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[Updated] Samsung's Android Problem

[Samsung] said it has sold around 4 million Galaxy S smartphones in North America, 2.5 million in Europe, and around 2 million in South Korea in the past seven months.

via Samsung Sells 10 Million Galaxy S Android Smartphones – Digital Lifestyle – Macworld UK.

Samsung’s US Android sales are very similarly allocated to Apple’s iPhone sales: 40%. But at 20%, South Korea represents a very large portion of their sales (2 million phones sold in 7 months into a country of 48 million). This is understandable given Samsung’s distribution power in its home country. However it also implies that Samsung’s [high end] Android sales in Asia excluding South Korea are tiny. Only 1.5 million were allocated to outside Europe, US and South Korea–a market that includes the whole of Asia, Africa, Middle East and Latin America.

If we believe that Android is activated at the rate of 300k units per day, then Samsung represents around 40k of that. (10 million over seven months, linear extrapolation.) So where are those remaining 260k units/day going? Gartner calculated that in Q3 Samsung was the leading Android brand (about one third of all units). The Samsung figures make these share numbers very obsolete because 40k/300k is only 13.3%.

It’s hard to pin down the market because the share shifts are dramatic and the market’s growth is not linear. Nevertheless, intuition and guesswork leads to me believe that Android activations are to a large degree (perhaps two thirds) in Asia. This in turn implies that Samsung is not a major participant in that market.

Since neither LG (who does not have a strong Android portfolio) nor Sony Ericsson or Motorola which have low volumes, (nor obviously Nokia, RIM or Apple) are supplying the Asian Android market, the question is who is? Only HTC remains a contender but it’s not big enough to account for the difference and they too are focused on the established Western markets (except for a modest presence in China).

We are left again with circumstantial evidence that “Other” lower tier vendors are carrying the Android torch in Asia. Pdadb.net shows 277 Android models available. Brands like ZTE, Huawei, Acer, Notion Ink, Linx, TMN, FirsOne, Ziss, Kogan, Highscreen, Saygus, Haier and Forsa are selling Android devices (though not all in Asia).

Not that there’s anything wrong with that

If there is a worry it is perhaps that Samsung might find it hard to maintain the top spot in supplying Android once the unbranded vendors make it through the distribution obstacle course (as HTC did when it reached 80% of the Windows Mobile share.)

If one is to argue that Android empowers the desperate incumbents, then one has to also agree that it also empowers the more nimble entrants–inevitably leading to even more desperation.

[Updated: thanks to reader @UVStaska who noticed on glaring error in the analysis. I had failed to see the "S" in the original quote and been assuming the 10 million figure represented all Samsung Android sales. The Galaxy brand is the Android brand but the "S" model is only one product within the line-up. Samsung Android sales are likely much higher than the 1.5 million I assumed.

Back to the drawing board with the question of Samsung's strength in Asia. One does still wonder how well they are doing relative to entrants.]

  • http://twitter.com/dutchtender @dutchtender

    I really see low end android hurting rimm nok and Apple more than samsung, which at least can participate by selling low end android components. apple won't go head to head with low end android. but here is how it hurts apple. many people's first smart phone will be android. android can take them "cradle to grave." android will be there with a higher end solutions when they can afford it.

    appple will have to steal an android customer to get one in many cases. Not a rimm or nokia customer as they are used to doing now. much harder to do imo. as for samsung. their focus has been on the high end with Galaxy S. I see them going after low and mid markets in 2011 and beyond. I see samsung htc both having great 2011. there is a big market for white box android. But at this dynamic stage there is room for white box and branded. I think it's a bit of a stretch to think that Apple will come out unscathed here but at the same time predicting imminent disaster for Samsung.

    • AlleyGator

      I don't think people will settle for an inferior product and take it cradle to grave. My first car was a Plymouth Reliant. It didn't make me want to buy another Plymouth Reliant. Android is a great leap forward for late adopters and cheapskates, which means nothing in the long run. Price isn't an innovation.

      So quite the opposite of what you described, a low end Android phone will give very little reason Android users to be tied the experience. The preponderance of free content and cheap phones will create weak lock-in factors, as users probably won't feel like they're leaving behind apps and music they've purchased through an online store like iTunes, and won't feel badly for ditching a relatively new phone.

