Samsung's next big thing: Gaining street cred in Silicon Valley

The Korean electronics giant has been making a big push in California over the past couple years. CNET lays out its successes -- and what it still needs to do.

Shara Tibken Former managing editor
Shara Tibken was a managing editor at CNET News, overseeing a team covering tech policy, EU tech, mobile and the digital divide. She previously covered mobile as a senior reporter at CNET and also wrote for Dow Jones Newswires and The Wall Street Journal. Shara is a native Midwesterner who still prefers "pop" over "soda."
Shara Tibken
9 min read

Samsung's push in Silicon Valley includes operating an accelerator, pictured here in its initial base in Palo Alto. The accelerator recently relocated to San Francisco. Shara Tibken/CNET

MENLO PARK, Calif. -- Young Sohn knew if Samsung was going to make a splash in fast-paced Silicon Valley, he'd have to move quickly.

So the Samsung Electronics president and chief strategy officer put together a proposal during a long flight back to company headquarters in Korea in January 2013. Less than a day later, he won approval from Oh-Hyun Kwon, Samsung Electronics' CEO and vice chairman, for a new $100 million fund to invest in early-stage startups in the US. Sohn announced the plans for the Samsung Catalyst Fund at a press event the following month and since then has invested in 24 companies.

Meet the new faces of Samsung in Silicon Valley

Samsung has a reputation for moving fast. But approving a large US investment in less than 24 hours is rapid-fire even by its standards. Sohn called it "the fastest $100 million decision ever."

There's a reason for that urgency -- and the bet. Even though Samsung is the world's biggest maker of TVs and mobile devices (nearly one in four smartphones sold today is made by the company), it largely remains a mystery. Most people can't tell you the businesses it's in (it makes everything from toasters to tablets), and its executive team doesn't have any household names like Apple co-founder Steve Jobs or Facebook's Mark Zuckerberg. Walk down any street in the US and ask a tech worker to name the CEO of Samsung and you'll get a blank stare.

And in Silicon Valley, where spontaneous meetings and random encounters on the street, at restaurants and on hiking trails are a part of daily dealmaking, Samsung has been seen as missing in action. Meanwhile Apple, its fiercest rival in the market for smartphones and tablets, is building a 2.8 million-square-foot circular campus in its hometown of Cupertino, Calif., so it can gather employees and partners under one roof and increase the odds they'll have the "serendipitous personal encounters" Jobs believed was key to success.

That's why investing in Silicon Valley isn't a nicety for Samsung. It's a necessity. Being here means Samsung can tap into local talent and have chance encounters with venture capitalists, entrepreneurs, partners and startups looking to innovate in areas where the company has struggled, such as software and services.

For Sohn and the other executives in Silicon Valley, it's also part of a bigger effort to change the company's mindset. Setting up shop where there isn't a stigma over failure and where there's more willingness to experiment runs counter to the corporate culture in Korea.

"The mandate was really very simple," Sohn said in an interview at his office on Sand Hill Road in Menlo Park, Silicon Valley's equivalent of Wall Street for venture capitalists. "Can we look at things we cannot do in Korea?"

The other Galaxy -- Samsung Group beyond electronics (pictures)

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Samsung will be touting the success of some of its efforts so far at its developers conference, which kicks off Tuesday in San Francisco. The three-day confab returns to the city for the second year in a row and takes place at the same venue where Apple and Google host their annual developers conferences. The aim is to rally support among app makers and get them excited about building software specifically for Samsung's devices.

The company's not saying how many developers will attend, but last year's event hosted 1,300 people. Some partners are eager to talk about the work they've been doing with Samsung, praising many of the new hardware offerings and the number of users they gain by being featured on those devices. Others, meanwhile, say Samsung is still figuring out how to mesh with the Valley as they describe the difficulties of working with the Korean mothership.

"To do a significant partnership," said Marc Andreessen of Silicon Valley venture capital firm Andreessen Horowitz, "you have to go to Korea."

