The cost of selling Galaxies

In the post “Google vs. Samsung” I compared the profits of Google and Samsung Electronics’ mobile (aka Telecoms) division. It showed how Samsung has grown its mobile business to such a degree that, if sustained, could conceivably influence the way Android is controlled.

However, we should not analyze Samsung’s mobile group in isolation of the entire company. Samsung relies on internal transfer of technology and capacities of production which are quite unique for device vendors today. In other words, Samsung is a relatively integrated enterprise. Understanding the whole is necessary before understanding the part.

The following graph shows the sales and operating profit for  Samsung Electronics as a composite of its divisions since early 2008.

As one would expect, the mobile group (Telecom) is the source of both top and bottom line growth. The group has also been leading in terms of margins and increasing those margins steadily. 

The margins averaged 11% during 2007 and 17% during the trailing four quarters. This 54% increase in margin has been matched by a 55% increase in average selling price (from $151 in 2007 to $234 in the latest quarter).

One could argue however that a 17% operating margin from a group that is now leading in volume and price is still a bit weak. At its peak Nokia enjoyed a 25% operating margin, RIM 30% and HTC 27%. Apple’s iPhone operating margin is around 45%.

I think a large part of the margin story is a relatively high level of spending on SG&A (Sales, General and Administrative) which includes advertising, sales promotion and commissions. In the case of Samsung Electronics, as sales has grown these expenses have grown in proportion. As a percent of sales SG&A have held relatively steady at around 17%.

Note that as Apple’s sales have grown its SG&A has grown less rapidly resulting in a smaller percent over time. We might see Apple’s SG&A drop to 5% during the present quarter, an all-time low.

So one of the more remarkable aspects of Samsung’s success has been their willingness to increase promotional spending. Considering that their other divisions don’t require as much “marketing expense” (semiconductors, LCD certainly, and TVs and Appliances to a lesser degree due to a smaller sales growth) we can imagine that the vast majority of this promotional spending has been in support of their mobile brands, Galaxy in particular.

In fact, we can obtain advertising spend data from annual reports.

The chart above shows comparable ad spending from a cohort of technology companies as well as Coca Cola and Samsung Electronics.

It might be surprising to note that Samsung spends considerably more than Apple and Microsoft. But it also spends more than Coca Cola, a company whose primary cost of sales is advertising.

However, advertising is not the only form of promotional spending. Samsung also pays commissions and “sales promotion“. The following chart shows the value of these sales promotions relative to the ad spending budgets above.


We don’t have data on the current year since that is released after year’s end, but it’s interesting to note that promotions cost more than ads, which themselves are substantial relative to other companies.

The company also reports “Marketing Expenses” every quarter[1]. These figures appear to be the sum of Ad spending, Sales Promotions, Public Relations and a portion of “other” expenses as a part of SG&A.

When considering all marketing expenses, Samsung Electronics’ sales efforts begin to look quite astonishing.


  1. The data used in the latter three charts are available as a Google spreadsheet here.
  • SA

    And Apple’s success is because of it’s marketing….!

    • Yeah the first time Horace mentioned those numbers I laughed.

    • Yes. In the real sense of the word marketing — understanding the job and designing products around the job and conveying the value. Agree?

      • JohnDoey

        You just described design, not marketing. Apple’s marketing tells the story of their design work.

        The original poster is quite correct that the typical criticism of Apple from Microsoft and Samsung fans is horribly ironic once you look at what Samsung spends to make 1 sale.

      • Gui

        Marketing at Apple means something different. Schiller, head of marketing, is integral to product development.

      • That’s right. True Marketing is strategic research and planning—what to make, who to sell it too. Advertising is the tactical communications to push the execution of the Marketing plan. Lot’s of people confuse the two because the groups work together, but the jobs and talent needed are quite different. But i understand the comment by “SA”; we’ve heard that for years.

      • pocketwhale

        Samsung has much more of a variety of electronics to sell, so it only makes sense that they would have more advertising.

      • So you didn’t read the article you are commenting on?

      • Apple spends over 10 billions on tooling. Thats is more the for example then Intel.

      • LAN8

        I understood the above comment to mean that their design is part of their marketing. For instance, white ear buds indicate an apple product, the “sent from my iphone” message at the end of every post does the same, examples of marketing designed right into the product. Arguably the other thing Apple does is better marketing, small but impactful ads that are better received (for the most part) than many other ads out there, simple but elegant packaging, etc. In this sense they may be getting better value for their advertising dollar.

      • Unfortunately our business vocabulary is woefully limited. “Product marketing” is a design question but “marketing” in general has come to mean promotion.

      • I think we should object to that. Marketing used to be about bringing the right product to market.

      • SSShu

        I think SA’s line and Greg’s follow up is the one people use to describe or attribute Apple’s success to. Most of my acquaintances would describe Apple’s success to them being good at ‘Marketing’ – and in a woefully simplistic and sometimes ‘derogatory’ way.

        “Oh they don’t make good products, they’re just good at marketing stuff”

      • That’s because they don’t know anything.

      • AnkleSkater

        There is a good term to capture design and promotion, and differentiate from the current bastardized use of marketing – product management.

      • stefn

        Both terms, marketing and design, create confusion. In publishing, marketing is the job of bringing the buyer to the book; editorial development brings the book to the buyer. I realize many organizations today place R&D in marketing. Bad idea, I think.

        Then too, design as a term creates a huge right and left brain issue: Design as engineering is science, so to say; design as user-interface is art. Design as visual design of information, which Horace does very well, same thing. Those engaged in the material and efficient causes, using Aristotle’s categories, are engineers and scientists; those engaged in the final and formal causes, are designers and artists.

    • ragsmobile

      Who needs marketing when you have so many tech bloggers working free for them deriding rival products/companies, their strategies and defending/praising everything Apple does, dumb or otherwise. Marco Arment, Siegler, Gruber and so many others who pop up every now and then with their extraordinary thoughts – such people do not exist or do not attract much attention in rival planets.

      • randomness9090

        Right, nobody out there in the blog world writes negative stuff about Apple. 🙂

      • Tonio

        I’m not quite sure what ragsmobile was trying to say. What seems to be missing from the Windows world and Android worlds is people who’re in favor of their respective platform (like Gruber) but open-minded enough to criticize it (like Gruber) and be genuinely appreciative of the advantages and innovations of rivals (like Gruber to an extent). I’d put forward Paul Thurrott as the closest example. He sometimes seems infuriatingly wrong or obtuse, but I’m sure anti-Apple folks feel the same way about Gruber.

        It’s frequently struck me that Nikon is a lot like Apple in this respect. Nikon’s most vocal online bloggers (e.g. Thom Hogan and Ken Rockwell) are very critical of Nikon (while generally admiring it) — there’s no similar voices on the Canon side — and it’s not like Canon’s cameras and lenses are flawless. (It came as quite a surprise to me that Gruber is a bit of a Canon fanboy.)

        Now, there’s a pro-Android crowd and an anti-Apple crowd, and it’s important to differentiate the two. I think there are some pro-Android folks who’re quite open-minded about Apple but don’t want a locked down platform with exactly one new form-factor to pick from per year (want a bigger screen? nope. want a better camera? nope. want an SD card reader? nope.). Then there are people who, for whatever reason, simply hate Apple — some are ex-Amiga-fanatics, some are Microsoft fanatics, some probably had their parking spot at Whole Foods stolen by Steve Jobs.

      • GeorgeS

        There are writers who criticize Canon; perhaps you haven’t looked far enough. (See Bryan Carnathan at for example.) In line with your analogy, Canon does outsell Nikon in most markets. Nikon is also noted for being a bit more expensive for the same functionality.

      • Mr. E

        I can’t be bothered to prove it, but the reverse is generally true.
        100% viewfinders more common, earlier, cheaper, wireless flash easier and cheaper, higher end focus systems in cheaper cameras (compare D200 to 40D), twin card slots earlier and cheaper, more frames of bracketing cheaper, several customizable buttons earlier and cheaper (canon users had to wait for the 7D to see the benefits of this sort of feature)

      • Mr. E

        Yes, Canon were a lot like Microsoft (peddling wares that were perceived as superior, but in many respects were worse than the competition), this has changed dramatically with extremely well specified cameras like the 7D, 5D MkIII etc, but the original 5D and 5D MkII were woefully cut back cameras compared to much cheaper models even years earlier from other manufacturers (sensor performance aside)

        The first Pro Sony Alpha, Nikon D200, Konica Minolta5d (in their day) were all far better specified, more versatile and easier to use than their Canon equivalent in almost every way

        The benefits of Canon’s sensor were definitely here for some users users, but due to some sort of halo effect other photographers would ignore better AF systems, better viewfinders, better tougher bodies, superior bracketing range, and ease of use for the lure of the big sensor

        The interesting thing is that, like Apple, sales staff would try to push other brands due to an almost complete lack of Spivs from Canon.

      • If you’re talking about mass marketing, though, I don’t think anyone cares. The tech enthusiast market is supported by tech enthusiast publications, but there are relatively few of us compared to the volumes needed to provide iPhone or Samsung Galaxy level sales.