      • FalKirk

        "Price isn't an innovation."

        I don't know it the above is original, but I know that it's very well put.

      • asymco

        Price is not an innovation. "Always low prices" is. In other words, dropping prices is easy but maintaining a low cost structure is very hard and requires quite a bit of innovation.

        A cheaply made car is not innovative, but a car engineered to be cheap is.

      • FalKirk

        Thank you. An important distinction. Low price isn't innovation, but a structure that allows for low prices is.

      • http://twitter.com/dutchtender @dutchtender

        you are assuming that ios will always be a superior product and assuming that when these people are rich enough to afford a mercedes that ios will be superior. i would never try to predict that far out.

      • FalKirk

        Well, you might want to look at the 25 year history of Macs or the ten year history of OS X or the 8 year history of iPods as examples of where Apple has consistently produced superior products. Apple has a history of producing premium products and, while nothing is certain, I think it is reasonable to assume that, based on their track record, they will continue to do so.

      • asymco

        The chances that Apple would try to field an inferior product are not high. If Apple cannot add value through being meaningfully better, they simply won't participate in a market.

      • http://twitter.com/dutchtender @dutchtender

        I really think you almost have to be a contortionist, an apple employee, or an apple shareholder, perhaps all three, to try to manufacture some good news out of $100 android phones. there are only so many BMW owners in the world. And I am sure they aspire to own an Iphone. But most will be quite happy owning a Honda that pretty much gets you where you want to go.

      • asymco

        One thing to remember is that the iPhone launched into markets which were strongly seeded with smartphones. In fact, Apple only does well in markets which have large smartphone usage prior to the launch of their product. In the US it was RIM and WinMo which seeded the market. In Europe it was Symbian and in Japan it was FOMA. These platforms created more demand for mobile broadband and increased the appetite for mobile data. 3G networks took root there first.

        In all these markets Apple launched with a premium product. It competed with cheaper smartphones from day one and won. There was no market where iPhone was available with a $600 ASP where there weren't $300 smart alternatives.

        I can't be sure that Android will have the same seeding effect but it's not a matter of contorting facts.

      • Mark

        Apple only does well in those markets where the carrier subsidy distorts the price and the average clueless consumer(which really is the vast majority of humanity) thinks he is getting an iphone for free in UK or for 199 dollars in US.

      • asymco

        If you are using sarcasm to criticize those who call you cheap for purchasing an Android device then why are you calling those who purchase subsidized phones clueless?

        Insults are not constructive commentary.

      • Steve

        I love the Reliant analogy.

        A plethora of low-end Android phones will also create a user base which cannot take advantage of Android apps that need high end hardware. This will in and of itself undermine Android user loyalty. Android will be driven toward a customer base that does not really use ther smart phone smartly. Extending @AllyGator's analogy, if my first car was a Plymouth Reliant, how likely am I to be a customer for an expensive Plymouth luxury car?

      • asymco

        How amazing. My first car was also a Dodge Aries (same as a Plymouth Reliant). My second car was a Mercedes and I still have that second car 19 years later.

      • Mark

        Aah thank you so much for calling me a cheapskate. My life is now fulfilled as I was blundering about wondering whether I was truly a cheapskate for preferring a Samsung intercept android phone from virgin mobile USA on a 25 dollar per month plan and for giving up the expensive IPhone 3gs contract, I did not know I was a cheapskate for choosing an affordable phone, but you have opened my eyes. So you wear a diamond studded watch ? Sleep on 7 layers of quilt ? drink only the finest and costliest available wine ?

    • asymco

      The prediction is not for imminent disaster. The prediction is for a long term margin erosion. There is a strong precedent with Windows Mobile which, like Android, was available to all vendors and which was adopted by the top tier vendors as well as entrants. When the dust cleared, it was the entrant HTC that made all the profits and share gains and earned itself a global brand presence.

      Motorola, Samsung, Sony Ericsson and LG got absolutely nothing out of Windows Mobile.

      I had expected that HTC would be the HTC of Android, but the opportunity is for a new HTC to emerge.

      • Mark

        HTC was just an ODM just slightly above Huawei, it was android which catapulted HTC to the global stage, not winmo. Even now with some carriers like t-mobile in US, it acts like an ODM with those mytouch phones

      • asymco

        I have been following HTC for many years before Android was a glimmer in Andy Rubin's eye. HTC made its name with Windows Mobile. You can search pdadb.net for the hundreds of WinMo products they designed going back to the Pocket PC Compaq iPaq of 2000.

