The real threat that Samsung poses to Apple

[The following is a post written by James Allworth.

James is the co-author of How Will You Measure Your Life?. He has worked as a Fellow at the Forum for Growth and Innovation at Harvard Business School, at Apple, and Booz & Company. It follows and builds on a discussion we had on the 56th Critical Path podcast.

You can connect directly with James on Twitter at @jamesallworth -ed]

A lot of ink has been spilled in the wake of the recent Apple Samsung patent disputes, and the legal wars see no sign of abating any time soon. The rise of Samsung’s phone business has been meteoric, and Apple is right to be concerned. But the real threat that Samsung poses to Apple has very little to do with the copying (or not) of Apple’s designs. The lawsuits have simply been a convenient (if expensive and risky) way to attempt to quash a threat that is of Apple’s own making. While there’s no doubt that Google has played a key role in Samsung’s success by handing out a free mobile operating system to pretty much anyone who wants to build one — it is actually Apple, more than any other company, that is responsible for Samsung’s present success.

How? By outsourcing as much work to Samsung as they have. And it’s impossible not to wonder whether Tim Cook’s announcement yesterday on bringing back Apple’s manufacturing to the USA is the beginnings of an attempt to rectify the problem.

But first, I want to establish why copying is actually less of a threat to Apple than you might think. Daring Fireball’s John Gruber wrote last year on what he termed “The New Apple Advantage“. Like most people who appreciate Apple and its products, the starting point for Gruber’s appreciation of Apple is its design — he says as much in the article. But the realization that Gruber has in the article on Apple’s true competitive advantage is what’s really interesting:

So let’s be lazy for a second here, and attribute all of Apple’s success over the past 15 years to two men: Steve Jobs and Tim Cook. We’ll give Jobs the credit for the adjectives beautiful, elegant, innovative, and fun. We’ll give Cook the credit for the adjectives affordable, reliable, available, and profitable. Jobs designs them, Cook makes them and sells them.

It’s the Jobs side of the equation that Apple’s rivals — phone, tablet, laptop, whatever — are able to copy. Thus the patents and the lawsuits. Design is copyable. But the Cook side of things — Apple’s economy of scale advantage — cannot be copied by any company with a complex product lineup. How could Dell, for example, possibly copy Apple’s operations when they currently classify “Design & Performance” and “Thin & Powerful” as separate laptop categories?

This realization sort of snuck up on me. I’ve always been interested in Apple’s products because of their superior design; the business side of the company was never of as much interest. But at this point, it seems clear to me that however superior Apple’s design is, it’s their business and operations strength — the Cook side of the equation — that is furthest ahead of their competition, and the more sustainable advantage. It cannot be copied without going through the same sort of decade-long process that Apple went through.
(emphasis mine)

The argument is beautifully made. The design part of Apple’s equation is to their ability to redefine new industries as they did with the iPhone. Whether they go after the TV market next, or something else, it’s this integrated design component that will be crucial to their initial success. But compared to the business side of Apple, design actually generates much less sustained strategic advantage in any one product category, once performance in that category becomes “good enough”. The tech industry has always revolved around copying. Once folks work out how it’s done, everyone piles on. And at that point, it becomes much less about design than it does about how you operate your business.

It is the last part of the Gruber quote that really drives things home. “It cannot be copied without going through the same sort of decade-long process that Apple went through”. He’s right — it’s very hard for a competitor to outright replicate what Apple has achieved without going through all the same steps. But it got me thinking of a concept — and a related story — that I learned from someone I was fortunate enough to have as a teacher: Clayton Christensen. Perhaps a competitor didn’t have to copy Apple.

What happens if Apple had already taught them?

Christensen first wrote about the dangers of outsourcing in The Innovator’s Solution, explaining how seeking to maximize efficiency by employing third party vendors to do the “low value-add” work for you can be a lethal strategy. In the Solution, Christensen and Michael Raynor gave the example of two fictional corporations—”Component Corporation” and “Texas Computer Corporation”. I had the good fortune to work with Clay on his most recent book, How Will You Measure Your Life?, and we recount a similar story; only without any of the players being disguised. The story is that of Asus and Dell, and how by outsourcing its work—starting with just basic circuit boards—Dell equipped a competitor:

Asus came to Dell and said, “We’ve done a good job fabricating these motherboards for you. Why don’t you let us assemble the whole computer for you, too? Assembling those products is not what’s made you successful. We can take all the remaining manufacturing assets off your balance sheet, and we can do it all for 20 percent less.”

The Dell analysts realized that this, too, was a win- win…

That process continued as Dell outsourced the management of its supply chain, and then the design of its computers themselves. Dell essentially outsourced everything inside its personal-computer business—everything except its brand— to Asus. Dell’s Return on Net Assets became very high, as it had very few assets left in the consumer part of its business.

Then, in 2005, Asus announced the creation of its own brand of computers. In this Greek-tragedy tale, Asus had taken everything it had learned from Dell and applied it for itself. It started at the simplest of activities in the value chain, then, decision by decision, every time that Dell outsourced the next lowest-value-adding of the remaining activities in its business, Asus added a higher value-adding activity to its business.

There are two sides to this story: the part that relates to Dell, and the part that relates to Asus. Dell, in its quest to maximize its financial efficiency, continued to outsource way beyond manufacturing components and assembly. They outsourced a long way up the value chain. But there’s also the side of the story that relates to Asus — a small components manufacturer that was, in effect, nursed to success by Dell. The extent of the schooling delivered by Dell to Asus was pretty profound, given how far up the value chain Dell outsourced its operations.

But here’s a question: at what point did Dell seal its fate? When was it that Dell had outsourced enough that Asus, with a desire to simply get out of the low-value work, could have made it all the way to the point that it did? I’m beginning to wonder whether just component development and assembly was enough. In the case of Samsung, it seems that everything else they needed to learn, they did by entering the emerging market, which Apple has largely left alone.

Now, it’s obvious that there are some very clear differences between the decisions that Apple have made in terms of outsourcing, and the decisions Dell have made. Dell outsourced its business all the way up to the design of its products. In many respects, Apple is doing the opposite — going so far as to even bring chip design in house. Horace has done some fantastic work detailing the extensive amount of investment Apple has made in its supply chain and it’s clear that they’ve spent a lot of money investing in equipment used in production.

But there’s also no denying that Apple has begun to rely extensively on a network of suppliers across Asia.

It’s when you start putting the two arguments together that you realize that Apple may have a more serious problem on its hands. I want to again recount the final two lines of Gruber’s argument:

It’s their business and operations strength — the Cook side of the equation — that is furthest ahead of their competition, and the more sustainable advantage. It cannot be copied without going through the same sort of decade-long process that Apple went through.

He’s right — generating that scale requires a long gestation period — one that Apple went through. And it can’t be copied without significant time and effort on the part of a competitor. But there’s one big implicit assumption here — that suppliers won’t turn around and start developing their own offering. Because when Apple went through this transformative process, where the design whittled down the broad range of offerings to just a few, and they generated the scale on the business side that accompanied that — they weren’t actually the only one to go through that process. Apple’s partners — their suppliers — went through it with them. And they’ve got very big, and very good at what they do. Samsung, obviously, is among those partners.

Now, the response I often hear to this line of reasoning is: Apple hasn’t outsourced anywhere near as much as Dell has. How are the situations analogous? But I think it’s actually the wrong question. Instead, the question is: has Apple already outsourced too much?

For all intents and purposes, we’re at a level of maturity in the smartphone market where I believe design — particularly on the hardware side — has largely become commoditised. Performance is now “good enough”. Whereas it was not so long ago that consumers sat on the edge of their seats to find out what the new iPhone had to offer (“please, fix the battery life”, or “please, make it faster”) the recent release of the iPhone 5 seemed not to generate the same intense reaction. Now, I’m not saying it won’t sell well — in fact, it will probably become the best selling phone of all time — but people aren’t making these decisions based on huge design differences between the devices. The basis of competition has shifted. HTC recently learned this the hard way when it introduced the One X — a phone that, to the critics, at least, was considered the best Android phone available — “a masterpiece“,  “one of the best mobile devices I’ve ever used“. Yet it has been absolutely crushed in the marketplace by Samsung.  How? Well, Samsung used its business scale to, as Horace put it on Twitter, “invite operators to a better party with an eye-watering marketing budget”. This has nothing to do with Samsung making a better phone (they probably didn’t), or Samsung copying Apple (indeed, HTC may have just done a better job of copying Apple). Instead, it has everything to do with the fact that Samsung has had its business sucked along in Apple’s slipstream.

There’s another way of seeing just how deep the problem lies. Jobs promised “thermonuclear war” on the copied devices, and so far, the biggest target of Apple’s many legal warheads has undoubtedly been Samsung. Getting a $1 billion judgement certainly proves Apple was serious about it. But doesn’t it seem strange to you that the target of such a devastating strategy on the legal side, just so happens to be… one of the most important suppliers for Apple’s new phone?

