Samsung is reportedly planning to open up its own mobile operating system Bada to outside developers starting next year, according to a recent WSJ report.^[1] Since Google (NYSE:GOOG) announced plans to acquire Motorola Mobility (NYSE:MMI) in August, Samsung has been forced to develop and innovate on Bada as this deal potentially makes Google a competitor to Samsung despite the fact that Samsung currently makes Android phones.

In our earlier note titled Samsung Moves to Shore Up Bada After Google-Motorola Deal, we discussed this aspect in detail and mentioned that Samsung’s move to further develop Bada is a potential threat to Google’s Android presence as Samsung is the largest player which uses the Android software, and the second largest player in the smartphone market after Apple. However, we believe that Samsung’s plan to make Bada open source is a bad idea and likely a waste of time.

Our $596 price estimate for Google stock is about 10% above market price.

Open Source Has Host of Challenges

Open source mobile players don’t have a great track record especially when coming from a manufacturer. Nokia went down this path and failed miserably. Fragmentation is one of the key issues that face an open source OS. Google’s Android is an open source OS, and although Android is the leader in the smartphone market, it faces fragmentation issues.

Steve Jobs famously touched upon this fragmentation issue during Apple’s fiscal year 2010 earnings conference call.^[2] In this call he pointed out the following:

Google loves to characterize Android as open, and iOS and iPhone as closed. We find this a bit disingenuous and clouding the real difference between our two approaches. The first thing most of us think about when we hear the work open is Windows which is available on a variety of devices. Unlike Windows, however, where most PC’s have the same user interface and run the same app, Android is very fragmented. Many Android OEMs, including the two largest, HTC and Motorola install proprietary user interfaces to differentiate themselves from the commodity Android experience. The users will have to figure it all out. Compare this with iPhone, where every handset works the same.

Twitter client, Twitter Deck, recently launched their app for Android. They reported that they had to contend with more than 100 different versions of Android software on 244 different handsets.

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In reality, we think the open versus closed argument is just a smokescreen to try and hide the real issue, which is, what’s best for the customer, fragmented versus integrated. We think Android is very, very fragmented and becoming more fragmented by the day. And as you know, Apple’s strives for the integrated model so that the user isn’t forced to be the systems integrator.

While Apple clearly wants to tout its own horn, Jobs has a point in that an open source platform brings a wide set up challenges that include compatibility across platforms. Given how many devices Samsung has and the fact that it would want developers to make apps and support these devices, this could pose some problems. Moreover, its app store would be dwarfed by Apple’s App store and the Android app stores and so why would a developer want to spend time on Bada?

One of the major reason for Apple’s success is that it is integrated. The advantage of maintaining a single version of OS are many. Firstly, it benefits developers as they don’t have to maintain different codes for different OS standards while developing applications. Secondly, the user experience for Apple devices is also better as a single OS helps in seamless synchronization between different Apple devices like the iPhone, iPad and iPod.

Google’s Real Goal is Search, Samsung’s Isn’t

Google’s main objective of open sourcing Android is that it wants to expand its reach on as many devices as possible. Although it doesn’t get much of direct revenues from licensing Android, the expanded reach helps it through higher search advertising market share. Search advertising is the most valuable business for Google and accounts for more than 65% of our price estimate for Google stock.

Samsung is not in the search market and so it makes even less sense for it try to push forward with an open source Bada. We suspect that this is some posturing by the company – or a hedge of sorts – given how heated and litigious the environment has become.

What do you think? Please let us know your comments below.

See our complete analysis for Google stock here

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