        The situation is this: Apple’s brand is sufficiently strong that it is spread by word of mouth. Advertising is designed to reinforce this, and to introduce new products to customers.

        Samsung’s situation is very different. Google fanatics buy phones from Google, and the tiny sales of those phones show how successful their marketing is. So they have a problem: How can they sell their phones?

        There is another, vastly larger, marketplace of people, folks who go to a Verizon store and ask, “Which phone is good?” The nice salespeople working at the store will push Samsung, because those commissions and marketing bonuses described above are being paid for sending customers there. In practice, Apple customers go straight to the iPhones, while salesmen steer customers to Samsung or other commission-paying companies.

        That’s why Samsung sales are so good, and why marketing expenses are so high. It’s a perfectly valid business model, but the more you are aware of it, the less likely you are to trust your salesperson or buy a Samsung phone.

        Curiously enough, my Verizon salesperson, who seems like a really nice guy, strongly recommended HTC over Samsung, saying the latter phones have signal quality issues. Is this true, or is HTC paying him better? And is that why HTC is all but bankrupt?

        I like the Apple way better – but of course the Apple way is supported by Apple Stores, which sell only one brand …


      • The real freaks are the Leica fanatics *shudder*

      • divebus

        You spelled “shutter” wrong. (there’s a joke in there somewhere)

      • I admire Leica cameras as things of beauty and gorgeous workmanship.

        Alas, if your style of photography is not precisely what they were designed for, they are pretty much useless.

        I’d still love to own one, but at $10k or so for a basic setup, they are way down in my priority list …


      • Joe

        I work in the semiconductor industry, if there industrial tooling is anything like there camera’s there overprice, under perform, over-engineered and generally break in all different ways for no reason. We don’t run any Cannon Industrial Tooling so I can’t speak to those, our Nikons do well enough though

      • @Joe: Sort of like German cars, then. That is, the attractiveness and apparent craftsmanship associated with a product often has little to do with its reliability :(.


      • So to you, the efforts of Mssrs. Gruber, Arment, and Siegler are worth the $10 billion difference in marketing budgets between the two companies?

      • I’ll bet for a measly $9 billion they could win over those guys.

      • Ed Anger

        Nothing is for free. Do you count being given products to review (and likely keep) as free? Being given all-expense paid trips as free? Or money surreptitiously slipped into the pocket of a less than savory blogger as free?

        Please don’t be so naive as to think that the PR/promotion game is lilly white. Behind the scenes is a very dirty war for the hearts and minds of the influencers. On the surface, bloggers and journalists don’t make a lot of money. Do you think that a 30-something blogger wants to spend their life working at Best Buy or Domino’s Pizza, writing a blog from their bedroom at their parents’ house? They’re just as greedy and easily swayed as the rest of us.

        So when an attractive woman from a PR or promotion firm comes knocking on their door bearing gifts, do you think that some two-bit blogger still driving an old Chevy Citation is about to spew forth platitudes about not accepting honorarium because of journalistic integrity? Please.

      • SSShu

        You mean like the guys that got stuck in a foreign land wearing a samsung t-shirt?

      • Barchiel


      • VulpineMac

        And exactly how many of these tech bloggers are read by the ordinary consumer?

    • AdamChew

      Were you paid by Samsung to say that.

      Looks like lots of nice comments about samsung smartphones are written by people like you who are on the take from them.

      • Walt French

        Try out the idea that @SA was being sarcastic, hence the 43 (as of now) positives with no negatives on a site dominated by interest in Apple’s success.

      • That’s the beauty of irony. Only a few get it…

    • I think a lot of people don’t know the meaning of the word marketing. Apple is a great technology drive marketing machine, which is why they make great products that actual people want the moment the products exist. Most companies spend their marketing budget on advertising. Which is backwards – but nice for all those creative young people in ad agencies 🙂

    • TheRealCBONE

      The truly shameful amount of hamfisted product placement probably doesn’t hurt Apple’s bottom line. 😉

    • Peter

      This just shows how much FREE marketing Apple gets from the media and fans. Example, do a google search for “Dell FTC assembled in usa” and you won’t get stories about Dell. Hint: all stories about Apple.

    • stevesup

      There’s marketing. And then there’s advertising and publicity.

    • +1

  • SA

    Fascinating analysis, can you include Apple’s Retail costs to the chart so that we get a better picture on what Apple vs Samsung product promotion costs look like?

    • We don’t have a figure for Apple’s Retail costs but they are a part of SG&A. In the last quarter Apple’s SG&A was $2.551 billion and Samsung’s SG&A was Won 92,187 hundred million or about $8.5 billion.

      • Stefan Constantinescu

        Using that data, would you say Samsung stores are an inevitability?

      • It’s tricky because for Samsung that would create significant channel conflict.

      • Relentlessfocus

        Samsung has had an electronics store on Tottenham Court Road London for years and now have one in Selfridges. They are just about to open their own phone shop in Westfield in London which is Europe’s biggest shopping mall . They also have a store in Harrods

      • They also have a store in Westfield in San Francisco (one of the biggest malls in Northern California).

      • Shane77

        This must be quite embarrassing for them because I cannot imagine people waiting in line for days to buy the newest Samsung Galaxy phone. Do the stores feature all glass staircases and a “Super Smart Helpful Person Bar”?

      • Stefan K

        Why is that embarrassing? They (all) care about money not the line of waiting people..

      • Shane77

        Because they’ve spent millions on ads making fun of people lining up for Apples products, or have you not seen

      • Shane77

        Also Stefan,
        anyone who thinks all Steve Jobs cared about was making money knows nothing about creative invention, intuition, and passion. You can speak for Samsung if you like but don’t speak for someone like Jonathan Ives

      • That may be true on the surface Shane but the shareholders of Apple care that the company makes money which means that it is at least some concern of senior management and certainly Jobs.

      • Shane77

        and I am a shareholder since 2008. My point was Apple’s success wasn’t solely driven
        by the desire for profits by its founders. It was driven by the concept of “insanely great”. Large companies like Samsung have a type of Bureaucracy that generally makes it difficult to focus on innovation. In fact, they only innovate if forced to by the market. There wouldn’t be Samsung Galaxy phones if the iPhone wasn’t invented. One of the primary focuses of a giant conglomerate as I’m sure you know is to make the cheapest disposable product and sell it to as many people as fast as they can. Therefore, it makes sense that they would spend so much money on advertising. This is why so many of the tablet manufactures keep failing. They rush the products to the market before they are fully functional. They don’t give a crap about their customers in general.

      • It’s the Best Smart Helpful Person Bar.

      • Anon

        In my country (Singapore) where Samsung is muscling out Apple in terms of marketshare, there are indeed Samsung stores ( and lots of people queued for both the Galaxy S III ( and the Note II (

      • jamesrgrinter

        Their TCR store is actually run by another (local) company.

        But they have recently taken over the Samsung branded store in the other London Stratford Westfield mall. It looks like an Apple store, only not as busy when I’ve walked by.

  • An interesting perspective would be to compare Samsung’s marketing/advertising budget with LGs – might probably indicate why LG’s Android phones aren’t a big hit

    • oases

      Good idea.

  • Minor: In the last graph, the line labeled “Marketing Expenses” is for Samsung; would it be more clear to label it “Samsung Electronics Marketing Expenses”?

    • Yes.

      • GK

        Can you update the post with this please? It’s confusing. Thanks!!!

  • RichLo

    Based on the data shown what Samsung is doing with their marketing strategy would make many MBA professors proud.

    • Graham J

      Not to mention ad agencies.

  • lesiu

    So Samsung is paying AT&T and Verizon sales staff to push Samsung devices?

    • Shocking, no?

    • Andre Richards

      I’m amazed that AT&T and Verizon or any other vendor/company would allow that. You’re more or less turning control of your company’s interface with customers over to another company that has little or no interest. Not only are you encouraging your employees to push product on a customer that may not best fit their needs, but you could also get sullied in a worst case scenario. Imagine if Samsung produces a terrible phone in the near-future that is rife with hardware issues and failures. And your staff have been pushing that product regardless of what the customer needs. Why would you put yourself in that position? Just to earn a few more bucks? Ridiculous.

      • All sales promotions targeting sales staff are sanctioned by the carriers. The decisions on sales promotion are made deliberately by vendors and operators. In fact, the operators themselves receive various forms of rebates in the form of “ad co-spend” and other payments. Sometimes, as in the case of Windows Phone, vendors and operators receive payments from the platform vendor.

  • Tatil_S

    There is something fishy in the plot for Samsung’s profits by segment. Y-axis seems to go up by “2 Trillion Wons” between each tick, but it jumps from 2 to 5 in the middle, even though the visual size stays the same.

    • Yes, it’s a mistake where I removed the decimal precision and changed the number of grid lines. Each grid line represents 2.3 billion won. The second grid line rounds up from 4.5 to 5. The correct version is attached below:

  • Tatil_S

    Horace, do you think ASP figures are bit misleading if Samsung is spending $7 billion on sales promotions? That is roughly $35 per phone. I suppose it was also spending that much per phone in the past, so the rise in ASP looks real, but I am curious whether other phone makers such as Nokia or Sony have been spending similar amounts per phone.