        HTC entered into a global branding strategy and bought their distributors before they even shipped a single Android device.

  • http://twitter.com/dutchtender @dutchtender

    I think you also have to measure how well bada is doing at the low and mid tier and put those units in Samsung's overall share. that speaks to Samsung's longer term diversification strategy, and scale. one could make a case that Samsung has two pronged strategy they are experimenting with. Android and wm7 at high end. bada at low and mid. this could change if android wins at expense of bada.

    • Pieter

      How does taking Bada into account help Samsung with the Android share?
      It may help with the Samsung share of the overall share of phones, but not with the Samsung share of Android phones…

      (I also think that it will be problematic for Samsung to fight the low end of Android with Bada phones. Android has a recognizable name in phone OS software, while Samsung 'only' has a name in hardware. Why would someone buy a Samsung Bada phone while for the same amount of money they could buy another brand that uses Android? (A lot of the brands in the article are better known in Asia than in the West…) Having an Android phone allows them to use the Android Market, while the Bada phone would not have such a (large) software market…)

      • http://twitter.com/dutchtender @dutchtender

        I think focusing in samsung Android share misses the bigger picture. samsung is trying to win the low end with bada. that may well be a loser but that's what they are concentrating on. so if you are trying to figure out what happens to samsung you better consider bada.

  • Ruben

    But Horace, to incumbents like Nokia (wich IMHO has lost enough time with its OS strategy to let Meego becoming irrelevant), what is the solution? If Android, W7, Meego are not viable options…

    • asymco

      The only answer for a branded vendor is a branded platform. This is the route HP/Palm and RIM are taking. Note that both Palm and Microsoft did a clean reset and built new platforms from scratch in about 18 months. Even Google took but a few short years. Going this route is not a guarantee of success but without it there is a guarantee for failure.

      • Steve

        The problem is that a clean start, even by a branded platform, requires 1) a truly accessible customer base that is above the critical mass necessary to be sustainable, 2) a developer community that can actually make money writing apps and 3) innovation that is disruptive enough to actually allow 1) & 2).

        As long as iOS competition is merely aiming AT iOS, and not BEYOND what iOS is (and WILL BE when their new OS launches) 3) cannot occur.

        Stated another way, if it truly takes 18 months to 2 years to develop a competitive OS, that OS needs to be better than what iOS will be 2 years from now. And who, besides Steve Balmer (heh) truly believes they can create something beginning now that will be more innovative than iOS will be, taking into account all of its fundamental structural advantages, two years hence? Apple will have to drop the ball, like they did with pre-Mac OS X. Does anyone believe THAT lesson will need to be relearned in Cupertino?

      • FalKirk

        I've observed that Microsoft never felt they had to be superior to a competitor in order to win. All they had to do was match their competitor's features and then let the weight of their name, their established base of customers, their marketing power, their staying power and their monopoly power take over. The last time I remember this working was with Windows Explorer and Netscape. The first time I remember this failing was with the Zune and the iPod.

        With the iPhone, Apple didn't compete with existing phones, they leap frogged them. Similarly, one should not try to compete directly with Apple products by matching them, one should try to leap frog them. With Windows Phone 7, Microsoft has done a great job of creating a solid operating system that is different than all the other mobile operating systems available. But different is not better. Microsoft is so late to this game that I think that different is not going to be good enough. They needed to be better. And markedly better at that.

      • Satish

        do you think microsoft has a better name today than either Apple or Google ? I think it is much weaker than Apple or Google or even Facebook

      • FalKirk

        I think the Microsoft name has lost much of it's power and cachet. There was a time when everyone in tech feared Microsoft. It was felt that if Microsoft choose to enter a market they were sure to own that market. Those days are long gone.

        I remember that even as late as 2005, when Microsoft switched strategies and decided to create the Zune to go head-to-head with Apple's iPod, the majority of observers predicted that Microsoft would soon dominate the MP3 market.