The problem that Apple is facing right now has nothing to do with their designs being copied. There is a long history of copying in the tech industry; patents being deployed in lawsuits by giants often signify desperation more than anything else. Rather, the problem that Apple faces is that it now is going up against at least one competitor that has been a beneficiary of the scale that Apple has achieved on the business side. Samsung has clearly demonstrated that, like Asus, it was not satisfied being a low-margin ODM — of doing all the menial work while somebody else made the big bucks. Suing Samsung over Android patents isn’t going to change that — if Google’s operating system gets too expensive to use, there’ll be a switch made to Microsoft. Or to another operating system altogether. It doesn’t really matter, because design in the smartphone space has been commoditized. It’s good enough. Manufacturers are now creating performance that most consumers aren’t able to absorb. Instead, as we’ve moved into a world where performance is now “good enough”, the world has flipped into one where it’s the business side — operational scale — that matters most.

Apple have taken steps to minimize the ability of competitors to duplicate their business advantage. There’s a great post here on Quora describing how Apple has used its supply chain as a competitive advantage and how competitors end up subsidizing Apple’s use of the technology. But the approach of “locking in” key new technology so nobody else can get them works best in a world where consumers need more performance from their devices — a world is rapidly slipping away.

So, what’s Apple got to do? In so much as it is able to trust its suppliers of key components not to become competitors, it can continue to use them. But where it can’t, or where those suppliers have already become competitors, it has only one sensible choice — replace them. It has two choices here: the first (and obvious one) is with another supplier. But that risks the same thing happening all over again — Apple nursing another supplier into a competitor. The second choice: for components and services that are critical to maintaining competitive advantage in the markets which Apple plays, Apple needs to build the components themselves.

Most companies wouldn’t be in a position do that. But Apple is almost already there. I also hear that there might be a country out there with relatively high unemployment rate, looking for some jobs to be brought back home. Funnily enough, it seems that’s just what Tim Cook is doing right now. This approach might just be a good way of on-shoring some of those untaxed offshore profits (I imagine the tax benefits for building a few factories in the US would be quite high), all the while taking away business from competitors — both current and future.

But there’s one question that still remains. In the instance of the threat that Samsung poses to Apple: is it already too late?

Looking for more information on the renaissance of production and its effect on the technology industries? Then come to Asymconf and take part in the debate.


  • Gandhi

    Problems is, as uncovered by Asymco, Samsung is spending a lot of money in order to push/sell product. The Innovator’s Dilemma/disruption theory posits that a cheaper, lower powered solution will come in and eat the lunch of the established players whose products overserve the market’s needs. You article does not (1) give any evidence that the current smart phones overserve market needs, (2) do not provide evidence that Samsung’s costs are lower, and (3) that Samsungs lower powered products are better compared to Apple’s solution.

    On the contrary, Samsung’s Galaxy products are over powred compared to Apple, if one looks at processing power or screen size.

    If the product is manufacturing itself, rather than smart phones, it will be interesting to see how long their manufacturing will be lower costs when those costs are no longer amortized over manufacturing sizeable Apple orders.

    • obarthelemy

      that’s not the issues though.

      The question is not whether high end smartphones are overserving the market, but whether if, when some else makes and designs your products, you’re an empty shell ripe for collapsing.

      The question is not whether costs are lower, but what your value-add is. There is some value-add/barrier to entry in recruiting and coordinating suppliers, but not as much as in building and operating factories.

      The question is not whether S’s products are better than A’s, but whether they compete with A’s and can replace/displace them, which they can.

      • Gandhi

        Then it’s not too late for Apple, and Apple should not be too worried.

        Apple’s value add is the App Store ecosystem. Lots of reports suggest that iOS devices far outweigh Android devices in terms of : wifi and cellular web browsing, ad impressions, app purchases, and just plain overall usage.

        That is Apple’s value add – both to its customers and to its developers.

        In which case, Samsung is not even in the same ballpark, much less playing the same game.

      • Evidence that iPhone overserves started to appear:

        However, any evidence tends to be a trailing indicator, so the problem is probably worse than the current figures show.

      • I’m not sure I read the data the same way. Overservice would be evident if buyers who would normally buy an iPhone 5 buy the iPhone 4S instead. The data shows that buyers who bought the 4S were mostly iPhone non-consumers while iPhone 5 buyers were typically iPhone consumers. So the iPhone overall is competing for both the existing and non-consuming markets. The split between more low-end phones may be evidence of a maturing (i.e. saturating smartphone market). We know the US is at more than 50% smartphone users at this time so the second half of consumption will likely be made up of late adopters. The evidence of over-service would be if the 4S as “destination phone” would be predominantly bought by existing iPhone users.

      • Overserving usually starts with the least demanding customers. I would consider the existing iPhone owners as a more demanding group than the 1st time smartphone owners, so the fact that an important part of this ex-feature phone owners is not willing to pay for an iPhone 5 is to me an indication of overshooting.

        The lagging nature of any type of overservice evidence is also one reason why I would be inclined to interpret the data the way I did. It is not yet conclusive evidence, but by the time the data would be conclusive it would be too late to react.

      • Kizedek

        Apple really can’t win, can they? If they aren’t growing iPhone sales at 110% YOY then it’s a sign that Android has shot past them and Apple’s days are over.

        They are slammed for not expanding their appeal, priçe-wise, to the lower end of the market. But when they simply carry on making a tried and loved product for an extended period of time alongside their newer products, then they are accused of over serving with their new product. So which is it? Are they “overshooting”, or just providing another option for people who might otherwise have one more reason to put up with an Android phone?

      • So I gather that you do not agree with my interpretation of the data. As part of the disruption Overserving (as a component of the disruptive innovation) is a theory that has been proposed before the smartphone and I am not inventing fancy arguments to try to make Apple look bad. Like any business theories, overservice is not as easy to prove as gravity, but there are enough examples to make it at least plausible.

        Even if Apple has started to overserve its least demanding customers, it does not mean that it is doomed as a smartphone manufacturer. It could react as it did with the iPod product line and create lower priced (but still high quality) variants of the product. That would mean to actively promote variants like iPhone 4 as products in their own right, rather than treat them as “leftovers”. Or it can become the Evian (or Porsche if you like, although I am a bit tired of that example) of the smartphones and target the high end, high margin market.

      • Space Gorilla

        Samsung products cannot replace Apple products, that’s wishful thinking. The real value of Apple’s products is the ecosystem of apps and content and how the devices are tied together. If you’re an ‘Apple household’ you get what I’m saying.

      • capnbob67

        But isn’t the point that most households are not Apple-based and with the number, quality and distribution of alternatives, at all price points, etc. most may never be. Samsung may not be getting too much of the cream but even with it’s massive spends, it is more profitable that it could have imagined without Apple showing them the way. Samsung’s 20-30% margins on smartphones are so much higher that what they could achieve from their commoditized markets (TV’s, white goods, PC’s, components, etc.) that they are already on cloud 9, and it is only getting better. Their success is also blocking off large chunks of the global market to Apple, or at least slowing adoption. I still have faith that Apple provides a superior option to users and has a better business model but no-one should deny that Samsung is doing very well and relatively better every quarter and are clearly the only direct threat to Apple at the moment.

      • Space Gorilla

        Samsung is only a threat if you think Apple needs a majority market share to continue doing well, and clearly that is not the case. Apple’s strategy is simple, dominate the ‘best customer’ segment of the market, because that’s where all the profit is (see Apple’s share of high end PCs, it is huge). Market share is not the primary goal, it never has been. But when they can move ‘down market’ in sync with their primary strategy they do so (iPod). In the segment Apple targets, Samsung cannot replace Apple products, hence my comment that it is wishful thinking.

      • capnbob67

        Threat is an awkward word. Do I think that Samsung is likely to force Apple to the wall, Not at all. Do I think that Samsung has, is and will further limit Apple’s growth and financial potential. Yes.

        Post rationalizing the Mac scenario: “We only want the high value, high margin customers” is not sensible as a go forward strategy. That is making lemonade from the lemons of Apple’s many PC miscues but not what you set out to do when creating a new market. The iPod situation is a preferable objective since it limits strong competitors by sucking the air out of the room before they can get settled. Apple failed to do that in phones (for several reasons in and outside their control) and left the door wide open for anyone with the scale and balls to attack. Samsung with Google’s major assistance have done it and are hemming Apple in in terms of market share potential. Without Samsung’s muscle, Android would not have been expanding as fast as it has and there would be a lot more potential customers for Apple across segments and countries. Now they will have to make users switch from another smartphone platform rather than win them from non-consumption. If anyone can, Apple can but that is a long slow war of attrition where everything will get more expensive (for players) and the giddy days of the dumphone land grab will be thought of fondly.

