Samsung's big bet: put American software startups inside its most important hardware

Kai Bond still can’t believe he got his own button. The 36-year-old entrepreneur lifts up the new remote that comes standard with every Samsung smart TV and flips through the channels, settling on a daytime soap. “This isn’t the kind of stuff we had in mind when we built the system, but let’s see what happens.” He presses his button to activate “Samsung Extra” and biographical data for the actors on screen pops up in the right-hand corner.

The technology Bond and his team built pulls in all that data and creates a smart feed which displays conversations happening on social media alongside the action on your TV. People are always looking at their phone during the game, reading tweets and checking stats,” Bond says. “It's a broken experience.” He founded a startup around the idea in the summer of 2013, a smart TV app called Pixie, and that fall was accepted into the first class of companies in Samsung’s shiny new Global Innovation Center, or GIC.

Less than one year later Pixie was acquired by Samsung, which is baking its software into the operating system of every smart TV it makes. He is still a little in awe of how quickly things have changed. "The real big difference for us is that we get distribution," says Bond with a broad smile. "When I was working on Pixie we had thousands of users. The scale we’re working on now, you’re talking about tens of millions." It’s part of a big bet by the South Korean company to move outside its comfort zone and allow American entrepreneurs deep inside its hardware.

"The definition of future technology does not stop at hardware."

"Samsung is a company with over $200 billion in revenue, mostly driven out of selling hardware and components," says Won Jin Lee, an executive vice president within the visual display division who worked closely with Bond on turning Pixie into Samsung Extra. "But the definition of future technology does not stop at hardware. We are now living in a world where, in order to deliver the right consumer experience, we need a combination of the right hardware, the right services, and the right content."

With GIC, Samsung is hoping to absorb some of the hacker agility found in Silicon Valley and New York. This year will be the crucial test for its ability to forge successful integrations between those worlds. Three startups it brought into the fold — SmartThingsLoopPay, and Pixie — will play critical roles across Samsung’s most important consumer categories: appliances, smartphones, and televisions.

samsung factory
Samsung factory (Dimas Ardian/Getty Images)

Samsung is not a company afraid to make big bets. In 1993, chairman KH Lee gathered his top executives into a small hotel room in Germany and delivered a call to arms. The company founded by his father to create electronic appliances was now firmly established as a manufacturer in Korea. But around the world it was at best a mid-tier brand, its TV set relegated to the bottom shelves below Sony and Panasonic. Lee laid out a vision to transform Samsung into a high-end manufacturer and global brand. "Change everything but your wife and children," he declared.

Over the last two decades Samsung has achieved that mission. It now sells more TV sets than anyone, and its most expensive units are at the forefront of the industry. By 2009, it had established itself as the world’s largest manufacturer of smartphones and biggest technology company by revenue. It makes everything from washing machines to microchips to virtual reality headsets.

But when it comes to creating software, Samsung’s skill set doesn’t always match up. I recently visited GIC’s New York headquarters to meet up with David Eun, who founded and leads the division. Eun lays out the two worlds he’s trying to bridge. At one extreme is hyper-precise manufacturing at massive scale with years of R&D and billions invested before the first chip or tablet rolls off the assembly line. The second is the "move fast and break things" mentality of small software startups.

"Take that kind of culture, where you can't be a micron off. Everything has to be planned," he explains. "Then go to software and it's like, "Hey, we're just six dudes. We're going to launch early and gather the data. A third of this is just wrong, I don't know which third. We'll find out.’"

GIC’s Manhattan outpost is a far cry from the industrial megacities and factory floors that define Samsung's hardware business. Nestled on two floors at 26th and Broadway, it's decked out with designer furniture, a well-stocked pantry, and conference rooms with names like Afrika Bambaataa and Grandmaster Flash. The atmosphere is decidedly dressed down and startup friendly. Many surfaces double as whiteboards, covered in flow charts and product ideas.

samsung GIC office
Lunchtime at the GIC office in New York

Eun wears a collared shirt and blue jeans with a braided belt, a shiny Gear Fit curving around his wrist. "It sometimes is super challenging. Because there are different cultures. But what we try to say is, that's also our advantage. I probably wouldn't have been able to attract a Kai Bond, who had this vision for a TV experience, if I wasn't close to the CEO of Consumer Electronics. The guy who literally can make things happen on every one of those TVs."