Early days in the Valley

Talk about Samsung and Silicon Valley and the surprise is actually how long it's been here. For more than 30 years, Samsung has run research and development and sales operations for displays and actual silicon -- the semiconductors that store data and serve as the brains of a device -- out of offices in the San Francisco Bay Area.

Samsung Strategy & Innovation Center is housed alongside venture capital firms like Shasta Ventures on Sand Hill Road in Menlo Park, Calif. Shara Tibken/CNET

Over the last few years, Samsung has stepped it up. The components business next summer will move into new 1.1 million square foot headquarters in San Jose, about 12 miles from Apple's headquarters. Samsung Research America, which focuses on software, user experience and services, is slated to occupy a new 385,000-square-foot R&D facility in Mountain View, about three miles down the road from Google's headquarters, this year.

Samsung has also been on a hiring spree, adding hardware, software and services expertise. It now has about 4,000 employees in the Valley, up about 30 percent over the past two years, said Sohn. While that's a small percentage of the 286,000 total Samsung employees in 80 countries around the world, it surpasses the global headcount for hot startups AirBNB, Dropbox, Pinterest and Uber -- combined.

Samsung, Sohn predicted, may be one of the largest 10 -- or even five -- employers in Silicon Valley within the next five years. That would put it in the ranks of top Bay Area tech employers including Apple, Cisco, Google, Oracle and Lockheed Martin, according to the Silicon Valley Business Journal.

Many of Samsung's new hires are for four businesses created to tap into the Valley's expertise. They include Sohn's Strategy & Innovation Center (SSIC), which seeks out new technology, partnerships and investments in hardware, generally with a longer-term view. There's also Samsung Design America (SDA), which built some of Samsung's flashier new gadgets, including the Gear Fit fitness band and curved Gear S smartwatch. The Open Innovation Center (OIC), runs an accelerator, forms partnerships and makes acquisitions and investments in startups focused on software and services. And the Media Solutions Center America (MSCA) creates its own software and services for Samsung devices, and works with developers making apps for the company's products.

"We're trying to change ... [Samsung] to a more agile, nimble, consumer-focused company that focuses on software and services," said Valerie Casey, head of Samsung's Silicon Valley accelerator, which is a part of OIC.

Successes, struggles

Those new businesses, created or revamped in the past two years, have some early successes. They include introducing a new sensor-filled wearable reference design, forming partnerships with popular app developers and buying startups such as smart home-focused SmartThings.

SmartThings, which was acquired by OIC in August after a two-month courtship, is expected to play a big role in Samsung's smart-home and connected-device plans, and it will talk about some of those steps at the developer conference. "We've seen how [Samsung has] really excelled in hardware," said Alex Hawkinson, CEO of SmartThings. "Where they haven't done as well is the entire synthesis of software and services. But they have a massive commitment to that."

OIC-led "road trips," in which Samsung executives visit the Bay Area and Silicon Valley companies travel to Korea, have helped bring the company both literally and figuratively closer to big names in tech, like venture capital firm Andreessen Horowitz, social networking giant Facebook and online magazine maker Flipboard.

"The 1-on-1 opportunities are invaluable," said Eric Feng, Flipboard's chief technology officer, who has participated in the road trips.

Other companies working with OIC have also lauded the group's ability to introduce them to executives at Samsung's headquarters -- and help them navigate the behemoth. "They're moving you around a massive corporation pretty well in the Valley," said one person who worked with OIC on deals and partnerships but asked not to be named.

But there have been setbacks, too. Some of the apps made by MSCA have been deemed lackluster, and many partners say they're still confused about who they should be working with at Samsung. Some of Samsung's Silicon Valley businesses have also gone through reorganizations, and the ultimate decision-making always returns to Korea. That's been frustrating for both US-based Samsung employees and the companies working with them.