      • Space Gorilla

        As far as I’m aware Apple is selling everything it makes pretty much as fast as it can make it. I don’t see much evidence that Samsung is having an impact on Apple’s sales. Apple was never going to dominate the phone market, it’s too big. I don’t think of it as the phone market anymore, it’s the mobile computer market, and that includes the iPhone and iPad and iPad mini. The opportunity is just too large for any one player to dominate. And markets that are consumer facing, as the mobile computer market is, are different than the PC market was. The norm is for many players to take a portion of the market. Apple will continue to do well with the ‘best customer’ segment, take most of the profits, and move down market as appropriate. This is exactly what they did with the iPod. The large market share of the iPod is just a ‘nice to have’, but it’s not necessary for that model to work, not at all.

    • One drawback to the last comment: if Apple stops using Samsung’s capacity, and thus Samsung is stuck with unused capacity, I see it entirely likely that they’ll just use that capacity, possibly at a loss, to push out cheap phones to try to capture even more market share. Apple leaving Samsung isn’t necessarily a problem for them, as long as they can use the released capacity to dump cheap products on the market without losing *too* much money in the process. The other question is whether use on Apple’s products has already paid for the costs of those production lines.

    • OpenMinde

      Disruption from lower end than Galaxy. Apple has that: iPod nano with phone and text message. Market data shows most of Android users do not engage on Internet. A current generation iPod nano with phone, contact, text message, map, music (no email, no web, no app) would undercut all Androids in price and be good enough to replace Android feature+ phones.

      • I think even the nano would be too much. I like these 2 as design prompts. Light, cheap, nearly indestructible, supremely portable. Cram as much antenna in as possible, add Siri and go!

      • Useless without a screen. There’s a reason why Apple increased the screen size of the iPhone 5 rather than chuck it altogether for Siri. And I doubt it was because of the monster screens on Android.

        A device with Siri as the primary interface would be the computing equivalent of running in sand. Voice is far less efficient than sight when it comes to user interfaces. It is slower in every way that matters. Siri was designed to be a supplement, because someone at Apple realized that there were many instances when a person’s locus of attention could not be on their phone’s display (driving, jogging, etc). In that instance, it is better to at least have a fundamentally inefficient interface for your phone than no all.

        Also take into account the relative privacy a phone’s display provides. Siri can’t provide that.

        We are probably a very long way from the mobile phone being fundamentally changed, at least 10 years by my reckoning. But some form of display tech WILL be involved in the phone’s evolution. Will it be holographic? Doubtful, because you encounter the privacy issue. Will it be augmented-reality HMDs? Also doubtful, because of major ergonomic issues and the potential for liability. When it comes to the ergonomic issues, think Bluetooth headsets. Been around for awhile now but very few people like to wear them simply because they aren’t very comfortable.

        Apple’s going to do something big but it won’t include fundamentally changing the phone, at least not for another decade. But look out for a holographic TV in the near future. That’s where I think Apple is going next.

  • Looking at what’s happened to Dell, and the rise of Asus in consumer PCs makes so much sense now.

    Good piece.

  • Canucker

    Samsung, ironically, has already “repatriated” Ax chip production to Austin so I’m not sure “bringing it home” is necessarily much more than a PR move (albeit for good reasons). Secondly, the problem really only arises when most of your materials are outsourced to one company. Apple seems to have been careful in dividing the contracts and shifting them around. Indeed, the biggest potential threat might be someone like Hon Hai Precision which is one of the few companies with the massive scale necessary to assemble devices. They’ve a great relationship with Apple (as the interview with Tim Cook with Businessweek/NBC noted) and clearly its currently in their best interests to keep that relationship sweet. But who is to say they’ll never aspire to their own brands and solutions.

    It is also reasonable to assume that the relationship Apple has with suppliers is complicated by the fact they upfront much of the investment in technology for manufacture. They are surely aware of the potential for use of their own investments against them (by competitors) and is it not likely that this is specifically forbidden within contracts (for a period of time)? That might afford some distance, given the pace of change, methods developed today are quickly obsolesced.

  • Category: Theory?

  • Excellent piece.

    It may be too late for the technology in current iPhones and iPads. If Apple is nothing more than its current hardware products, then Apple has problems. If, on the other hand, you believe that much of Apple’s advantage is in iOS and the software ecosystem, and you also think they will continue to bring new products to market, then you must also believe that ‘it is not too late’ for Apple.

  • benbajarin

    Very interesting and very well written as well. I remember very well the Asus netbook scandal as I was very close to the situation with a number of OEMs. The trend at the time was to move more RND to Asia anyway and HP was in the same boat. I dare say the anecdote shared with Asus and Dell was inevitable, however, with tough economic times around the corner it all played out as my reports in those days predicted.

    I think an interesting discussion is the degree in which it makes sense for Apple to own more of the supply chain outright than they do right now. I’ve been thinking for some time that it wouldn’t surprise me at all if Apple was to announce they invested or built a fab to make their own chips. Rumors as well of them investing or owning a display company could make some sense as well. Samsung being vertical in many key areas is clearly an advantage. That being said, the internal culture at Samsung is very different from Apple and would raise some concerns in my mind in terms of their execution. In my initial reports to our clients about the rumor of the HP PC business being bought by Samsung, we went into detail on why that would not be good and much of it was around culture and execution.

    The move to create US manufacturing jobs is a positive one in my opinion. I outlined this on an interview I did with CNN last night on the subject, where developing the core expertise in the USA is the big first step. I am watching this trend as I do believe we are on the cusp of a US based hardware renaissance.

  • obarthelemy

    It would take balls and foresight for Apple to shoot their margins and become a screen maker, a chipmaker, and an assembler.

    They won’t do it, and shareholders wouldn’t let them anyway. And indeed, they’ll be like today’s Dell, in ten years’ time.

  • What’s also interesting is that the same type of relationship existed between Apple and Google. Though it’s well known that Android was in the works before the iPhone was revealed, it’s clear that the OS benefited from the touchscreen revolution that Apple started and has now surpassed iOS. And when Apple abruptedly removed Google as best it could from iOS and came out with Apple Maps, the results were arguably disastrous not so much that the Maps were bad, but their brand and reputation took a serious hit.

    Regardless of how bad the relationship gets between Apple and Samsung, Tim Cook has to realize that actually manufacturing the product needs to come first. They cannot just switch to TSMC and start dealing with serious supply issues and get satisfaction that they are no longer using Samsung parts. Investors will get angry, and customers will look at competitor’s product since the gap between them and the iPhone is shrinking significantly with each passing year.

    Ultimately, we know this isn’t about the money ($1 billion court case is a drop in the bucket to both companies) but about pride. One has to wonder how long this game will go on before it has serious repercussions. Apple gets ~70% of its revenues from iOS products with a huge chunk of that being from the iPhone, and if it were to falter, that would not be good for Apple.

  • Great article, my compliments.
    About the last question. Apple generates desire for their products, they sell emotions too. Strange or not their design so user oriented is able to do the miracle.
    The force of the iPhone design generated the actual smartphone market.
    Now the design has been commoditized and the business part is the key factor and Samsung is able to compete with this part and their phones seems good enough to generate a lot of sales.
    I agree, but what about the next thing?
    Sustaining innovation generates growth, Samsung is competing in the phone market, but not in the tablet market, nor in the computer market or in the service market or in the ipod market.
    They were able to create a successful device, not many successful devices.
    It is to late to dominate the phone market, but apple can dominate the other markets and most of all create new markets.
    The next big thing will not be television, but voice. The apple revolution started changing the user interface to electronic devices, touch for the iPod and multitouch for the iphone.
    In a few years voice will be able to access many functions and will be able to translate from and to many languages, I have seen an impressive demo last month.
    Samsung will be able to follow the next apple’s device? They generated “emotions” to the operators not the people, they sell phones to the operator, not tablet to the people.
    They will have a gap of time with respect to apple, they will not have the server side, they will not have a free voice o.s.
    It is not too late, it’s only time for apple to change strategy, to change the supply chain, to upgrade to two annual releases giving less time to competitors to copy, to create the next big thing.

    • obarthelemy

      Samsung actually do sell MP3 players, tablets, laptops, even TVs, ovens, washing machines… They’re not as successful in all those markets, but they usually put in an honest showing.

      And I’m not sure most people buy on “feelings”. More people buy on features, on price, on interoperability, on value… A Galaxy Tab 7.7 or 7.0 can act as a phone, a GPS, a tablet… for the same price as an iPad Mini.

      Innovation generates growth in new markets. In mature, stagnating (both as sales and as features) markets, efficiency, thus arguably integration, resulting in value to the consumer, generates growth.

      • IvanRoad

        I disagree here. People most OFTEN buy on ‘feelings’. On intuition, on emotion. You like it, plain and simple. If people really bought on ‘features’ or specs, it would be simple matter to dominate the business. Deliver a longer list of features and specs, which can be listed on that card next to the device at a retail shop. Problem solved.

        Think of the dominant products in any consumer category. Do the best specs or longest feature list always win? Almost never.

      • I love that we’re about 1 wikipedia link away from turning a discussion about smartphones into a debate over the existence of free will.