    • The spending per phone is not in the same order of magnitude for Nokia. Quite the contrary, Nokia receives a payment for each Lumia phone in terms of “platform support payments” from Microsoft ($1 billion per year). I don’t have data for Sony.

      • Matt

        Would you not agree that Apple’s worry would be minimal? With an operating margin of 45%, and the massive difference between the cost to produce their device and the profit, they have plenty of room to lower prices if they begin to feel threatened, no?

      • Latest stats show apple with over 50% of smartphone sales in the USA. Samsung are possibly incentivising the sales staff in Verizon and AT&T shops to push the Galaxy and still more than half the people walk out with an iPhone. Seems the desirable power of pull is winning over the brutish attempts at push.

      • Test


      • Yes, but it would be wrong to assume that Apple acts on the basis of “feeling threatened.” As I pointed out in a podcast, the pricing of Apple’s products is a specific signal to the market not a response to market conditions. Price is part and parcel of product design.

  • Take a company like HTC, with terrible marketing, and look at their product, compared to Samsung’s. There is really not much difference. Both are made of cheaper quality materials, have large screens and run a recent version of Android. There really is no software moat that Samsung has. What is the moat then? Is it marketing, is it in house hardware production?

    • oases

      I’ve heard anecdotes about HTC hardware failing. Not seem empirical data though…but I wonder if they’ve been letting people down.

      • HTC’s biggest problem is that Samsung floods the market with so many models, and throws around so much money, that HTC simply got shoved out of the market.

    • simon

      I’ve heard similar things as oases however HTC has always done fairly well in customer satisfaction so I’m not sure if that’s necessarily the reason.

      Also Samsung can spend far far more than HTC because they have other income sources and also benefit in terms of the name recognition. They also have the added bonus of having a very strong domestic market with intense royalty toward Samsung.

    • defasio

      HTC phones typically have poor battery life, lack of memory, and an obstrusive skinning of andriod

      • From the comments, it seems like everyone here has heard a lot of negative things about HTC phones. I wonder if this is representative of old HTC phones, because I have tried the newest HTC 5″ phone and compared it to the Galaxy S3. They’re pretty much the same in terms of battery life and memory. The HTC is actually faster as well.

        “High end” smartphones today, including the iPhone 5, of course, have gotten to a point where rendering a web page is essentially a non-issue.

        Furthermore, this is not really only about HTC. LG has released their nexus phone, which has the “pure” version of android. It’s likely that eventually it’ll get true 4G LTE. So why can’t they compete with Samsung? I really doubt the add-ons that Samsung has put into their fork of Andoird help their sales.

      • JohnDoey

        Samsung sells in way more locations than HTC, and Samsung spends more to get a customer. HTC is barely profitable, they have no money.

      • I think that’s obvious to everyone here. Please re read the OP to understand the question we are trying to answer.

  • Great article again Horace. Is there any way to gain insight into what kinds of Sales Promotions Samsung typically engage in? I wonder if this is how they are solving the problem that consumers have access to devices with the same Android software and similar specced hardware, yet are instead leaving the shop most of the time with a Samsung. Based on my own experience with awful Touch Wiz layer they add it cannot be software customisations that are sealing the deal.

    • DesDizzy

      Great article and interesting comments as always. In the UK Samsung offer free tablets with their LCD TV’s.

  • [Disqus just ate two of my posts?? I was linking to some Samsung promotional pages to illustrate a point. Am I flagged for spam or something?]

    • I lost a post I was editing yesterday here, so something’s at least slightly wrong.

      • I was editing a post right after i made it, maybe thats what happened. I very briefly saw it flash “comment awaiting moderation” – maybe its related. It looks like it went through to Horace though as its showing up now.

        But I’ve noticed Disqus has been a bit buggy lately, for me at least. Not sure how to describe it, but it reminds me of CDN issues or query caching.

  • oases

    Why is ‘handsets’ broken out in sales but not profits? Is it you or Samsung?

    • Samsung does not offer details on handsets profitability (or units, or anything else). The pricing data I mention later is based on a consensus of analyst estimates of units.

      • oases

        If you have an estimate for handset sales and an estimate for ASP, can’t you estimate handset profits?

      • All the data presented here is based on actual reporting from the company. I don’t want to introduce estimates based on guesswork into the verbatim data.

  • oases

    Buying pre-eminence seems to work in Samsung’s case (assuming pre-eminence is self-perpetuating)…

  • We really should be looking at the expenses of other consumer products companies that Samsung competes with, although I’m not sure they’re symmetrical with anyone.

    I’ve always felt the Samsung brand was rather bland. This may be by design, enabling any retail brand to “plug in” the Samsung lineup and modulate their advertising, marketing and pricing strategy appropriately for their market.

    We’ve seen that Samsung and Apple have gobbled all the profits in mobile. Why isn’t that same pattern repeating in TVs, washing machines, refrigerators, etc.

    • Relentlessfocus

      Maybe because those are relatively mature markets playing a zero sum game?

      • Most of those markets aren’t mature in the developing world, where Samsung is staking its claim. In developing nations the pattern is that people buy mobile devices before they buy TV, washing machines or refrigerators. And they’re sensitive to quality in a very real way.

        If your family can only spend $1000 on consumer goods a year, what’s the best heuristic for choosing where to spend it?

        Samsung seems to understand that design adds value, and at scale it becomes a tremendous competitive advantage.

    • orienteer

      As I can recall, it was in the early 90’s that Samsung retained the Arnell/Bickford agency to bring a very high-end, “fashion” look, in black and white, to their appliances- beautiful, athletic models in very dynamic poses balancing the products. I think this coincided with the product design itself becoming very minimalist, lots of gloss black surfaces and sharp-edged form factors. Smartphones were of course not even on the consumer radar, but I’m curious who at Samsung decided on a very comprehensive aesthetic upscaling of the consumer branding and implemented it rather quickly. I’d say it worked.

      Fast forward 20+ years and the loss of the context- the layouts, the typography and Herb Ritts photography- and the need for “modular” partnerships does indeed expose the lack of substance and blandness of their products.

      • Interesting. I’m curious too, I wonder if there are consistent elements that could be considered a design language across product lines, like the ubiquitous Apple roundrect.

        Looking at some of their appliance and gadget designs over the years I can definitely see this trend. Some of it is really good stuff.

  • All’s fair in love and war, but the ethics of spiffs is not clear cut.

    • Spiffs! What a great word. Its certainly a grey area, and the kind of thing that snowballs if you aren’t careful.

      My experience with retail marketing and pricing is limited to a large organic supermarket (not that one) and a large chain of auto dealers…but they were remarkably similar at the end of the day, so I imagine its the same story all over.

      “Inventory is evil and if you have to sell at a loss or simply pass it through the system as a bundle in order to clear it out then so be it.”

    • I’m so dense. This is what the used car guys do all the time. And the evidence is one google search away. Geeez!

    • The discussions on the independent agent forums are unbelievable.

      The incentives for these kiosk / strip mall salesmen are so much worse than I thought.

  • When I bought my wife’s iPhone 5 over the weekend at BestBuy here in NYC, the young man was telling us how horrific his first Black Friday was working in the store. The reason: the insane rush to purchase Samsung Galaxy 3’s at $50 US!!

  • KirkBurgess

    Wow. That last chart is shocking.

    Thanks for the first decent breakdown of Samsung I’ve seen.

    That amount of money on sales/marketing is amazing, but can anyone argue that it wasn’t money well spent?

    The Samsung strategy of quickly copying apple and using a huge amount of money to sell handsets seems to be very successful.

    Can any other company follow this technique? Or has Samsung grown too big for its android competitors to mimic the strategy by matching its huge sales spend?

    • JohnDoey

      What are they going to do when they can’t follow Apple anymore? Disappear like Palm and Nokia and so on.

      The thing that has changed during my 5+ years of iPhone use is these days, my iPhone and iPad spend the majority of their time running Mac apps. Samsung has no such apps. Going forward, now that Windows PC sales are down 20%, there will be fewer and fewer Windows PC’s and users will expect PC class apps on their mobiles. Samsung can market their Java applets all they want — there is no way to make their little widgets cover all of a user’s PC needs.

      • Fuzzypaw

        When they can’t follow apple anymore? You do realize that the new Galaxies look nothing like iDevices and have a plethora of features that the iDevices don’t have, right? You can’t look at a Galaxy S3 or Note 2 and say it looks anything like an iPhone.

      • sgns

        I guess you just answered JohnDoey’s question: there’s a leap from features to software over the last few years (Apple’s home ground) and then services. How far can they follow Apple? Can Samsung build up services and software like Apple does, or do it in their own way (better?), and keep their customers or win new ones?

        Interesting times for Samsung, I’m sure. Not least when one considers that Google so far basically has been giving Samsung the “software means” to its profits for “free”. What’s next?

      • Samsung does seem to have gone to great lengths to change its design to be anti-iPhone. A prominent pro-Android site even called out Samsung on it this past spring:

      • Bzzt. The UI does. Also like Microsoft products which is why Samsung also has to pay Microsoft.