Before he arrived at Samsung, Eun worked his way through the ranks in media and technology. He started at NBC and Time Warner, eventually moving over to AOL after the mega-merger that capped the dot com boot. From AOL, he went to Google, where he helped shepherd through integrations with startups like YouTube, earning a reputation as a savvy deal maker to the Hollywood set. When he joined Samsung in 2013, most assumed that he would focus on acquiring programming for Samsung screens. But Eun had a much bigger vision in mind.

GIC has a number of important functions: it created the accelerators in New York and Silicon Valley that house entrepreneurs working on projects Samsung thinks might play into its upcoming software. Eun also leads venture capital investments and acquisitions in startups around the country. And the division is aiming to expand beyond America in the future, exploring putting down roots in other technology hubs around the globe. "We're trying to create break-out software services to complement hardware," says Eun. He points to the wall, which is covered in flat screen panels. Others are embedded in the ceiling, waiting to descend at the push of a button. "Because we sell a lot of these. We sell two of those every second."

dvid eun
David Eun

While Pixie and LoopPay are examples of American startups whose software is now deeply integrated into Samsung hardware, things don’t always work out. GIC was the unit behind the acquisition of Boxee, one of the pioneers in delivering over-the-top television services. The company was working on a top secret feature called Samsung PX, a smart TV system with a dedicated tablet that would take the place of a traditional remote control. Originally slated to unveil at CES 2015, the product was delayed, and then killed off, with many Boxee staffers including CEO Avner Ronen departing from Samsung.

Eun wouldn’t comment directly on what happened with Boxee. According to sources with knowledge of the situation, trying to dictate what kind of hardware Samsung should create was a bridge too far for the startup. Samsung was behind the project, but not the idea of a dedicated tablet remote, which Boxee insisted on. Samsung preferred the idea of customers simply using the tablets and phones it already sold, and didn’t want to antagonize partners in the cable industry who felt their set-top boxes would be cut out of the loop with consumers. According to one source, a last minute push from Samsung executives in Korea to have Boxee adopt Tizen in place of Android as its basic operating system was the straw that broke the camel's back.

"If we had stayed within GIC, things might have gone differently."

Part of the problem may have been that, while Boxee was acquired by GIC, it did not stay in that group, and was instead integrated directly into the mothership, joining up with Samsung’s TV division. According to sources there at the time, cultural friction and lack of communication soon developed. "For a successful integration, it really helps to have a champion like David. If we had stayed within GIC, things might have gone differently," says a former Boxee employee who recently departed from Samsung.

To combat this sort of problem, Eun has established a team of nearly 20 dedicated GIC staffers in Korea whose sole job is to liaise between startups and Samsung. "We need some sort of a bridge that connects the two worlds together, because these are very different worlds. We need to have some sort of mediation function in between, and GIC has been playing that role quite well," says Won Jin Lee, the display division EVP who worked with Bond to integrate Pixie into smart TV sets. "When they come into Samsung, they can get a much softer landing."

GIC is also working to wall off startups in important ways. SmartThings, which is committed to building an ecosystem for connected devices, functions as an independent subsidiary. "We wanted to acquire it, but keep it open," says Eun. The idea of crafting an open-source platform was completely alien to Samsung, but they let SmartThings run with it. "One of the metrics would be, are there a lot of developers? Are there device handlers being created? That would be a metric of how open it was." says Eun. "It's more than doubled since last year." At the same time, Samsung is working to integrate all its own devices, bolstering the hardware ecosystem those developers can create against.

The Perch team working at GIC offices

One of the startups operating out of GIC’s New York office is Perch, a security and monitoring service for smart homes founded by two former members of the local technology incubator Betaworks. Andrew Cohen and Neil Wehrle are in their 40s, married with kids, and while still hungry to create new companies, are more risk averse than the young hackers who flock to programs like YCombinator or TechStars. For them, GIC is the perfect medium between the security of a salaried job with benefits and the freedom of creating a company from scratch.

"This isn’t our first time to the rodeo," says Cohen. "There is always this magical moment where a startup is resourced like you wish, and that is usually a couple years in. Often it’s just post acquisition that you get to build the features you’ve been thinking about for years. With this model, you can have that much earlier on."

Perch imagines a world where you get a motion alert when your children get home from school and go right into the TV room. You can watch and respond in real time, talking with your kids through voice chat, and deactivating the TV until they finish their homework. "We don’t have a hardware offering because of course Samsung has already made a beautiful one, and so that allows us to focus on the software and consumer experience."