  • Sameer

    On secind thoughts you seem to have missed taking into account the 2 mid range Samsung android phones – Samsung Galaxy 5 n Samsung Galaxy 3… They seem to be popular options in India atleast

    • http://twitter.com/m4rkusr @m4rkusr

      And there's the Spica, the Pulse, Pulse Mini, Apollo, Moment and so on. PDAdb has a host of them listed. Those are not selling as much as the Galaxy S, but might add up to something.

    • asymco

      Samsung press release was pretty clear that they only sold 1.5 million smartphones in Asia (ex S. Korea), Latin America, Africa and the Middle East. These markets account for more than 4 billion consumers. I'm pretty certain that those markets consumed more than half the Android smartphones shipped in the same seven months (at 300k/day).

      • Satish

        1.5 million Samsung Galaxy S phone, not samsung intercept, samsung galaxy 3, 5 etc

  • Rob Scott

    So the branded Android OEMs must win in the the Developed (West) world if they are to thrive financially.
    2011 is sure going to be very interesting.

    • Satish

      China will one day (in a couple of years) be a bigger smartphone market than the entire developed west as you put it.

  • http://twitter.com/BrianSHall @BrianSHall

    Great observations!
    I think Samsung Galaxy is still the best Android device. However, it's not as good as iPhone. So unless it's appreciably more affordable, just get an iPhone. That's on the high -end (assuming both on same carriers). On low end, I don't believe Samsung's margins allow them to compete effectively. Your use of the word "desperation" seems spot on.

  • http://twitter.com/dherb @dherb

    It would be interesting to know what the number of active google account subscribers on android devices is to compare to the 300k activations claim. Google has never been clear over what an activation is and it may not map 1-1 with devices sold (never mind shipped). Also, Samsung has several android devices which are not Galaxy S. You have only accounted for their high-end premium android devices and ignored all the mass market android devices they sell so you have to scale up the assessment you are using.
    Even if we ignore all that, it seems to me Samsung has one of the best portfolio approaches to android of any OEM. You can't ignore it, but you can't bet the farm on it. They have lower or mid-tier covered with Bada and have a backup alternative to complete Google dependency. At the high end they are carving out a sub-brand with Galaxy S and appear to be successful in doing so, and also have deep/proprietary R&D behind the foundational hw aspects to that sub-brand. Those are both defensible positions from both a brand and product perspective.
    In short I don't think Samsung has an android problem. I think they have the most successful strategy so far amongst the OEMs in choosing how to play with Google while recognizing the commoditization risks of Android.

  • kaveman

    In my opinion, Samsung is playing the Android "card" very well – leverage Android ecosystem to showcase its component/hardware advantage (AMOLED, industrial design, etc) on high-end and building its bada ecosystem for mid/low end. So, I don't personally see the Galaxy S sales distribution predominantly in developed markets as being a problem. Their rising quarterly ASP figures seem to bear this out.

  • Mark Newton

    Of course, it could also be that Erik Schmidt is a bald-faced liar and Android isn't activating anywhere near 300k devices per day.

    • asymco

      There are laws that prohibit lying to shareholders. Any company officer with fiduciary responsibility should be aware of these laws. Intentional deception not something I would bet on.

      • Pieter

        True.
        However, what is an 'activation'?
        Is it a newly sold device? It seems that software updates are not counted, but are people that have rooted their device counted again?

        BTW Funny that people complain that an iPhone has to be jailbroken to hack the device, but at the same time find it no problem that an Android device has to be rooted…
        Question: What is the percentage people that root their Android device?
        The only data point I can find is an unbelievable 58%, but is on a 'android hacker website': http://lifehacker.com/5593824/do-you-root-your-an
        I thought iOS was about 8%?

      • chano

        True but a little naive surely Horace. The reason we have auditors is because directors tend to overstate the good and understate the bad. Consider how Ballmer is in effect lying to his shareholders by dismissing competitors as rounding errors while overseeing Microsoft losing its way – Nero fiddling as Rome burns perhaps? Plausibly deniable lies are a boardroom art form.

  • timnash

    For Samsung, selling a phone is effectively selling its components (like flash, screens and chips) at a premium price. So Samsung gains from supporting any OS that sells phones. It also limits risk with manufacturing components through its major contracts with Apple.

  • http://franksting.net.au Gavin Costello

    Horace,
    Unsure if you are just referring to Mobile Phone/Devices here or are you taking into account any other possible uses of Android. I'm assuming such an "open" platform is in fact being used to power other types of devices in other areas than just the mobile market of course.