      • Ted_T

        “A Galaxy Tab 7.7 or 7.0 can act as a phone, a GPS, a tablet… for the same price as an iPad Mini.” An iPad Mini can do all these things as well — not sure what you are ascribing to the Samsung tablets. And of course the iPad Mini can run more, and much higher quality apps.

      • obarthelemy

        I’m ascribing features. A single Tab 7.7 (about same price as the iPad mini) does triple duty, or at least double duty, for the same price as an iPad mini.

        As for App quality, I keep hearing that canard, but I am mainly unconvinced. GPS on Android is vastly superior. Most everyday Apps are very good (browser, email, RSS/GReader, games, ereader, video, content management…). And last tile I saw a study, iOS apps were crashing significantly more often than Android apps. iOS does have more apps, especially in the content creation field (except pen input), but that’s irrelevant for most people.

      • Ted_T

        We seem to be talking past each other here: what is it exactly that you think the Tab .7.7 can do that the iPad Mini can’t? It too can act as a phone (Skype with number) and a GPS.

        So far as Android GPS being ‘vastly superior” I’m guessing you mean software, which is patently false: iOS has turn by turn GPS software from every leading GPS provider including Garmin, Tom Tom, etc. etc. etc., plus way more GPS hiking maps, biking maps, etc.

        iOs vs Android apps:

        Look at something like the official Twitter app, particularly on the iPad: in order to make the Android version “equivalent” to the one on iOS, the iPad version was completely crippled — it went from an elegant, fully using the screen real-estate version of Tweetie (the app Twitter bought to be their official app), to today’s ugly mess that looks like a blown up phone app. I and I’m sure many others fled to Tweetbot, which is an excellent, beautifully designed app that takes full advantage of the iPad screen. And of course Tweetbot is iOS only. On Android all too many apps are like today’s Twitter. On iOS, the best apps are like Tweetbot or PocketPedia, or Djay or Paper or the DM1 – The Drum Machine – beautifully designed, an absolute delight and pleasure to use.

        The best that can be said about Android is that via its market share it is on the way to becoming this decade’s Windows. But that is unfair to Windows — it did after all have many video games and many specialized programs that were missing from Mac OS. Now it is the exact opposite — iOS has all the games and specialized apps. About all Android shares with Windows besides the large market share are poor app design and bad security.

      • obarthelemy

        What the 7.7 can do that the iPad mini can’t:
        1- Act as a phone (3G version). Not a Skype or other VOIP client, but a straight mobile phone.
        2- Work as a GPS w/o paying $130 extra for the 3G version (iPad Mini)

        regarding Apps:
        1- the Twitter client sucks equally on both iOS and Android. It is, obviously, Android’s fault. Not Twitter’s. And of course not iOS’s.
        2- iOS folks use a third party Twitter client that is much better. Guess what ? Android users do, too: Plume. So the fact that iOS’s preferred client isn’t on Android is irrelevant: there is at least one other excellent client. I’ve seen a review of both recently that basically resulted in a draw. Can’t find it though, sorry.

        I find the very disingenuous and misleading way you present both facts, or fail to present them, very typical of the “iOS apps are better” crowd. Untrue, misinformed, and extremely biased.

        We can indeed say the Android is probably the new Windows: overwhelming market share, incredible breadth of products. The question is if iOS will be compared to the Apple II, the Mac, or manage to do better (especially, to do better on tablets than it did on smartphones). First-mover advantage doesn’t last forever: the Mac even lost its “Graphic Artist” niche after a (long) while, and iOS is getting trounced by Android in terms of market share (not profits, for now). iOS/Tablet has more apps right now, like the Apple II had when the PC came out, and like iOS/Phone had when Android/Phone came out. I’m arguing that those “more tablet apps” are already mainly irrelevant because Android already has plenty equivalent good apps for the overwhelming majority of uses. And I’m betting that, in time, even the more niche apps will migrate. And the niche argument works both ways: right now, Android is pretty much your only bet if you want “real” (active) pen input, with the apps to take advantage of that, or if you want an HD-format tablet (without black stripes eating up a good portion of your screen), or if you want an AMOLED screen, or if you want the highest possible resolution . Or the biggest possible screen (13″). Or even, a apps-running TV. Or a set-top box.

        So no, iOS does not “have all the games”: Android has plenty. Nor all the specialized niches: Android has plenty too, including ones that iOS can’t adress because of the hardware it runs on.

        You can pick and choose what you want to look at; and blame Android for when something sucks on iOS. It is not a true representation of reality, though.

      • jawbroken

        “iOS is getting trounced by Android in terms of market share”

        Hmm, last I heard (September or so) it was around 400 million iOS devices to 500 million Android. I wouldn’t call that a “trouncing” but some might, I guess.

      • obarthelemy

        In unit sales, worldwide
        – for smartphones: 75% Android to 15% iOS for 3Q2012
        – for tablets, it’s around 50/50 (down from 80/10 in favor of iOS last year)

      • obarthelemy

        I’m sure Apple would love for AT&T to be more than 1 carrier amongst 1000+, and for all markets to be subsidized thus price-insensitive as the US, and for all quarters to be launch quarters. Alas, not only is it not the case, but some big markets are moving the other way, away from subsidies (subsidies, where I leave about double the cost of smartphone+service, over 2 years; and non-subsidized contracts highlight the fact the an iPhone 5 is more than twice as expensive as a GS3)

      • Ted_T

        In the US as a whole, the iPhone is currently leading Android across all carriers, and it will only get worse for Android when the iPhone hits the last exclusive Android carrier T-Mobile next year.

        In China, the moment the iPhone hits China Mobile, there will be a cratering of Android market share. As for the rest of the world, the vast majority of Android sales are low end phones, running old versions of Android and mostly being used as feature phones — thus the totally skewed mobile web browsing share in favor of iOS. And forget about serious use of Apps on the low end Android phones — it isn’t happening.

      • obarthelemy

        But not in Europe: “Android plus iOS had an 82.5% share, of which the majority was Android, with 68.5%, while iOS had a 14% share.”

        If the US situation can’t be extrapolated to Europe, why should it ne to other continents ? iPhones have been widely available in Europe since forever.

        As for what makes a smartphone, I’m sure you think it’s the Apple logo on it and the ability to run Maps. Other people may validly think differently though, for example as long as it gets mail, the web, music, can take pics and run apps, it’s a smartphone. Not a premium one, but a smartphone nonetheless.

        PS: Apple also overtook Android for the iPhone 4S launch, then shares reversed with Android at 60+%… will see how it plays out this time.

      • Ted_T

        I am not saying that low end Android phones aren’t smart phones — they are. But they are being *used* as feature phones — thus the web browsing stats, that App sale stats, etc. heavily in favor of iOS.

      • Ted_T

        So the 3G version of the Galaxy Tab 7.7 costs as exactly as much as the WiFi only version? Your contradictory arguments are rather amusing. So far as the phone mode, the only conceivable reason I can come up with for using a 7.7″ tablet as your phone is to save money by only having one device. But is much, much cheaper to use Skype than it is a GSM SIM for phone. If carriers offered data only plans for iPhones or Android, many cost conscious users with take them in conjunction with Skype.

        As far as the apps are concerned, you are defending a losing argument:
        Here is side by side comparison of Tweetbot to Plume and other Android Tweeter clients. Spoiler: Tweetbot is much better than Plume.

        And when it comes to Paper, DJay or DM1 – my other examples, there is nothing on Android that is even remotely comparable.

    • Personally, I don’t think the smartphone is good enough yet. It’s a tricky equation to gauge. Analysts and Asian OEMs have been saying it’s been good enough since Android 3.0, but I think there is still a need for many more apps that will need much more powerful chips and better batteries. I’ll be more convinced that smartphones are good enough when we can have both background processing and great battery life.

      It’s semantics, but I think the right way to think about it is that sustaining innovation “maintains” growth… until you have innovated beyond “good enough”.

      Voice is a piece of the future, but I think it still has quite a ways to go. Before voice matures, I think contextual software (Apps programmed to change the UI depending on the context it’s being used) will actually make a bigger impact in the short term. I don’t have data to back this up, but theoretically I think it will be easier to improve on this software vector before voice get’s good enough that people trust it. (i.e. It’s easier for me to think of ways to add contextual menus to an app versus voice).

      But your big question is how quickly will Samsung be able to copy a future Apple device. Android does have an inherent problem in that it is not as energy efficient as iOS due to the JVM layer and other design decisions. This could pose a problem as Apple pursues form factors that need to be extremely light, computationally extensive and maintain battery life. There is a side of me that thinks that even iOS in it’s current incarnation isn’t efficient enough. In these situations, I think it will be very hard for Samsung to copy Apple. But if you are copying AppleTV, I don’t think it will be hard to copy it.

      I’m not sure having two release cycles in a year will make sense because you can’t change faster than developers can absorb. A lot of devs I know still aren’t using a lot of modern frameworks like Core Data and are still trying to figure out how to really use GCD.