That comfortable relationship highlights one of the things that makes GIC very different from other startup accelerators. While GIC talks openly about the idea of letting outsiders invest in its startups and even spinning them out if they show good traction, so far just three of its companies have been acquired, and all were by Samsung.

"Administration, operations, finances, especially raising capital. Those take a lot of time. What we've said is, let's essentially take all the thumbtacks out of the carpet so you can just run," says Eun. "And we'll provide you with offices and health insurance and financing. In return, we want first dibs on acquisitions."

Samsung does kill off projects that don’t produce a great product or consumer traction. Of the more than 20 companies that have been in the program so far, Eun estimates GIC has shut down about a third. For Cohen, the opportunity is worth that risk. "The simple reason why we ended up here instead of taking a more traditional venture capital route is scale. The opportunity to develop for hundreds of millions of connected devices across a footprint as broad as Samsung’s is pretty irresistible."

Wehrle, the UX designer, puts it a little differently. "A lot of places, you’re sort of touching the edges of the internet, here we are going a couple levels into it. You get to touch the hardware at a very deep level."

david eun kai bond
David Eun and Kai Bond

Before he created Pixie, Bond worked at Microsoft on mobile product development. This was way back in the early '00s, and some of the best hardware for Brew and J2ME apps was on Samsung phones. He traveled, along with a translator and ethnographer, to South Korea. "I remember going into this tiny room, with a projector, and no windows. It was very cramped and very hot." Just as the meeting was about to begin, a Samsung executive lit up a cigarette. Seeing this, his compatriots followed suit. The room was quickly thick with smoke. "It was culture shock," he recalls with a laugh.

Samsung is willing to invest financially in its startups from an early stage, and to offer them distribution on its hardware so they can test the market. Of course, sharing details around the inner workings and release schedule of its hardware is very sensitive. Emily Becher, a serial entrepreneur and former colleague of Eun’s, was brought in to run the accelerators. She is a constant presence in the New York office, sitting with the teams to eat a pizza lunch or walking them through brainstorming sessions.

I ask her what she thinks the key is to combining the world of American software entrepreneurs with a Korean manufacturing titan. "You'll be surprised that this is my first answer, but being really thoughtful about structure. We have a team in Korea that lives and breathes in the operating units every day, who've come up through the mobile group, who've come up and are trusted and respected." This allows teams to navigate the often complex and rigid rules that govern Samsung’s corporate culture. "It isn't just me flying over to Korea, ‘Hi, I'm here. Tell me everything you know.’ That's disrespectful."

There is an element to Samsung’s culture, however, that fits perfectly with the startup ethos. "The chairman is saying all the time, ‘This is perpetual crisis,’" former mobile marketing chief DJ Lee told Bloomberg. "We are in danger. We are in jeopardy." While it is still an enormously popular and profitable company, Samsung has seen its profit growth and stock price decline in recent quarters.

Just as Samsung overtook Sony in the 2000s, Chinese companies like Xiaomi are now coming for the Korean giant. Apple has turned itself into not just a technology company, but a fashion brand, and its devices command a luxury premium. Samsung, meanwhile, runs on Android, where it has to compete with hundreds of manufacturers who can thrive on much thinner margins. For the first time in several years, Apple not only earned more profit selling phones than Samsung, but also moved more units. Samsung meanwhile sold fewer phones than it did during the same period in 2013, as competition across the middle and lower tiers of Android devices ate into its dominance.

All that leads back to GIC and the need for game-changing integrations of hardware and software. Samsung knows it has to continue moving upmarket, away from cheaper devices. In the battle with the iPhone, Samsung’s biggest new weapon will be the technology it acquired from LoopPay, which will allow its phones to work with the ordinary credit card readers already widely used by merchants across the US. Samsung announced today that the feature will debut in Korea this month and the US at the end of September.

"During my 15-month tenure here, I have never seen any other company that has more willingness to change the way it operates as a business," says Lee. "Having a team of people like we do at GIC, we can skip through a lot of the corporate bureaucracy." Samsung is far from a startup, but we are about to get a big taste of how its devices feel when small teams of American entrepreneurs are working on core software. "I don’t think it’s perfect today, but certainly GIC is playing a big role, and we are bridging those two worlds together."

Photos by Sean O'Kane