its own software.

Samsung, in short, really wants to do it all -- and that includes cutting ties with Google, which remains a partner but has also become a big competitor. The end game: To create its own Apple-like ecosystem.

Samsung's early software efforts have been mixed. Its TouchWiz user interface, which is the software layered on top of Android, is reviled by many Android purists who want a less cluttered design. When the Galaxy S4 launched, some critics slammed the amount of "bloatware," or pre-installed and unremovable programs such as S Translate and S Voice.

And the biggest effort of all is one the world has yet to see: Samsung's mobile OS, called Tizen, which is Samsung's ultimate play to wean itself from Android. Samsung had promised its first phone running the OS this year, but now that device won't arrive until early 2014, at best.

The Tizen effort comes as Samsung has edged its way into the developer world in the US, where many of the hot apps have come from. The company just wrapped up its first-ever developer conference in San Francisco, an event attended by 1,300 developers and hosted by Samsung's Media Solutions Center software and services unit. And about a year ago, it created what it calls the Open Innovation Center, a group focused on working with software and services startups. As part of that effort, it's opened accelerators in Palo Alto and New York.

Myoung-woo Nam, a sound designer for Samsung, plays musical instruments and uses regular household items to make the tones for Samsung's mobile devices. Shara TIbken/CNET
"Innovation has tended to happen when you have a small group of people with no legacy anything, just trying to solve big problems," said David Eun, Samsung executive vice president and OIC leader.

Samsung execs are also making frequent stops at some of the most important players in Silicon Valley. A team a couple dozen strong makes several trips a year to visit VC firm Andreessen Horowitz on Sand Hill Road, for instance. There, the execs talk about what's happening in the market, and Andreessen Horowitz-backed companies pitch their businesses to Samsung for potential partnerships or acquisitions.

"It's really easy for big, successful companies to sit back and say, we're huge, it's just software, we can write it," said co-founder Marc Andreessen. "From our standpoint, Samsung has an enlightened point of view."

Samsung also is trying on its home turf. More than half of those 62,000 engineers work on software. Samsung is hiring so aggressively that crosstown rival LG is having trouble competing for talent.

"Software is something that we're working on continuously," said Yoon, the co-CEO. "These days, hardware is important, but that is not enough."

That's because Samsung's future will rest upon how well its products work together, which is all about the software. There will undoubtedly be more Galaxy S smartphones and Note tablets, but also more wearable products, not to mention Samsung refrigerators and washers.

Back in Korea, I check out Samsung D'Light, the company's product showroom housed in its Seoul office building. The three-floor venue, which displays everything from semiconductors to smart TVs and computers, has become a popular stop for tour groups. Samsung's "Software Zone" is tucked away in a corner on the top floor, far away from the bustle below.

That in itself shows the problem, that software has long been a second-class citizen of sorts. It needs to be integral, with developers paying attention to details as important as the sound every phone makes. Which brings us back to the Galaxy S3, that pesky toilet sound, and the determination of a room of sound designers. Their aim: to create the natural sound of a stream.

It seemed simple enough. They tried blowing water through a straw, and recording that, but it just didn't work. They experimented with different sized cups and different amounts of water. They tried milk, juices, anything. "We thought and tried about a hundred times," said Myoung-woo Nam, well aware of the oddness of his job.

Then someone blew through a straw into a cup of orange juice. Voila. The Galaxy S3 stream sound was born. If only all of Samsung's challenges were so easy to fix.

 

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