      Just my opinion. Hope it helps.

      • I think “good enough” relates to what is already out there and what are the expectations of customers. Apple seems determined to keep changing the expectations about what good enough is, by innovating. The OS seems good enough until they add some awesome new features that require way more processing power and then both the OS and the hardware that came before it, are not good enough. The real question is whether they can keep moving the target by adding must-have features that everyone is talking about. The macbook air redefined what a good-enough laptop is, in terms of design. This was the case with the iphone 4, but it’s probably good enough now. The iphone 5 design seems like over-serving. Apple’s biggest assets against the competitors is the ecosystem lock-in effect and the simplicity of the OS.

      • In all honesty, I don’t know how you measure if a product is over-serving. I think it’s easier to tell after-the-fact. To me, I think Windows2000 was when Windows became “good enough”, but I think you would be hard pressed to find anyone who believed it at the time. I think it’s human nature to believe the trajectory will continue.

        As for continuing to innovate in vectors that customers will appreciate, I think Apple has a wealth of customer feedback loops and data to understand where they can really add value. An important piece of the puzzle is the ‘genius bar’. Plus, I’ve read that Apple begins every product development cycle by identifying the 7 most important improvement it needs to make that customers will find valuable.

        I also think it’s hard to evaluate the iPhone hardware in some sense because it’s hard to define the value of miniaturization. I think a lot of people who think the iPhone 5 is ‘good enough’ look at it through the lens of PCs. There are different value vectors that need to be considered.

      • All very good points. Customers must be over-served before low end disruption will stick.

        Apple has tremendous metrics. I think they’re managing the risk or overshooting very carefully.

      • You’re right, its very hard to gauge ‘good enough’, particularly if you are an early adopter or enthusiast. In many ways we aren’t the most demanding customers, and have a tendency to miss the forest for the trees.

        So I think your approach is spot on: identify the various vectors that can be improved, fix the most pressing problems first, and sweat the details.

      • Still waiting for the day of wireless charging of the battery, better yet no battery….an ‘energy’ wi-fi?

      • Wireless charging is coming soon. I’ve seen the new wireless charging chips by Texas Instruments in action and they’ve improved the performance by a lot as well as squeezing the chip into a much smaller form factor. In about two months you will be able to get the chip for an iPhone5. The only problem is that you will have to open the phone to add the chip. If you are really interested in it, direct message me on twitter at davidchu and I can get one shipped out to you.

    • After listening to Horace’s latest podcast, Critical Path, I’m more in agreement with you that Apple will need to switch to a semi-annual release cycle. In addition to the points that Horace made, I think it’s important because it lets Apple iterate faster and correct mistakes that it’s made.

  • tkoola

    NB: HTC did One X not ZTE.

  • IvanRoad

    Intriguing analysis. Very thoughtful. But I’m wondering if it’s a bit narrow.

    Samsung goes hard against Apple in handsets. But not in computers, or tablets, or laptops.

    And certainly not in ‘ecosystem’ of services and content delivery and app support.

    Samsung sells 4-inch hardware devices. Period. And for that, they are wholly dependent on Google for continuing to improve on Android.

    To make lasting and substantial headway — to the detriment of Apple — they would have to do much more than crank out devices, or polish their supply chain.

    It’s common to say that ‘Android’ or ‘Samsung’ dominates the market. But I’m not so sure. They sell a lot of handsets, but they are not INFLUENCING or directing the course of the market, or the category. Nor do they have any way of making ‘customers for life’ as Apple can, with it’s content and app and services ecosystem. They are not nearly as ‘sticky.’ And they are nine steps removed from customers, working only through a chain of delivery with the carriers.

    Samsung is good only at a little sliver of what Apple does well right now. And where Apple’s long-term appeal lies.

    • obarthelemy

      “Samsung sells 4-inch hardware devices. Period.”. Or not. Apart from the fact the S’s smartphones go from 2.5″ to 5.5″, they also, in the same markets, sell tablets, cameras, MP3 players…

      “but they are not INFLUENCING or directing the course of the market, or the category” Say what ? Samsung vindicated the 5″+ phablet market. They’ve introduced split-screen multitasking, pen input. Apple is following them by enlarging the iPhone’s screen.

      “they are wholly dependent on Google for continuing to improve on Android.” Why ? Not quite. Android is open source, and Samsung is already making significant improvements to it: pen input, split-screen multitasking, arguable TouchWiz… The dependence of Samsung towards Google is nowhere near as strong as that of PC OEMs towards MS.

      Respectively, Apple is only good at a sliver of what Samsung does now: fabbing chips, screens, flash, radios… assembling phones. The question is which sliver is more important, in the long run ?

      • Though Samsung isn’t good at designing UIs, creating software or designing systems, which you left out of your list. There are also many other companies that are good at the same components as Samsung, though they do have significant advantages in chip fab and displays. Also, as far as I know, Samsung buys the same commodity radio components as Apple, and uses the same contract manufacturing process for final assembly, so the field is really level there.

        I think the big question will boil down to whether hardware or software win the user over. Samsung is good at hardware, I would agree, especially at the component level. Apple is far better at software and system design, and so far only dabbling in components, though I think they’re probably ahead of Samsung at mechanical design.

        If you follow Apple’s patent activity though, they do have a pretty wide interest in component technologies (batteries and screens come to mind), and it wouldn’t surprise me for them to move further into having specialized custom components made, rather than using commodity parts like most of the Android vendors. Samsung is better off than most of the Android vendors, in that they do have their own SoC and specialized display capabilities.

        I also have a strong suspicion that Apple may be moving toward a next-generation A-series processor with an integrated baseband designed by Apple. As far as I know, only Qualcomm is currently able to do the same, though I believe Intel and Broadcom are also moving in this space. A single-chip integration would probably give Apple more power advantage, which is a crucial parameter in the mobile space. Samsung may be able to do this as well, though they seem currently to be in roughly the same place as Apple on radio stuff — they currently outsource it.

        Right now, the only real component advantage I can see that Samsung has is that they actually have a large-scale, high-end chip foundry; something that only a few others have. And only TSMC is also for hire, and may or may not have the same level of process and scale available. Samsung also has their OLED displays, but I don’t think they’re as much of a long term advantage as chip fabs. There are a lot of competing display technologies out there, and companies trying to sell them. As far as I can see, their stranglehold on OLED isn’t particularly advantageous.

      • OpenMinde

        Regarding foundry, Apple could buy Intel to access the most advanced fab and spin out CPU only design, but keep CPU/GPU to avoid monopoly scrutiny.

      • Dave Small

        -> Apple could buy Intel

        Now that would give Steve Ballmer a thrill

      • I think if Apple bought and kept the fab primarily for its own use, there would be serious anti-trust questions regardless of what was going on with the design process. There were issues enough when Apple bought PA Semi…

        I also don’t think this is at all likely — I don’t think Intel would want to sell unless the PC market *really* started tanking and they still can’t get a foothold in mobile. I believe they’re a lot more likely to start taking foundry jobs than to look for a buyer. A little bit more downturn in the PC industry, and I expect their distaste for foundry jobs will evaporate quickly. And Apple will probably be first in line.

        The other place Apple might buy a foundry is IBM. When I last was looking at foundries (some years ago now), IBM was one of the few places still running cutting-edge processes. I don’t know if IBM would be willing to sell, but it’s a lot easier to see happening than buying Intel. I don’t know what scale IBM’s foundry operates at, though; it’s almost certainly not at Intel’s scale, and probably not close to TSMC, either.

      • ronin48

        This is just a long-winded recap and repeat of what other have stated is obvious. Please edit.

      • AdamChew

        I wonder who copied whom.

        “Apple is only good at a sliver of what Samsung does now”

        A very laughable assumption. Does Apple need to copy Samsung wholesale?

        Check what is Apple making a year –
        The question is will Samsung keep on copy whatever Apple do.

        FYI google is aping the PassBook feature of iOS6.

      • JJose

        Well Apple may be making more money, but that is not what is being discussed. He was pointing out that Apple copied too which is correct though the copying by Samsung is more “in the face”

        Good joke about Google aping the Passbook feature. So I guess Apple aped voice recognition, notifications, making 4g available on a phone, storing contacts etc. in the cloud,..can’t stop

      • Do you honestly know the difference between Google Now and iOS6 Passbook?

        This boarding pass functionality seems like an obvious addition to the sort of features that Google Now provides. For instance, the recent update shows a card automatically when an online retailer ships a package to you (based on Gmail, just like the boarding pass.)

    • Ted_T

      “[Samsung] are wholly dependent on Google for continuing to improve on Android.”
      True, but so what? Google have all their eggs in the Android basket at this point — they spent $12.5 billion on Motorola, their rabid fan base is all about Android, etc. There is no conceivable way they will stop improving Android in the foreseeable future. Samsung can continue to rely on their free of charge R&D department in Mountain View.