      • SSShu

        Why should they disappear? If anything Samsung has shown us that its viable to copy someone blatantly and completely get away with it. If they can’t follow Apple they will follow someone else. If there is no one to follow they can either innovate or simply mine the market like the cash cow that it will be via endless spec bumps every quarter. And they can just pick and choose what kind of technology to use on their new lineup. Kind of funny how Apple is the one that gets framed as a tech-repackager instead.

    • Peter

      I’m an auditor (gasp). When I see rapidly increasing revenue and SG&A that does not reduce as a percentage of revenue, I start to suspect that there is a quite a bit of grossing up going on in the numbers. A plausible guess is that telco rebates are presented as “costs”, whereas there is a good case that they should reduce revenue.

      • Tatil_S

        I agree. When overhead rises in proportion to sales, it is quite likely either revenue is overstated or cost of goods sold is understated. On absolute numbers or for comparisons between companies following the rules and bending them, that is important, but I think it is more valuable in this case to concentrate on trends.

      • Assuming these are rebates/incentives is there any reason that they shouldn’t be subtracted from revenue?


      Aaahh …. Microsoft already did this in the 90’s … and most people would agree, rather successfully. So yes, Samsung/Google, are actually copying Microsoft’s playbook verbatim (wow, so much copying by these google parties ….), and of course, they’re copying Apple to the T, and guess what, they have a winning formula … because a sucker is born every second (reference to the Verizon salesperson above). Samsung is pursuing a proven strategy, which was essentially played out by the DELL, HP/COMPAQ crowd in the 90’s. Some people say that in smartphones, it won’t play out the same, and it hasn’t yet (Apple never had majority share of the PC business) … but you never know.

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  • What about the appliances margin? Is it negligible or why hasn’t it included in the charts?

    • Appliances were folded into Digital Media in terms of reporting of operating income.

      • disposableidentity

        That’s so funny. Samsung is only a half-step away from a parody of corporate conglomerates. (Thinking of 30 Rock’s “Vice President of East Coast Television and Microwave Oven Programming”).

  • Apple’s physical retail stores, a cost of sales?

    • JohnDoey


  • def4

    Brute force seems to have worked wonderfully.
    What is the biggest weakness or risk with this strategy?

    • Anyone else should be able to use it.

      • def4

        Anyone capable and willing to spend close to or more than Samsung.
        How many is that?

      • When Samsung started out selling phones they did not spend as much as they did now. Other companies can still use the same overall strategy.

      • def4

        The question isn’t if Samsung spent as much as they do now back when they started out but whether Samsung started out their successful run by spending as much or more than everyone else was at the time.

    • JohnDoey

      The risk is it may only work once per customer.

      When I moved in with my current roommates, it was 3 iPhones and 2 Samsung. Now it is 5 iPhones. The Samsung users never considered another Samsung phone. They were angry because they already thought they bought an iPhone last time, but spent 1–2 years discovering all the things their phone could not do compared to iPhone. They saw apps they couldn’t run, media they couldn’t get, accessories they couldn’t use, AirPlay they couldn’t access.

      In other words, a Samsung iPhone is a gateway to a real iPhone.

      You can lie to users who haven’t used your phone — but only once.

      • Perhaps that is why In a recent survey 22 percent of android users were planning to switch to iOS and only 8 percent vice versa. Now if you look at the actual NUMBERS, that 22 pct is much larger than the 8 pct because of the larger android market share

      • def4

        I wonder how many new Samsung smartphone customers are discerning enough to figure out everything your roommates did.

      • SSShu

        Not high enough. Most people on either side don’t really utilize the ecosystem to their full potential. Personally I am more than happy to leave them there and not to mention these sorts of purchases are usually triggered by budgetary constraints.

  • One thing that intrigues me in this data is the recent sharp upturn in their LCD business profits. I wonder if this is a bit of a shell game, siphoning profits from one division (phones) to another (phone screens) — since the LCD business has been kind of anemic for them until recently. There is also a smaller uptick in the semiconductor profits which may be related.

    I’m a bit reminded of the old Ma Bell trick of transferring revenues from the operating divisions to the manufacturing side, though I don’t know if there are similar external pressures that favor shifting money like that.

    • JohnDoey

      People are getting the same crappy Samsung panel in HD sizes today as 3–5 years ago. It does not surprise me that LCD profits are up.

    • Simon

      That is correct Walter. A big part of the display division is from selling the Galaxy displays to the phone division.

      However Samsung also sells relatively high margin Retina displays to apple as well so that helps too.

      • This is quite important. As I was going through the reports, there was a point a few years ago where they switched the way they reported revenues to something they called “consolidated” which meant each division booked revenues for transfer of components to other divisions. It made it difficult to have a valid comparison of revenue performance from year to year for some years.

      • simon

        Horace, it also bears mention that this year the LCD display division been spun off into a separately traded entity called Samsung Display. To make it extra complicated, the AMOLED making mobile display division was not spun off at the same time but was merged into the Samsung Display layer. I’m not sure how this affects your number though as I haven’t seen the details of the consolidated financial statements.

      • simon

        Type: layer -> later

  • realjjj

    You don’t compare rev in smartphones vs marketing $, plus ASP went up but on a shift from dumbphones to smartphones.They also have higher BOM than Apple at similarly priced handsets (bigger screens,battery more hardware insides) and they went for the low end too, nothing wrong with going for share instead of earnings (unless you ask most analysts). But look at their scale now and how big they can get in tech in general if regulators allow it.- they have and will have even more leverage.
    Apple also does get free PR from the US press since nobody in the mainstream (mainstream meaning even the most popular tech sites) has good tech writers).

    PS: try to have a look Apple’s share in non-english speaking nations,so exclude the US, UK and Australia at least

    • This post seems to be a complete non-sequitur in relation to this particular article that Horace wrote.

      I think every single person in here knows that Apple’s share in non-English speaking nations is relatively low. This actually is a big opportunity for Apple growth.

      • SSShu

        Or a big threat when left unchecked. That being said – Apple seems to be doing a good job propelling themselves into such markets and preventing market entrenchments.

    • Do you have a BOM estimate for the S3 from somewhere? I can’t seem to find one online.

      Don’t assume that because the screen is bigger that it’s more expensive, it depends a lot on the technology used, and denser displays are generally harder to make. I believe the S3 uses a Pentile display, which actually has fewer subpixels than the standard RGB design Apple uses, which *might* make it cheaper. And the costs of LCD versus AMOLED tech could go either way. Apple’s iPhone5 LCDs are currently probably on the expensive end due to the new touch sensor integration, which is a new technology.

      Similarly, more hardware isn’t necessarily more expensive, it depends a lot on the chips used. Apple also uses an expensive case-machining process.

    • JohnDoey

      A tech writer who recommends a Samsung clone of an iPhone instead of an iPhone is a bad tech writer.

      Same with a car writer who tells customers to pass on a $40,000 BMW and instead buy a $40,000 KIA. Bad writer. People are paying iPhone price points for much lesser generic Samsung phones because Samsung marketing says they are the same phone. They are not. You fell for it. You need to read better writers.

      Samsung devices have no native C apps, no central software updates — they are not in the same class as an Apple phone. It is bait and switch on consumers. The whole reason industry writers exist is to warn consumers away from scams like Samsung phones.

      • If you wonder why Samsung gets so much better press than Apple, Horace’s article tells you why. If you advertise, you don’t just get pretty pictures and videos; editorial content is influenced. The writer is not necessarily bad, just doing their job.

      • Andre Richards

        More an editorial thing than any writer per se, but you are absolutely correct otherwise. I have noticed a dramatic difference in the tone of mainstream tech media articles and reviews about Samsung products (which seem to border on gushing at times) versus user reviews (which seem to be a mixed bag of love and hate.) A curious divide exists between editorial opinion and real world opinion.

      • SSShu

        That’s just a bonus perk for buying up all available ad-space on certain news networks.

      • Ittiam

        LOL… Bait and switch is Apple’s strategy… Use clever marketing to sell over priced products…

        And tech writers are always biased in favor of Apple, since they fear that they might not be called for next Apple event

      • Quicksingle

        Hope you get that sad chip removed, you really are ignorant and blinkered.

      • Walt French

        Looking at your history, a pretty consistent pattern of ad hominem attacks and generalization of personal preferences as the only smart thing for everybody.

        Insulting and useless, respectively.

        Why not follow Dedieu’s example and supply some facts or original insights to chew on?

      • I substantially agree, iphone are of a different class and yet there is some space for other handsets.
        Iphone are mainstream devices for every use with top characteristics, specific customer needs could be met by other vendors, like smaller price for less quality or a bigger screen for instance, less ergonomic for holding, better for looking. Niche markets.
        And indeed the vast majority of android devices are occupying these different needs.

        Then there is the galaxy. Samsung with this iphone clone is not aiming at niche markets, they are aiming at the same iphone market with inferior handsets at the same price.
        The incredible thing is the same price, that is the claim of being same class.