Other partners CNET News spoke with complained about cultural misunderstandings, unreasonable expectations on the part of Samsung's Korean project managers and, at times, a lack of results when it comes to Samsung helping their businesses. While some app developers have benefited from working with Samsung, others who have worked closely with the company in the past say they're now being more careful before committing resources to Samsung projects.

Watch this: Samsung serves Milk Music, does a Galaxy good

And at least one developer says his company won't work with Samsung at all anymore. "We felt in their development process, once you get turned over to Korea, with the lack of support, lack of understanding, and arrogance, we don't need them," the developer said, speaking only on the condition of anonymity.

While MSCA and OIC try to work across Samsung's operations, it's also been hard for them to break down the company's traditional silos. The TV business still doesn't work well with mobile, observers said, and Samsung has started to move away from creating its own software and services in favor of using Google's programs or apps made by big name developers.

Several Samsung-created apps have been scrapped over the past year, including My Magazine (replaced by Flipboard Briefing), Samsung Books (replaced by Kindle), and Samsung Video and Media Hub (replaced by M-Go).

Getting the various Samsung divisions to work together is "a complex problem to solve," said Marc Shedroff, the OIC vice president in charge of partnerships. "The way you do it is have products that prove out the thesis" that software should work across devices. Some examples he pointed to included the MSCA-made Milk Music app that runs on Samsung smartphones, TVs and wearables, and SmartThings, which not only works on Samsung devices, appliances and other Android products but also gadgets running Apple's iOS software and Microsoft's Windows Phone operating system.

Playing the long game?

Change is afoot. Some partners say Silicon Valley may be gradually influencing Samsung, but Samsung also is influencing Silicon Valley. "We've actually learned a lot from Samsung," said John Lagerling, vice president of business development at Facebook. "It's...more about the way they run their business and have made big and bold bets in their history."

The question is whether Samsung's dedication to the Valley will make any true impact longer term or whether it's a "dog and pony show," as one developer put it.

A former Borders store in Palo Alto, a couple blocks from an Apple Store, has housed various Samsung operations over the past year. SmartThings is moving into the space formerly occupied by Samsung's Silicon Valley accelerator. Shara Tibken/CNET

Samsung vows that its push in Silicon Valley won't be short-lived. The Bay Area will remain the center of Samsung's innovative tech development and ecosystem efforts, Sohn said. Within the next five years, Samsung may run some of its businesses from the US, instead of taking all big decisions back to Korea. That's something that would "be a change in our DNA," he added.

Still, it won't be easy for Samsung to become synonymous with Silicon Valley, like Google or Apple. There are cultural and geographical issues, and the lack of understanding about how the company works. There's actually a complicated hierarchy at Samsung, with three CEOs: Kwon, who approved Sohn's investment, oversees the other CEOs and Samsung's components business; JK Shin heads mobile operations; and Boo-Keun Yoon is chief of Samsung's consumer electronics division.

At the end of the day, Samsung remains a conservative, family-run organization, albeit one the size of a nation-state (about 20 percent of Korea's GDP comes from Samsung). As much as Samsung has expanded in Silicon Valley, the Bay Area still remains Apple's backyard. If Apple comes calling, it would be almost impossible for an app developer to turn the Cupertino company away in favor of Samsung.

"With developers, [Samsung has] done so much better than any other handset maker," said one app developer who's worked with the Korean giant. "But anybody would jump way higher for Apple than they would for Samsung."

That sentiment comes as Samsung's feeling the heat from Chinese vendors willing to undercut its products, and from the competition it faces daily from Apple's iPhone franchise. Samsung has also struggled to develop apps and services that are widely used by consumers, and its homegrown Tizen software -- an alternative to Google's Android mobile operating system -- has been a nonstarter in smartphones.

While it's too early to say whether Samsung's Silicon Valley push will be a success, the company knows it can't step back. At the very least, the Android operating system running on most of its devices is developed in the region, as are the apps most used by its smartphone customers.

"Their fate depends on what's going on in Silicon Valley," said an executive at an influential Valley tech company who asked not to be named. "They have to stay really close to that."

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