      • IvanRoad

        And so can HTC and LG and every other company on the planet.

        No advantage for Samsung there.

      • Ted_T

        HTC (not sure about LG) is paying royalties to both Microsoft and Apple, so not free for them, though I suppose they have lower lawayer costs than Samsung…

    • I agree that to unseat Apple’s ecosystem, it takes an ecosystem of one’s own, and Samsung is clearly lacking in that regard.

      But to further show James’ point, that’s not an area where Samsung has been “taught” by Apple. In the areas where Samsung has been taught, they’re going hard (or medium-hard) against Apple. Yes, they’re going less hard in other areas than they are in handsets, but I think that simply follows the numbers – measured both in profits as well as volume.

      I don’t know how Apple’s outsourcing to Samsung compares across product lines, but it wouldn’t surprise me to learn that Samsung is involved the most (by volume, not percent of product) in handsets. It follows that that’s where they’re most likely to push back. It’s where they received the best “lessons”.

      Could Samsung “learn” ecosystem-building? How? From whom? If we agree that’s the largest piece of puzzle that’s missing, you’ve got to imagine they’re having this conversation at Samsung HQ every day.

      • Dave Small

        Looks to me like Samsung’s game plan is to spend a ton of money on marketing/advertising and go for market share. They probably figure that their customers will get locked into the Android ecosystem never realizing how inferior it is to Apple’s. They’d probably be correct.

      • “I agree that to unseat Apple’s ecosystem, it takes an ecosystem of one’s own, and Samsung is clearly lacking in that regard.”

        This is where Google’s Android comes in. Samsung is pretty much synonymous with Android not only in terms of market share but profit share as well. With Android 4.2, it is, for the most part, as capable an ecosystem as iOS.

      • Dave Small

        This is a good illustration of what I meant when I said, “customers will get locked into Android never realizing how inferior it is to Apple’s ecosystem.” Google’s ecosystem is just awful compared to Apple’s but users are fat, dumb, and happy because they haven’t experienced both.

      • I think Android & iOS are definitely experience goods and I could see an argument that the broader ecosystems are credence goods. Consumers have to rely on heuristics a lot in this regard.

      • alexrmurf

        Google’s web services are the absolute best in the world. Apple’s are a joke. Going forward, incredible cloud-based services matter more than software or media (things like Google Now). I think you need to redefine what you call an “ecosystem.” Google basically owns the web, and the web is the future.

      • Anselm

        This is a throwaway argument, and wrong. A fully Google-connected Android user switching get to iOS would lose a range of integration and capacity that Apple does not and cannot provide. iOS is simpler but don’t mistake that for capability or, necessarily, seamlessness.

      • raycote

        For a lot of consumers simplicity is the key feature that unlocks and thus enables their device’s capacity!

      • jawbroken

        A lot of google services are available on iOS, so I’m not sure precisely what they would be missing out on.

    • whoKarez

      4 inch hardware devices period? OMG… samsung makes almost everything but not to america. here in korea, samsung makes apartment complexes and everything found in it. they make cars and everything that goes in them. you can go to the grocery store and pretty much find anything you want made by samsung. even the tallest buildings in the world were made by samsung construction. a sister company to samsung electronics. same owner.

      • IvanRoad

        Yes. But how does that help them create handsets and tablets that people will like much better than Apple products?

      • raycote

        Samsung may have a big foot print in Korea but that comes with a long history of legal moral hazards!

  • ChuckO

    I have a theory of what Apple plans with the iPhone. I came up with the theory listening to Horace and Benedict Evens. I believe Apple knows the window for iPhone profits, such as they are, is finite. I believe Apple knows the excitement over iPhone can’t go on forever. I believe Apple knows the significant leaps in hardware won’t keep coming. I believe those three things will converge at approx. the same time and Apple is taking every penny it can for iPhones prior to and in preparation for that day.

    Now after that day (I suspect that will be in roughly 2015) will come Apple’s strategy for commodity iPhones. A key factor in this is it becomes much easier to produce iPhones as hardware (especially screens) can’t be improved much do to the limitations of the form factor, everything about the phone is as good as it makes sense to make a phone.
    (yes processors and memory will continue to improve) This will also coincide with Apple having finally covered the globe with partners for the iPhone.

    This is the point Apple is ready to bang it out in Asia for volume. At this point Apple hopes to be starting it’s next big category ready to go but even if it doesn’t they can’t delay this and they know it. That day is coming.

    • LongWayToGo

      Well, even when the hardware improvements plateau, there is a very long runway for ongoing improvements to Apples various software and service offerings, which are proprietary. So I do not see them conceding. A high end strategy any time soon. And they will not even consider raising prices when demand outstrips supply capability.

  • People seem to forget that Samsung sells phones way before Apple, and actually learned a lot about scale and logistics going after Nokia. Samsung (second biggest at the time) sold 154 million phones in 2007 (, and has been climbing ever since. It didn’t magically appear after the iPhone.

    So yes, they have to streamline the process, make less models (maybe) etc., but to think of them as newcomers in terms of logistics is naive. They didn’t start from zero, they hit the ground running after the iPhone earthquake.

    • While it’s true that Samsung has been in the phone business for a long time, so was Nokia. Nokia was not able to harness the disruption of touch-based smartphones from a position of top volume in both feature and smartphones. Samsung has negligible share in smartphones in 2009 and came to dominate the segment in about 2.5 years–less than the life span of any one phone. So the question is why did a volume leader fail to capture growth and another volume leader succeed?

      • Walt French

        Samsung’s success was precisely what Google expected: by creating a pretty good, non-proprietary* OS, they expected that other OS vendors would collapse (just what happened to Windows Mobile) and that integrated hardware/OS vendors would eventually, too (as happened to RIM; Symbian appears to still have a pulse).

        I don’t think Google cared about the fate of the OEMs. Like the US airline industry that makes zero profits, they knew some hardware manufacturer would be there, somehow; cutthroat competition only furthers the impossibility of any other OS platform being able to compete unless that platform can better capture the full revenue stream—carrier deals, ads, apps/media, OS software & services, etc. Very pure disruption of the whole industry, since Google has the ads piece down cold, and an advantage over all but Apple in the others, while not needing to care about the hardware profits.

        * This is not the place to discuss how proprietary Android is. At this instant, and for OEMs’ purposes, it is open enough.
        Looking back at this, it might seem as if I’m saying Apple is doomed. I am NOT. But Apple will need to use its investments wisely to advance Siri, cost-effective production, CPU capability/capacity, battery life, services, etc., if it wants to continue its leadership role. As I said under the “hardware/software” discussion, nobody in this business will succeed by taking anything for granted.

      • ronin48

        So where are the Foxconn iPhones killers? The Hon Hai iPad killers? The Quanta MacBook killers? Sony, LG, Toshiba, Sharp, and Panasonic are all Apple suppliers and are more comparable to Samsung – some even made and make phones. If it’s just a matter of copying Apple’s supply chain and production network, why haven’t they all simply copied all that Apple has taught them?

        Samsung has grown largely with the growth of smartphones and the conversion from feature phones to smartphones. They have, in fact, cannibalized their own feature phone business in exchange for higher margin smartphones – a good move but a move dictated by the market not by mimicking Apple. They have also taken share from non-Apple smartphone makers. But they haven’t prevented iPhone growth or even taken market share from Apple. Samsung have taken share at the smartphone low end – a market Apple has chosen not to compete in. And no, a $0 subsidized iPhone 4 is not a low end phone – just ask AT&T.

        Nokia has been mismanaged and that’s why they failed to harness the disruption of touch-based smartphones. This left room for Samsung and others to get a foothold on the low end. Nokia’s failure, not Apple’s excellence, is what helped Samsung.

  • I think the thing that’s missing in this analysis is that it seems to assume software is of zero value, and all the product value is in the hardware. This was true in the PC example because both the supplier and the original product manufacturer had equal access to the software (MS Windows). This is not true in Apple’s case. One can argue that Google substitutes for Microsoft in the phone world, but it isn’t really equivalent. Google’s goal is to put everything in the cloud especially the key processing functions, Apple’s seems to be to put everything in the devices, with the cloud serving only as a rendezvous point for data. I believe this subtle difference is key to how the situation will play out.

    Apple has a device that’s becoming the intelligent hub of the user’s life, one which interacts with a growing array of network-enabled sensors and effectors, but which depend on the mobile device for the UI and key parts of their higher-level functions.

    Google has a device which is a terminal for cloud services (and Amazon is doing exactly the same). This ensures they have access to everything the user does, and have a bottleneck where they can insert ads for the eyeballs they own.

    Ultimately I think this difference in approach will cause visible differences in the user experience that will result in the cloud-based model not being “good enough” in comparison, and the other manufacturers will have to find a new OS and retool their strategies to downplay the cloud’s role. (Microsoft is probably the best candidate for an alternative to Android here.)