        This is sustained only by marketing money, the mean price for iPhone and samsung phones are quite different, the lower samsung price is paid by operators not users, it is incredible that marketing can make users pay almost the same for both devices.

        The difference can be seen in the power of apple, it is apple that approve lte networks to be used with the iPhone not the other way around common for everyone else.
        Operators backed up by samsung money can sell the devices at the same price but know very well who is leading.
        I believe that the need of a same class iphone competitor is strongly felt by operators that don’t want to be under the will of apple. There isn’t one on the market, they pushed one phone to be it.

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  • Ulag

    What about the sales promotions of others like Dell, HP, Coca Cola? Why is that not being accounted over and above their marketing expenses. Coca Cola especially indulges in heavy sales promotion. Using these figures we can get a more realistic comparison.

    • JohnDoey

      That is in the chart.

      • Ulag

        No, its just advertising expenses for the rest of the companies. Sales promotions have not been taken into account.

  • JohnDoey

    It is sleazy and illegitimate when applied to counterfeit products.

    They are paying off Sales people and others to go along with the scam and promote Galaxy as if it is an iPhone. The money is unusually high because it is a scam.

    • Yeah, I just spent a couple hours reading through some carrier agent forums. I need a bath.

      Didn’t have any idea how bad it was. Yuck.

    • disposableidentity

      When the iPhone first came out and I told my carrier that I was switching to get an iPhone, the rep said they had iPhones too. It took 20 minutes of prodding for her to admit that “their iPhone” was actually made by a different company. This girl was working from a sales script. She didn’t make it all up, someone above her had thought this all through. Probably works with a lot of customers.

  • JDI Interactive

    Hello, I am impressed from your report. I wonder how you estimate 2012 costs. It looks fair enough but can you tell me shortly..

    • I start with what is known about the overall marketing spending. We have three of the four quarters already reported. I assumed that Q2 and Q3 were exceptions (growth y/y was 43% and 58%) due to the Olympics sponsorship. I therefore assumed Q4 would only be a total of about 7.3% growth. If we have Q4 we then have the whole year and can measure growth for that (31.3%). I then adjusted yearly ad spending growth to be the same amount. Therefore the estimate depends only on how much will Q4 marketing grow relative to last year’s Q4. I think 7.3% is conservative.

  • Ittiam


    Excellent article…. Request you to do more analysis of the Android ecosystem and partners

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  • If high spending on sales is causal to Samsung’s success, then this is good and bad news for Microsoft. It’s good news because they could try to pay their way into the smartphone market. It’s bad because they would need to spend more than Samsung in order to convince customers and sales people to switch. And it is far from certain that the sales would grow fast enough to cover such huge costs.

    • Walt French

      The single worst piece of news for Microsoft is that smartphones are a distinct market from desktops, where they reign supreme.

      I heard Bloomberg “interview” Christensen this week (in quotes ‘cuz he could hardly get a word in edgewise), reiterating his belief that markets evolve from proprietary (closed) products that serve innovators best, to open, multi-player collaborations, and that Apple was at risk of running afoul of that natural shift.

      But if Apple is at risk, what chance does Microsoft have to introduce a brand new, proprietary platform? (Even more so, RIM?) If they can leverage their masterful understanding of Office/Desktop/Servers onto phones, or if people really want to do the same sorts of things on tablets that they do on desktops/laptops, they’ll do fine. But I think these are utterly distinct markets, and that it is too late, even with their strong base, to introduce a successful phone.

      The level of advertising notwithstanding. If they thought that cash would make the critical difference, they have the cash and the ambition not to become irrelevant to modern computing. But methinks they know otherwise. WP8 is still not competitive enough that Samsung-level advertising would make the difference.

      PS: I find Apple’s challenge much more interesting because it portends how future battles will turn out—as I say, MS and RIM look lost already. Perhaps iOS, rather than mobile computing, is itself a market with many players (independent software developers, music & TV media, …). Or perhaps Apple can only retain the crown by ever more rapid innovations to create new proprietary markets.

      • Andre Richards

        “reiterating his belief that markets evolve from proprietary (closed) products that serve innovators best, to open, multi-player collaborations”

        Curious. How on earth does that idea apply to digital music (iPod/iTunes), or say, the console video game market? I see no evidence to support such an idea in either of those markets, and both are quite “evolved” at this point. In reality, they both seem more closed than ever before.

      • Walt French

        Interesting point about music players, since broadly defined, they’ve gone from there being dozens or hundreds of CD player brands, to iPods dominating the player market.

        But if my recollection of the data is right, I think the game consoles are being massively disrupted by smartphones, tablets and iPodTouches; most gaming dollars now go to apps on the new platforms.

        As to the generalization of your point: yes, one always has to be careful about force-fitting a model to a problem. That concern certainly underlay what I was trying to do with my questions about the iPhone.

    • shawnde

      Microsoft wrote the book on this strategy … Samsung is following their footsteps 🙂 And Microsoft has already been doing that …. And guess what, Microsoft has a bigger slush fund.

      Samsung’s slush fund comes from their component business, which is lucrative (Apple as a customer for the next little while, and others), and essentially they’re using the competitor’s money to fight them (cutting off the hand that’s feeding you). I don’t think it’s gonna last long. Unfortunately for Samsung the TV/Appliance business in is not a money maker.

      Microsoft is still a little more immune, because one of their biggest slush funds is Office, which is still doing okay. And they’re essentially diverting the profits to play in other turfs (Xbox, servers, CRM, mobile, etc.). Their only downside is that they’re very late to the party.

  • YooHoo

    Samsung and Apple are also differentiating themselves from other manufacturers by their deep supply chain integration. In Samsung’s case, it is the traditional model of vertical integration, where they make many of the critical components: microprocessor, DRAM, Flash memory and LCD panel. This guarantees adequate supply, but since the components are also available to others, they still have a reality check that their components are competitive with other vendors.

    Apple started off the 21st century as a “modern” American integrator — designing products using standard components assembled by contract manufacturers in China–but then began to modify that formula. First it made huge prepayments to lock in pricing and availability of key components, then expanded their design scope to create custom components: both leading-edge electronic components (first SoCs using standard cells, now full-custom CPUs) and unique mechanical parts (unibody laptop chassis, glass panels). Now it directly invests in the manufacturing equipment used by its manufacturing partners and may even own the Sharp plant that builds the iPhone 5 LCD panels. It seems likely that to guarantee adequate supply of future Ax SoCs they will either prepay or directly invest in new semiconductor fab capacity.

    Since Apple owns the key manufacturing equipment, much of Foxconn’s capacity is dedicated to Apple — those plants can’t produce anything but what Apple says.

    Both Samsung and Apple have much more control over their entire supply chain than their competitors, particularly critical components like Flash memory.

    Will their supply chain mastery allow them to squeeze out the other manufacturers from getting the advanced components needed to build the next leading-edge phone?

    And which strategy is better, Samsung’s or Apple’s?

    • Walt French

      @YooHoo wrote, “And which strategy is better, Samsung’s or Apple’s?”

      During the 50’s and 60’s, GM perfected its purchasing and manufacturing to be superb for its yearly, mostly cosmetic model changes. High-volume, well-managed, of the sort that a budding Tim Cook would study in school.

      Of course, that model became irrelevant with the disruptions brought on in the sixties. Disruption from Japanese nameplates fit the Christensen model to a Tee.

      I’m not saying Apple is GM, but I am saying that trying to choose sides in a “business model war”—especially, a choice based on a very shallow understanding of the company’s culture, resources, etc.—is problematic, likely to help us miss the dynamics for how the industry evolves.

  • Great article Horace, as always, you are turning on some lights.
    The marketing expenses are staggering and suggest some insight on your previous post about android engagement.

    Both apple and samsung have advertising, samsung much more than apple but that is understandable since samsung has not the same brand as apple does and they are new to the high end phone market, but samsung does a lot more.

    Apple informs users about its products and they choose to buy them, even if they don’t know, at first, other uses than phoning or messaging. The user interface is so simple, a three years baby can use it profitably, that they soon discover new uses and are more engaged in the platform.

    Samsung informs users but does more, a lot more, 12 billion dollars literally push their phones in the hands of end users. Operators are so motivated to sell samsung products that they also try to discourage iphone sales.
    These users get the phones, push sales, but are not motivated in discovering more features other than the basic ones, they have not choose a smartphone they just have got one.
    The interface is less usable and requires more training and cognitive effort to be used so they remain with the basic use and the engagement numbers becomes plausible.

    Reassuming two main reason for the engagement numbers:
    1) users need a motivation to afford the training required to use more functions on their smartphones and having a smartphone is not enough, the must be attracted, they must choose to have a smartphone not only being pushed to own one
    2) the lower the training step the better, usability is everything for this kind of very personal devices, their use must be a no brainer, and ios is ahead in that

    • Shane77

      IOS may be easy enough for a baby, but I know a 74 year old woman who is returning her iPhone 5 because she says it’s too complicated. She could go to an Apple store and take a free course. Meanwhile I just got my 73 year old mom an Apple TV and about to get her an iPhone 4s. She’s now streaming music from her iTunes library to her living room. The only difficult part when she’s used my iPhone seems to be getting familiar with the touch interface and keyboard, but I think that’ll take a week (I remember having a learning curve as well) and she’s going to love the calendar compared to the day timer she’s been carrying for years. Imagine not having to rewrite on another day what you didn’t get done today and being able to call the person you have an appointment with right from the actual calendar, how awesome! Now that Windows new operating system looks like a foreign language to someone used to XP, her next computer is also going to be a Mac. If there’s going to be a learning curve either way, might as well make it the smoothest curve possible.