    • asymco

      All the figures cited refer to phone market only.

      • http://franksting.net.au Gavin Costello

        I wasn't aware Google could determine the usage in the published 300K activations

      • BenHill123

        phone has to be activated once, before market is accesible, so this is how google knows.

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  • http://Twitter.com/mudaebojongshin Max Christian

    It’s important to note that Samsung is a criminal family enterprise which is not subject to the level of accountability of a western public company. It would be a mistake to put too much faith in their published numbers.

    • JBB

      Good point. This is well known in Asian markets but never mentioned in the US and Europe.

  • http://twitter.com/UVStaska @UVStaska

    This time you are very strongly off in your Samsung/Android share calculations.

    #1. Samsung's Galaxy S sales are not linear. Before today's announcement, Samsung said on Oct. 5 that they sold 5 million Galaxy S phones in Q4. Which translates into 54K daily activations.
    #2. Samsung Galaxy S is not the only Samsung Android device. They also have Galaxy 5 and Galaxy 3 devices, which are much cheaper, lower speccéd and less popular then the flagship. But I think it's safe to assume that they managed to sell at least a couple of million of those two models in Q4.
    #3. Samsung has said on Dec. 03 that they have sold 1 million Galaxy Tabs. While not a smartphone, Galaxy Tab is an official Google Android device and its activations are counted by Google towards the total activation number. Galaxy Tab became widely available only in Q3.

    Based on points above, I think it is safe to assume that Samsung has actually sold at least 8 million Android devices in Q4. Which translates into ~87K activations a day.

    Furthermore – Google was able to announce that they are activating 300K devices a day only on Dec. 09. Before that they had multiple opportunities to name a higher then 200K a day number, but always stuck to it from early August. The events I mentioned include Google Q3 earnings CC, Web 2.0 conference and All Things D:IntoMobile conference (were Schmidt or Rubin keynoted) , Nexus S/Android Gingerbread launch (the latter two events happened early December)

    Never before at similar events Google execs failed to tout increased Android activations if they could. So, again, I think it's safe to assume that before Dec. 2010 Android activations were closer to 200K then 300K a day. Let's be generous and say that spread over all Q4, Android had 250K activations a day.

    This brings Samsung's share to well over 30% of total Android activations in Q4, and not 13.3% counted. And is very much inline with Gartner figures.

    More here: http://bit.ly/f3rp8g

    • http://twitter.com/UVStaska @UVStaska

      For #1 I meant Samsung said that they sold 5 million Galaxy S since launch. This means that they sold another 5 million between Oct.5th, 2010 and Jan 3, 2011.

    • asymco

      You are right. I made a big error in misreading the quote. I had missed the "S" and assumed the quote referred to all Galaxy branded phones (which are all Android phones).

      I do suspect that Google share has dropped since Q3 but not to 13%. The question of how strong Samsung is in Asia remains. The only thing I can conclude from the data is that their "high end" product, the Galaxy S, is not well represented in Asia (outside Korea).

      I've added an update. Thanks for pointing out the mistake.

      • Rob Scott

        The other Samsung Android smartphones are slow sellers (dogs) probably less than 10% of Galaxy S's sales. The Galaxy Tab is not a phone, people ignore the iPod touch and iPad all the time when they want to blow the Android horn, so the Tab should be ignored. So your mistake does not change the conclusions, thank you very much.

      • http://twitter.com/grigs @grigs

        "The Galaxy brand is the Android brand but the 'S' model is only one product within the line-up."

        I believe a more accurate statement would be:

        "The Galaxy brand is one of Samsung's Android lines."

        It appears there are many Samsung Android phones that don't carry the Galaxy name (e.g., the Intercept, Transform, Acclaim, Moment, etc.).

        Samsung's site is pretty good about noting which devices are Galaxy Android and which are not when you look at the full specs of each device. If they are in the Galaxy line up, they will have the product name (e.g., Samsung Epic) in the header, but the first bullet point will say, "Galaxy S with Android™ 2.1OS."

  • BenHill123

    you are wrong, google only ever mentioned 300K per day activation, because a lot of media posts appeared which started to pontificate that android activation growth was flattening or stagnating. That was when Andy Rubin tweeted that 'more than 300k per day' figure

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