    • Matt Cuisiner

      I’m pleased you raised the software since Apple is a software company. I think Jobs must have been aware of danger of Samsung learning how do do hardware from Apple but Apple didn’t teach Samsung how to do the software – Google’s Android did. And as you say Google’s goals are not the same as Apples or Samsung so there is something to be played out here.

      • capnbob67

        By all major metrics, Apple is a hardware company that is exceptionally good at some elements of software such as device OS and consumer apps. I thinks we’d all agree that they are pretty poor at anything enterprise focused or server side where Amazon beats them. It is too simplistic to say they are a software co.

      • aardman

        Steve Jobs himself said that he thinks of Apple primarily as a software company. It’s what distinguishes Apple from its competitors. “If you want to make great software, then you have to make your own hardware” Or words to that effect. Yeah, the standard B-school numbers shout “hardware company” but the company ethos is “software dictates the hardware”.

      • capnbob67

        If you want to go through life believing SJ’s PR hook line and sinker, feel free but the facts don’t lie. The ecosystem is built on business negotiation with content holders, the App Store was an afterthought and iCloud is still buggy in its 4th major incarnation. Software has now been put under the hardware design guy!! Apple are undoubtedly the best hardware company at software and create competitive advantage but they are a hardware company first.

      • jawbroken

        This discussion doesn’t seem at all productive because you’ll just shift the definition of “software company” until it makes you correct. You seem to be trying to argue that to be a software company you have to be enterprise focused, and server-side focused, and your software can’t involve negotiation with partners, and it can’t be an afterthough, and it can’t be buggy, etc. Doesn’t seem like a particularly useful definition. They produce a lot of software products and sell a lot of products where the hardware and software are inseparable – that much at least I hope you can accept.

      • Anselm

        A software company in the mobile marketing doesn’t have to be enterprise-focused, but it does have to develop broad cross-platform Web integration of different applications. iCloud to date is more or less a failure, running behind Google’s many best in breed services and Microsoft’s Office/SkyDrive combination for usability, power and breadth.

      • “iCloud to date is more or less a failure….”

        Depends on how you define failure. iCloud does well, so far, what it’s designed to do but I do agree with you that it doesn’t offer the power or breadth of Google’s or MS’ cloud services.

      • jawbroken

        Hmm, doesn’t seem clear cut. I don’t believe Android has full app data backups, for example.

        Again, just a bunch of assertions and I don’t see how your perceived software quality is at all related to what a software company is or isn’t.

      • Anselm

        Uh, no… Android has app data backup. iCloud has been panned pretty universally for real productivity use, so I guess I’m just referring to the existing consensus. You seem to be trying to define the areas of Apple’s greatest deficits out of existence, but some of those areas are very relevant and other companies are picking up the pieces.

      • jawbroken

        Can you perhaps read the things I said? Even though you are “replying” to them in the technical sense of clicking the button, they don’t appear to be related.

      • capnbob67

        No-one denies that Apple is a very talented software maker and that it is a significant part of their competitive advantage but the point I was responding to was the implication that they are primarily a software company which was Steve’s fallacy. My point about the things they are bad at was only to suggest that if they were primarily a software company, they might not make so many consistent misteps in some key areas (while still doing well in others). The server-side stuff is increasingly essential and Google does it better and the enterprise integration is largely left to 3rd parties. My company uses Good (ironically named – should be called “Passable” or “Mediocre”) but they pay BES level fees every month for every iPhone connected. Android is no better (maybe worse) but Apple is giving them time to catch up.

        Apple may have the odd issue on the HW front (antennagate, easy-smash back covers) but consistently they are market leading in all their hardware (design, integration, manufacturing, materials, etc.). The same cannot be said for much of their non-OS/app software.

      • So they’re not a software company because you arbitrarily exclude their wildly successful series of operating systems and broad collection of applications?

        The decisions made at NeXT in 1985 are directly related to the success of OS X and iOS. Without the software advantage, Apple would have died long ago.

      • capnbob67

        No. Read and breathe. They are not PRIMARILY a software company as was suggested. They are obviously very talented at developing software in specific areas (and pretty ham-fisted in others). They are clearly a hardware company first whose massive revenue and profits are enabled through mostly excellent software. They are clearly the hardware company with the best software but they are NOT first and foremost a software company (per MS, Google, Oracle, SAP, Adobe, etc.). Apple long ago made the strategic decision to be an integrated producer, not to license their main software assets and to make their money from hardware. That is all.

      • The quote is from Alan Kay, a big influence on Steve and the original Mac team:

        Remember, it’s all software, it just depends on when you crystallize it.

        People who are really serious about software should make their own hardware.

      • Software is the heart and soul of the product. Hardware is the muscle and skeleton. Services are the brains. Design is what it does. Which do you want to let someone else do? I believe Apple has decided that the answer is none.

      • Deviant

        Going by your analogy, Apple is a thin, yet strong person with a simple heart, uncluttered soul but with an IQ of 100?

      • DesDizzy

        This is a very interesting discussion. If I could add a couple of points. I agree with Ronin, in that many people on this forum think that Clay’s propositions are interesting. However, it would be nice if he gave a reasoned (i.e. not flip as in “there’re different”) response to the biggest exception to his thesis.

        The second point, which relates to Samsung specifically and China worshippers generally, refers to the “conglomerate” style corporation and whether this gives a lasting competitive advantage. I remember speaking to a professor who specialised in Japan 20 years ago, who, to be fair, just echoed conventional wisdom, believed in Japanese world domination (substitute China today). I suggested this was rubbish! Look at the state of Japanese industry and specifically electronics today.

        The point I tried to make at the time (unsuccessfully), and will try to make now is that in economic history the conglomerate style of organisation is a classic early stage form, because of the deficiencies of industrial/commercial infrastructure within early stage industrial societies. However, it does not translate to lasting competitive advantage in a developed global economy for a simple reason. No organisation is good at everything. But more importantly there are major diseconomies of scale for Cheabol/Keiretsu. Which include sclerotic management structures and lack of innovation.

        To be more specific, Samsung, Panasonic, Sony et al aim to do everything. From making nuclear reactors and fridges and trucks, to selling life insurance. Business economics, suggest that it is possible to be the best in one or two or maximum, three sectors, but not ten. And if we look at the P/L for Sony or Hitachi or Samsung, it can be seen that most of their divisions make no money. This is not a long term competitive advantage. The Japanese conglomerates are now finding that this long term bleed may lead to loss of life in the whole structure.

        I believe that the more proximate problem that Samsung has however, is the agency arrangement with Google, which may come to a head very soon.

      • Walt French

        Since most of Apple’s software is sold ONLY on, and runs ONLY on the hardware that they sell, and pricing for said software is a tiny fraction of the hardware, I think it unhelpful to call Apple a “software company.”

        “Integrated solutions,” perhaps.

        Of course, Google and Microsoft sell their own brand hardware, too. In both cases, they’re changing their role in the ecosystems they’ve built, whereas Apple has made advanced system software integrated with its hardware a feature ever since the first Mac in 1984. All three are looking for a combination that’ll combine a secure base from which to expand, although I’d argue that Apple lives more on the edge of its latest products — noting Cook’s statement that 80% of their revenues are in products introduced in the last 60 (!) days.

        Google’s inertia is in the data it has on each user, and their reflexive use of the products, Microsoft’s in its monopoly position on corporate desktops, and Apple’s in its customers’ expectations that the next products will be at least as good as the last ones.

    • Anselm

      I think your argument is intriguing but am not sure I fully understand it. What is it that Apple offers and Microsoft might offer that is an “intelligent hub” as opposed to the “cloud-based model”?

      • My interpretation of what Apple is doing is that they’re following a distributed computing model: there is no “hub” per se, whichever device you’re using at the moment is the canonical one. In many cases, that’s now an iPhone, so it’s the “hub”. But it’s more that the hub follows the user. (I don’t know if that makes it any clearer though…)

        In Apple’s model, the cloud isn’t a computing service but a communication service, and it’s not the primary storage place, just a rendezvous point for data. The exception to that is infrequently-used, bulky media data (mostly movies) which Apple now seems to be locating primarily in their cloud and downloading on demand.

        I’m much less familiar with Microsoft’s cloud work, but like Apple, their focus is primarily on the user device, not the cloud server, so I expect they’re following a similar model. Having more code on the end-user device makes sense in their business model, which makes money off those, not the cloud service.

    • raycote

      Good point!

      True distributed redundancy of powerful computing functions is a prerequisite to empowering a social grid of truly autonomous social-agents, meaning that a truly autonomy-empowering peer-to-peer mobile-computing strategy cannot be based on a centralized server/client lockdown affair. Framing the trajectory of mobile-computing as an emergence instantiation of a complex-adaptive-system of empowered peers is a strategic assumption that Apple or others could be cultivating or just opportunistically utilize as an advantage for future dominance. If rends in mobile-computing were to lean towards the distributed redundancy of locally autonomous peer-to-peer processing-power we would be nowhere near the end of history on the “good enough” hardware storyline.