      • Exactly, think about streaming to your mom your latest photos with icloud photo streaming, incredible useful and simple.
        Anyway there a lot of personal examples of one thing or another, it is the global engagement data that shows different outcome between android and iOS and I am trying to understand why.

    • disposableidentity

      “Both apple and samsung have advertising, samsung much more than apple but that is understandable since samsung has not the same brand as apple does…”

      I think the article proves that this kind of thinking is just wrong. Its the same old “Apple is just a slick marketing company” argument. We keep hearing it over and over, but it doesn’t stand up to examination.

      Horace has just shown us that Samsung sales are a direct result of consumer advertising and sales promotions on a scale we’ve never seen before.

      Apple’s are not.

      Apple’s success can be attributed to a lot of things, their brand being only a small part of it. These numbers prove it’s not the “marketing” (brand image, advertising and other communications efforts), that’s driving sales. What could it be then? My guess is that people simply want their products. No expensive prodding or persuasion needed.

      • Graham J

        Sure, but how did they get to the point where that is true? I think these numbers show two main things: That Apple is simply better at marketing as evidenced by their relatively meager spend, and that their products sell themselves.

      • Or, perhaps, they just make good stuff and that works as good as marketing.

        I know I didn’t learn about Apple thanks to adverts but through using one at school and comparing it to the alternatives. A lot of people I know learned about Apple through almost fortituous means, back when Apple wasn’t the behemoth it’s today. It didn’t spend a lot of marketing then either, yet the brand has consistently been known for quality for decades.

        Samsung took a lead through marketing, something common and entirely possible. Apple’s position is not directly related to marketing because they don’t need to be. Its users, regardless of our opinion of them or if we think they’re right, believe their products to be superior and both stay as customers and transmit this preference to friends and family.

  • Ittiam

    From few comments there is a feeling that Samsung just threw money on marketing and hence success was kind of guaranteed. Thats not the case.

    Samsung also mastered its production ramp up and product design which are equally critical.

    Example: Samsung has not had the same success in tablets even though they have marketed it equally, since the tablet design has not been upto the mark.

    Asus and LG are struggling to ramp up their production capacities of their Nexus devices, which shows its not so easy. Samsung has tripled its production year-on-year, for last three years. That itself is a great achievement

    • Samsung has not increased their handset production 300% Y over Y. Samsung has been very successful and transitioning dumb/feature phones to “smartphones”. Their actual production increases, while impressive, are much more modest than the 300% you claim.

      • orthorim

        It’s kind of misleading to look at dumbphones and smartphones as two completely different species.

        The by far most interesting statistic above is Samsung’s average handset sales price – $234. That means that the vast majority of volume in Samsung’s handset business comes from the sub-$200 set of devices. Which are basically smartphones with small screens and weak processors that people use like they used their dumbphone, except they can now also use Kik messenger and Facebook. But these are users that are very different from iPhone or SGS3 users. They account for the fact that Android use is marginal when it comes to web surfing even though units sold is much higher than iOS.

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  • Christopher Robert

    Apple does most of their marketing in house. The above graph only represents spreading outside of the company. So in reality this is just what apple spent on buying add space. Apple also has ways less product diversity so for instance they don’t spend money marketing for tvs or micro processors. This number for Samsung show its expenses including the money spent with the ad agency that develops the ads and the money spent on ad buys. If you looked at this on a per product (unit) basis there is far more money spent on advertising money spent per iphone than there is per galaxy phone.

    You can’t always believe padded statistics .

    • “Apple does most of their marketing in house.”

      That is referred to engineering, design and R&D. You are right on that one. But even then, Apple uses outside advertising companies just like a normal company.

      “If you looked at this on a per product (unit) basis there is far more money spent on advertising money spent per [iPhone] than there is per galaxy phone.”

      Based on what? Given the cost of marketing has risen in accordance to an increase in revenue of Samsung’s cell phone division, are you suggesting Samsung is increasing their marketing geometrically to support divisions with flat revenue growth? This is more about cost of sales that includes costs beyond just advertising. For example, the money Samsung pays sales people to push their product (spiff). At the end of the day, Samsung pays a significantly higher % more on cost of sales when compared to Hp, Dell, Microsoft or Apple.

    • Skreddy

      How strange. Besides the fact that Apple does indeed hire ad agencies to produce their commercials, to believe that 2/3 or more of the cost of advertising lies in production as opposed to media buys is pretty far out there.

    • Have you looked at it on a per unit basis? If so can you share the data?

  • jameskatt

    Samsung has to bribe people to buy their products.

    • And to sell them, apparently.

    • Walt French

      Please help me understand how this gibe adds to the analytical dialog that Horace started here.

      • disposableidentity

        It’s the whole point of Horace’s article.

        If I were to summarize it in one short sentence it would be “Samsung must pay an unpresidented amount to get people to buy, and even to sell, their products, but Apple does not.”

      • I would be more nuanced (but also more accusatory): Samsung fixed costs are not (sufficiently) fixed and variable costs are not (sufficiently) variable.

    • the Ugly Truth

      It isn’t a surprise really. Seen what Sammy has done to Sony?

      Sammy has the bucks and production capacity to churn out pretty darn good gadgets.

      It knows that it HAD TO change consumers’ perception about their mobile offering – that it is “better” than Apple’s. The most effective way to do this is to attack Apple directly to be noticed (hence, ads mocking the iPhone and its users to be like “your mom”!).

      It also knows that the majority of consumers that are new to the smartphone market may not be that informed. Hence, it is no surprise (I’ve got no proof) why Droids are almost always the phones that are pushed to you at say….VZ; I wouldn’t be surprised if the reps are getting extra incentive to do so.

      • orthorim

        It’s not news that all US carriers push Androids like crazy as the carriers make much more money off of Android devices. Basically the carrier is selling you a product that’s worth $200 less than an iPhone for $50 less. That means $150 more to the carrier. Just compare the prices (subsidized) in the USA with prices in Asia where there is no subsidy.

      • They also get on-phone branding, advertising co-pays, and share in Google’s mobile revenue.

      • orthorim

        The carriers share in Google’s mobile revenue? Really? That’s crazy. Do you have any references for that?
        On phone branding – sure. Although I will never understand why they think it’s a good strategy to fuglify their own phones…

      • There is a series on Android economics available on this site.

      • Google themselves said so: “And typically, the OEMs and carriers participate in some of the economics that are on the Android marketplace or Google Play and some of them participate in the economics around Google Search just the way we would do syndication on the Web platform, which you do with many partners around the world. We have similar deals on the mobile front.”

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  • poke

    I can’t help but think this has something to do with Samsung’s position in Korea and East Asia generally. They’re more of a “lifestyle brand” like Nike or Coca Cola. They sponsor events, sports, TV shows, produce music videos, etc. They’re much more similar to Nike and Coca Cola and Sony than to HP, Dell, Microsoft and Apple.

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  • Nice analysis. I think Samsung has to spend more on marketing vs. Apple not only for sales, but to help their brand name + serve as a notice to investors (i.e., buy and hold our stock).
    I wonder if a portion of their marketing costs are actually “trade marketing expenses”

  • jag

    Given Apple’s (intentionally) rather limited portfolio as compared to HP’s massive one, it would be interesting to see that last graph take this into account, for example “average marketing budget per product.”

    Coca-Cola’s would be through the roof, and Apple likely would dwarf HP, but it would be interesting to see where Samsung falls.

  • HiRez

    I believe it, haven’t seen a single commercial block on any channel in the last year without at least one Samsung commercial in it. It’s insane. I can’t ever remember seeing advertising this aggressive by another company over a large period of time.

  • graphex

    Is Sammy spending this hard to drive many incumbents out of the market at once? Some of them have to be thinking of throwing in the towel soon.

  • HiRez

    What percentage of their Semiconductor and LCD profits are from Apple? Because I assume those will be going away in the coming years.

    • orthorim

      I am pretty sure Samsung is preparing for that. It’s yet another reason to go full tilt on marketing, they need to grow their handset business faster than their component business is falling away. So far, that’s working well.

  • yet another steve

    I sensed Samsung’s marketing was aggressive, but had no idea of it’s true scope. Still, kudos to Samsung. It’s working and it’s a business (that is, makes real profits… contrast with: Android as a “business”.)

    However with that level of marketing spend, and given other things I’ve read about Samsung’s tactics, I’m going to try to remember to suspect astroturfing in the blogosphere.

    • orthorim

      Yeah – giving out $ Billions in sales incentives is not illegal. Got to keep that in mind.
      It’s unfair to the consumer because then the sales people won’t sell them the best, they’ll sell them the one they make the most money on. It’s bad for the free market. Bad for competition. But – not illegal. It seems like it would be up the competition to devise counter strategies, their own marketing incentives, et cetera. Talking mainly about the non-Apple competition. Apple is in its own class, its products are often simply sold out so juicing sales would make no sense (lack of product)

  • Duncan Wilcox

    Since you mention Galaxies, how many dollars are spent per device?

    I forget the sales figures, maybe 55M iPhones vs 300M Samsung phones in 2011, not sure if that’s fiscal or calendar, anyway roughly $1B in marketing spending for Apple (likely not entirely spent on iPhone) and $8.5B for Samsung (again not entirely Galaxies or Android phones).

    This roughly translates to $18 per iPhone and $28 per Galaxy, for 2011. 2012 looks wild and I’m probably overlooking something, but the per-phone spending doesn’t seem radically different.

  • jameskatt

    Apple HARDLY markets its products compared to its competitors. Critics of Apple state that all Apple does is marketing. This data shows that they are patently false. Apple is successful because its products are so superior, they sell themselves.

    • SSShu

      But its also possible that Apple’s marketing efforts are much more efficient (not to detract from the product quality). Although the sheer difference in marketing strategy and scale is quite astounding. As if Samsung is going all out with everything that they have to go after market share.

      Quite a valid and possibly effective strategy…. I would argue that the main target of this campaign is not only Apple – but also Android and to some extent Windows phone manufacturers as well.

      They are actually buying up plots of premium mindshare on the growing Android ecosystem and market themselves as a ‘premium’ phone maker (which will no doubt they can use when they go head to head with Lumia with their ATIV lineups).

      • Kizedek

        No doubt, Apple is more efficient at just about anything they do. Or, another way to look at it: focus.

        But the issue here isn’t just that Samsung has gone for quantity over quality in marketing as a way forward. As though Samsung simply found one way (spending on marketing) to overcome a recognized weakness (lack of efficiency) in order to achieve its goals (marketshare). As though this is all fine and dandy because everyone spends on marketing, including Apple (albeit more efficiently).

        No, the issues here raise questions about why Apple continues to get hammered in stock price and the press, because, as everyone “knows”, Apple got lucky once and can’t possibly get lucky again since the mobile market is inevitably going to be a replay of the PC market of the 80’s and 90’s. And it raises questions about why Samsung is viewed as having great future prospects, having grown in marketshare as they have. Is Samsung such a “worthy alternative” as they are made out to be?

        The assumption was, and continues to be in too many people’s minds, that marketshare is where it’s at. Is Android (and specifically Samsung) marketshare that important when it is largely the default OS on all manner of phones, from dumb and feature phones on up? Is Android marketshare that important as Google doesn’t profit from it and loses control, so that companies like Amazon and Samsung begin to develop their own flavors that don’t reinforce a coherent “Android platform” anyway?

        How much more are questions like the above relevant, when it is discovered that Samsung got where it is largely by “buying” their way there?

        How much more is Apple underestimated, when it is discovered (and continually overlooked) that Apple has spent the same phenomenal amount that Samsung has on marketing and Google has on Motorola, but spent it on actual production line infrastructure and technological advancements that Apple owns and operates exclusively?

        We continually read how Apple’s competitors are just revving up, how Apple has reached a peak, and how Apple can’t possibly continue to remain relevant, much less grow or dominate. And yet, we find out that Apple is very much focused on what matters for future growth, and Apple is improving and multiplying what they have learned and got right in the past.

        This, while other companies only appear busy, as they continue to throw money down hole after hole in aimless directions that they can’t possibly sustain. This is all we read, because no-one apart from Horace really seriously attempts to answer what it is that actually makes Apple different. Wall Street just assumes it has the answers, or it judges Apple differently (ie., shame on Apple for its reasonable amount of “emotional marketing”, but well done Samsung for spending 12B on marketing and making sure salesmen make a customer take a Samsung “iPhone” in place of the real thing).

  • Carpenter

    One should keep in mind that there might be components that do not “naturally” belong there. When Nokia burned it’s platform Samsung was criticized a quarter or two after that not being able to fully exploit the situation. It may not be minor amount of cash that was required to “expand the channel” and solve that problem.

    One thing is sure, Samsung does not want and can not let this kind of trend continue. But maybe they have decided to let the market stabilize before turning the cash machine off.

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  • Mr. E

    Having worked in electronics retail, selling (among others) Samsung cameras, I suspect a significant portion of this cost is going on Spivs – the award of cash and/or valuable prizes to sales people who achieve particular targets.

    Often this would include large screen tvs, hifi components, gift vouchers etc.
    Sales staff might receive $5-$20 in value for each camera sold (as long as they achieve a minimum price) and could earn hundreds a day over their base salary

    You’ve come to look at camera x, do you ever take photos of kids?
    Consider the value of this Samsung camera with a screen in the front (hands rub together in glee)

    At the same time I observed my colleagues struggling to sell apple computers due to a lack of incentives

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  • My daughter used to work in a high street reseller in Australia. The Samsung sales reps used to bribe staff to sell Galaxies with gift cards, etc. Also, the store managers and area managers used to come down on staff who sold too many iPhones, because “they made no margin” on them.

    If a customer came in asking for an iPhone, they HAD too attempt to cross sell to a Samsung, otherwise they were disciplined.

    Also, when iPhones were in short supply (even if they had stock in the back room) staff told customers they were out of stock so that they didn’t get told off for selling too many.

  • AppleUse

    the final chart feels dramatic until notice compares advertising for Apple, HP, Dell, Microsoft and Coca Cola to Samsung marketing. to really make it work, please show marketing for all of the companies. (and I use Apple)

    • There is no standard definition of marketing expenses and the value provided by Samsung is given on a quarterly basis whereas advertising expense is reported on a yearly basis by most companies. What exactly is included and excluded from Samsung’s Marketing Expenses isn’t perfectly clear. I attempted to determine this in the model linked in the footnote. The only way I can make a subset of the yearly SG&A line items add up to the cumulative quarterly “Marketing Expenses” is to dip into the line item called “other” but to a varying amount. You can see this through the formula used in the Google spreadsheet.
      At this time the best definition of Samsung’s Marketing Expenses is “the sum of Ad spending, Sales Promotions, Public Relations and a portion of “other” expenses as a part of SG&A”. It’s not possible to create a similar sum for other companies as they don’t report the data the same way.
      One can compare ad spending or SG&A individually. The reason I thought “Marketing Expense” was worth publishing is that it includes sales promotion (also shown separately) which is substantial. I’ll study the ways the other companies report sales promotion to make more comparisons but it takes time.

      • Simon

        I’m wondering how Samsung’s marketing compares to other Android makers and if it means a certain doom for them.

  • SockRolid

    Fun project! You know those white Apple stickers you get along with Apple gear? Well, stick one on the next (physical) Samsung Galaxy ad you see. Or the next ten.

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  • LemonadeJoe

    Samsung could just pick a small country and give every single inhabitant a samsung galaxy 4 and still have a decent advertising budget.

    I think other posters are right; This is the result of spiffs and other incentives, which snowball to incredible amounts the more popular a product gets. I think this is a case of letting those incentive programs run too long, they should be coasting on momentum at this point – not putting an estimated 8 Billion Dollars into ‘marketing expenses’. I see them still running scared of Apple, and apparently they haven’t seen the next challenge on the landscape which is the battle for control of their destiny ( i.e.: Android ). Where that 8 Billion would be better spent.

    • orthorim

      Look at the volume though. It sure looks like Samsung is selling 100s of millions of $150 – $200 devices! Maybe those still need the sales incentives? They’re not sold in the USA either, they’re sold in all those markets where people buy unsubsidized phones.

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  • orthorim

    What I find even more interesting than Samsung’s marketing tactics is the average sales price – $234.

    Given that a SGS3 full price costs around $600 and they’re selling millions of Galaxy Notes for not much less, it means that the vast majority of their phones are in the $150 – $200 price range. Samsung is serving the low cost market.

    Their advertising might be mostly about flagship models, but where they get the volume and the money is low cost devices. A market Apple doesn’t even compete in. But should, obviously. I don’t understand why the other Android makers are not jumping on that opportunity.

  • myonlinelifenow

    @asymco:disqus your reports are always a fantastic look into the inner workings of the likes of Apple, Microsoft, Google and others. I’m reading may of the comments in its always fascinating to see how many tail out to the one company is better than the other, blah blah blah. I guess its just an observation that the winners in all of these high tech company battles are the consumer. I mean unless a Samsung or Apple or Google go out of business next year the products we buy seem to do exactly what we need them to do. No flame war here but my 2 year old plus iPod Touch does what I need as does my Blackberry 9900. It’s doing as well as some one that uses a Galaxy phone or a Windows 8 HTC phone or an iPhone. Above the who spending more, who innovating more, who has the most apps, us as the consumer seem to be getting the best products possible. Which I a good thing. Just my two cents

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  • Roo_44

    I have befriended the staff at a local “Premier Verizon Retailer”. It is not a corporate Verizon store authorized dealership/ The staff is paid a minimum wage plus commission percentage on total monthly sales. Each month they have to sale a given minimum quantity of handsets per month to quality for that commission and to further qualify for additional manufacture “Spiffs” on particular handsets. I am told that any iPhone sales does not go towards their minimum unit per month sales numbers. So not only is it economically encourage to sell the Samsung handset, the staff is actively discourage to sell Apple products.

    Including amoung the many reasons for this practice is the Company receives volume discounts when ordering quantities of Samsung products (over and above Spiff incentives for the staff) that is not available on Apple products. So the “Job to be done” by the staff is to move (excess) inventory rather then find the best solution for the customer’s needs.

    If this practice played out in the Apple retail stores, staff would be encourage (forced) to sell every customer a high margin iPhone no matter if the customer was shopping for a iPad, iPod or Mac. But in fact the reality is a stark contrast to this and, most likely, one reason why the Apple stores are so successful.

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  • Jerry L

    Nice comparisons. In a way, though, what we’re seeing here is just a zoom in on an important point that Horace raised very early on: Apple dominates profit share even in markets where it trails in market share.

    With enough marketing money, you can buy market share. The thing you cannot buy, by its very nature, is profit share.

    Received wisdom – going back to the PC era and the Internet boom (remember when the smart measure was “eyeballs”, not that silly, obsolete “profit” stuff?) – is that market share will eventually be translated into profit share. The whole “markets eventually choose the ‘open’ alternative business” is an attempt to justify this, though now a truly ‘open’ alternative supports anything but a race to the bottom and razor-thin margins isn’t clear. (Great for consumers, though, if the ‘open’ alternative is good enough.)

    There’s just enough truth to assertions of this sort to keep them going. Yes, the guy with the biggest market share benefits from economies of scale – *if* they are significant (the whole theory of economies of scale goes back to observations of 19th century manufacturing technology; how it applies to, say, software isn’t clear) and, even more, if there’s a way to capture them. Back in the PC’s heyday, Microsoft and Intel were able to capture them; being the biggest box manufacturer, on the other hand, never meant much. Yes, there are positive feedback effects from familiarity – but they don’t necessarily benefit the guy with the biggest market share, as Apple demonstrates.

    There are no magic shortcuts, and there’s no one golden path to success. It’s not as if a pattern in which Samsung spends its way to a self-sustaining dominant marketshare in which they make a small profit on every unit but have enough volume to be happy, while Apple has a fraction of the market from which they are able to extract higher total profits (with small players finding niches in which to survive) hasn’t existed before, and won’t exist again. How long it can last is anyone’s guess, but then nothing lasts forever.

    — Jerry

    • Walt French

      Nice note. Let me suggest what I see Google doing — what I think they think they’re doing by enabling this situation.

      Smartphone users are engaging with a complex set of capabilities. Want mobile GMail? You’re probably using a browser atop an OS on some hardware that connects to a wireless carrier. The provider of each part of the “stack” is looking to profit. If Google can drive the proprietary profit (“rent” in econ-speak) out of the picture, they make it harder for a competitor to horn in on Google’s turf.

      So, Android was developed as a way of knocking Microsoft WM out of the picture. Check. There’s now almost no money in trying to sell a standalone OS to OEMs. The OEMs, in turn, are mostly reigned in (kept barefoot and pregnant) by Google assiduously sharing flagship partnerships around.

      Google also has succeeded in flattening any competitors’ hopes of profit-making opportunities in both the browser space (where e.g., Mozilla would not exist without Google’s “generous” support and Chrome is also a free download) and Google also covers its base with a GMail app. In his note on Flash, Jobs ruffled a lot of feathers by saying he never wanted Apple to be at the mercy of other developers’ priorities, but Google accomplishes more or less the same effect by making it difficult or impossible for a competitor to charge for its tools.

      Where has Google NOT used its profits to knock out competitors? Why, in the very “search portal” — their successor to AOL and Yahoo! — which they dominate. This appears perfectly legal, and therefore smart, under current anti-trust standards.

      Samsung’s huge sales are a bit of a problem in this model, but in creating expectations for ultra-low-cost hardware, Google is working on it — not with Motorola, which would be a blatant reversal of its pledges to partners (and a reason for a coalition of partners to bolt and form OHA/2), but the new Nexus programs.

      Samsung seems to be doing pretty well with the hand that was dealt to it. They’re taking the necessary steps to erode the Apple patent fortress, and making the marketing moves consistent with achieving top-tier status given their follower status. How well they’ll continue to prosper given Google’s, Apple’s and others’ efforts to capture all the oxygen, remains to be seen.

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  • Barty

    Being the CEO of one of the largest companies in the world Jobs invested half-a-day every week with his advertising agency whom he considered his partners in creating brand value. This speaks volumes of the seriousness he placed on developing a brand….and the rest is profit.

  • What would Samsung’s graph look like if you included all of the chaebols’ operations, particularly its OEM side? Or does the “semiconductor” side of Samsung Electronics include this element of the company?

    • This is the total of Samsung Electronics operations. I don’t follow other Samsung group companies.

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  • pM

    Not sure what falls under “Marketing Expenses” or “Sales Promotion Expenses” but I would imaging that celebrity endorsements probably falls under the former. Samsung is currently running TV ads in the US featuring LeBron James, fresh of his NBA Finals win, Finals MVP award and third NBA regular season MVP award. I’d imagine LeBron would be pretty expensive (he signed a $90 Million deal with Nike in 2003 before the NBA draft lottery). The Samsung commercials can be seen during all the highly rated time slots, particularly NFL football.

    Apparently they also did a commercial with David Bekham for the 2012 Olympics, which I’d imagine is also pretty expensive.

    In the past I’ve seen Samsung commercials with Eli Manning. In the past I used to think of those commercials as the “lesser” of those compared to his brother Peyton Manning’s commercials with Sony. However nowadays it seems like Eli got the last laugh as Sony is on the decline as Samsung has eclipsed them in terms of brand equity.

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  • Look at the average desirable Comedy Central program. It used to be all Apples. Now, there might or might not be an Apple ad that night. There may or may not be a moto ad. And then? 3-4 Samsung smartphone ads.

  • Samsung of course are not just an electronics giant. They began as a grocer then started importing sugar. Currently they own top ten positions in shipping construction and many other completely unrelated fields.

    Relating them as an electronics maker is silly. They have the dosh, the government pardons and the slyness to get away with things no other company can. Do a little research to find out why and how they seemingly have such endless coffers. Naive foreign press and consumers are perpetuating the myth of a clean Korean electronics company that are beating the odds. It simply isn’t so.

    In Korea, no large company with possibly the exception of LG dabble in a single market. Samsung dabbles in or dominates dozens, and prior to their electronics really taking off, already accounted for 20% of Korea’s GDP.

    I’m not looking forward to seeing where this ends, especially not as one who believes that corporations (especially single corporations) should not completely dominate a nation. The problem is that without Samsung and the other global top ten conglomerates that were birthed out of dictator’s pardon, Korea would be back in the more of post-war paucity.

  • PGL

    Great Analysis.The overwhelming A&P by Samsung to gain share even at the expense of margin ,highlights perhaps what may be a Korean Business Philosophy i.e.invest for the longer term to crush your competitors even if short term results may suffer.PGL

    • orthorim

      It’s not a trade-off it you’re making huge profits.

  • So Samsung out spends Apple 12 to 1? And they are only just matching or a little bit ahead apple in unit sales?!?!? Really? You would think with that kinds of massive budget they would buy a small nation every year. Apple products sell them selves. Apparently unless Samsung shoves it’s product down your throat you won’t buy them.

    • mldi

      If you’re looking for an Android device though, you have an army of OEMs to choose from. To have one Android OEM come out and match Apple’s sales volume, who is the only one selling hardware with the main competing OS, is borderline miraculous.

      Apple stands out because they ARE iOS. Samsung has to spend a bit more to stand out from the other Android OEMs. I honestly never expected any one to start matching Apple’s sales volume any time soon.

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  • bob barrett

    i believe their success is due to the investment in cap ex spending that helps with their innovation. SG&A is high because it takes an army to design, manufacture and ship products instead of outsourcing much of the messy stuff.

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  • SuperMatt

    This makes a lot of sense. After all, the iPhone is recognizably different from other smartphones, if for no other reason, because of iOS. Samsung is selling phones with the same Android OS as many other companies. So why buy theirs as opposed to phones from LG, HTC, Motorola, or other manufacturers? There really isn’t a good reason – therefore they use marketing to sell it. Apple does plenty of marketing too, but they’re starting with a unique product that truly differentiates itself from the competition.

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  • That Samsung and Apple are the biggest sellers of smartphones and that their advertising budgets are the largest is no coincidence. Advertising clearly works.

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  • stiffler

    cool information to see.. i m delighted thanks..

    Components seller
    | Electronic
    Parts distributor

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  • N1kks1

    Is the amount spent in dollars.

    • We don’t have data on the current year since that is released after year’s end, but it’s interesting to note that promotions cost more than ads, which themselves are substantial relative to other companies.