      Indulge me here for a moment in a flight of fancy, a devils advocacy, a thought experiment targeting just one of innumerable possible future cyborg-extension-scaffoldings to the human nervous system, a complex-adaptive-nervous-system addicted to its role as an autonomous volitional-persona.(old cognitive-survival-habits die hard)

      Enabling the network-effect, that fractal scaling behaviour exhibited by “the self-organizing dynamic” inherent in all complex-living-adaptive-systems across progressive platform layers of the reality stack, enabling that social-synchronizing network-effect to bootstrap human behaviour into new, self-organizing, high-level systemic social structures will require a non-centralized grid of independently powerful mobile-device-driven autonomous agents/personas. Device-driven autonomous agents/personas capable of operation on a independently recombinant grid, autonomous device-driven agents/personas capable of operating largely unencumbered by central choke-point control-agents.

      Cells and organisms don’t need to check in with a centralized Google/Facebook style mothership in order figure out how to execute their own set of social-behaviour methods and interactions. The hidden hand of probability that drives the bottom-up organics of the “self-organizing dynamic” is not by nature a centralized phenomenon. That “self-organizing dynamic” is not even that amenable to mathematical modelling. You just have to let that organically emergent experiment play itself out under the proper bottom up volitionally-recombinant autonomous-agent interaction conditions. Any mobile-device based cyborg-extension-scaffolding to the human nervous system that is capable of meeting these local autonomy criteria will gobble up unlimited mobile-computing-power.

      Ok . . Ok . . all this may seem ridiculous to you and that may well be!

      My thought-experiment point being that there are innumerable possible configurations regarding future cyborg-extension-scaffoldings to the human nervous system and all are equally impossible to anticipate from our present perspective. However it seem like a pretty safe bet that they will all gobble up unlimited mobile-computing-power.

      The hardware race in not over! We are just sratching the iceberg on this one!

  • def4

    There’s a fatal flaw in this argument: performance in computing products NEVER becomes good enough.
    For as long as software innovation can be rewarded by the market, at least.

    Honestly, saying that design in the smartphone market has been commoditised and performance is good enough makes the author seem out of touch.
    Put away your iPhone 5 and use a low end Android for a month and them come back and tell us how commoditised everything is.
    Finally, if design is so perishable, how do you explain the continued dominance of the iPod in a market that actually has become commoditised?

    Samsung has never been Apple’s ODM for anything exactly because Apple has always designed their products. Neither has Samsung done any product assembly for Apple.

    Looking back, Apple had little or no choice but to source components from Samsung because Samsung was and is one of the extremely few top suppliers of flash memory, LCD displays, batteries, chip foundry services and many others I’m not aware of.

    I strongly doubt that Apple had the money, time and expertise to build in house everything they needed for iPhone and completely avoid buying components from all the companies that were in the mobile phone business six years ago (Samsung, LG, Sony).

    Bringing in manufacturing of components that are not absolutely key for the products strikes me as an extremely bad idea. The company exposes itself to imminent danger of NIH syndrome and is extremely likely to resist integrating competing components available on the market regardless of their suitability.

    It’s much better for Apple to keep tabs on all new technologies and innovations, choose the best and handsomely reward their suppliers both for their innovations and for their loyalty.
    I’m pretty sure there are lots of companies in the various component businesses that are giddy to take Apple’s money, increase scale and take Samsung down a notch in their respective business.

      • DrewBear2

        You mean like netbooks? A business strategy targeting “good enough” is not necessarily the most profitable.

        As others have pointed out, “good enough” is a moving target. Siri is still a beta feature. It will become more valuable as it improves.

        Once again, Apple’s lead in overall user experience is being underestimated by many. The alternatives may be “good enough” for the tech savvy, but not the majority of consumers.

      • Splashman


        Also, a supplier of “good enough” is vulnerable to other suppliers of “good enough.” Apple controls their own destiny.

      • I agree with all your points, so maybe we’re just arguing semantics.

        People hire computers to do many different jobs, and some customers are more demanding than others. So ‘good enough’ isn’t just a moving target – its many moving targets.

        But the monolithic statement that “performance in computing products never becomes good enough” implies that computer performance never overshoots customer need.

        Am I misunderstanding your argument?

      • def4

        Performance in PCs has largely become good enough and that is precisely because the lack of software innovation on that platform.

        Microsoft’s greed and mismanagement of Windows as a development platform pushed all creativity away to the Web from where it spilled into mobile.

        Once Intel hit the GHz wall and the first corollary (single threaded performance doubles every X months) of Moore’s law crumbled, the biggest reason to upgrade a PC vanished.

        Microsoft assured there would be no fancy new software showing up on the Windows platform because everyone who thought of building something like that was all but assured Microsoft would go after them.
        The GHz wall made it such that a new computer would not dazzle people anymore with the ability to run their old applications ridiculously faster.

        Piracy and HD consoles put the final nails in PCs’ coffin, even for enthusiasts.
        For years now, a mid range graphics card has been good enough to play the latest and greatest PC games.
        That was unheard of in the heyday of the PC.

        Now compare and contrast this general apathy in the PC space with the mobile space.

      • I see your point about software. I switched to Mac in the late OS 9 era – primarily to get access to the sudden arrival of “prosumer” grade music/video applications. At the time it meant the difference between ridiculously limited midi-trackers like FrootyLoops on the PC and ProTools / Cubase & Logic on the Mac.

        And clearly OS X revitalized the Mac over the same general period of time. From 2002-2006 the Mac just screamed ahead like Microsoft was standing still.

        I remember back around 2000, MS Word got a new feature – the ability to import movie and audio files into documents. It was comical at the time, but kind of tragic in retrospect.

      • NotGoodEnough

        Cars have been “good enough” for decades, yet Porsche and Audi and BMW still do better than Ford in profitability.

      • The Porsche 911 reminds me of the iPhone in many ways. Tremendous build quality, a focus on real-world performance and a refusal to mess with the original design language. Margins are incredible and something like 80% ever made are still on the road.

        The Mazda Miata is another good example. Hands down the most fun per dollar on 4 wheels, and disrupted the market when it launched. The only reason the $30-40,000 roadster segment exists is because Mazda built one for $14k in 1989.

        Both have succeeded for decades because they avoided the technological mudslide.

    • StillNotGoodEnough

      I think you make a good point regarding the idea that the iPhone and other computing devices are not succumbing to the “good enough” problem. If this argument by the author was valid, then why are the MacBooks taking so much share from Microsoft?

    • Anselm

      I think the point about the market reaching a point where new products are “good enough” is really about competing products reaching parity. For example, iPhone has top-notch building quality, Samsung has bigger displays and a wider ecosystem(wrt Google integration, especially) and Windows Phone has Office integration and a UI that a sizeable minority prefer. And, they all run on the same or similar processors and hit similar performance benchmarks. Thus, performance does matter, but differentiation occurs based on subjective preferences and factors that are not strictly performance-based. This is a game in which suppy-chain mastery is still a major factor but not limited to one player, nor does it bestow market dominance.

      • def4

        While there is some truth to the notion of parity, don’t you think your own description of the pretty significant differences between the design decisions and trade-offs in the different products contradicts the notions of commoditisation and good enough performance?

        In other words, if the Samsung Galaxies and iPhone are good enough commodities how come they are so different?

        The fact that they may share similar components or technologies doesn’t seem very relevant if there are significant differences that are immediately obvious to end users.

      • Anselm

        Absolutely! The homogeneity is in the basic specs and slab form factor. The areas we’re talking about – largely software – are where differentiation continues and different users prefer different OS’s. But I think that the three main OS’s are approaching a diverse kind of parity, which ties into the original post in that supply chain mastery will always be a factor but may not longer determinative favor Apple.

      • def4

        While Android and iOS could be described to be at parity in the sense that they may be equally recommendable in aggregate, for the particular needs of each individual consumer, only one of them usually fits well.
        As it makes little sense in practice to cross-shop between Android and iOS, there’s also little room for commoditisation between them.

        The other budding platforms are too behind in software support to merit inclusion in the same discussion as Android and iOS.

      • Anselm

        Disagree. One example: a low-sophistication user who wants to use the phone, light email and Facebook with links to YouTube videos will appreciate the larger display and keyboard of the SG3 or Note, but also the idiot-proof nature of iOS. That’s a legitimate dilemma.

        Also, while Windows Phone trails in the market, the only OS to have first-party Office (including the excellent OneNote) integration “merits consideration”, even while acknowledging its distant third-place status.

      • def4

        That sounds like a legitimate case, until you look at the whole picture.
        A large screen stays that way when you want to put the phone in your pocket, not just when you watch videos on it.

        The casual, unsophisticated user will likely choose the smaller screen.
        The more intensive power user will choose the larger screen.

        I have a Windows Phone 7 myself and the Office integration is nothing to write home about. Not much more featured or usable than what had been available on Symbian for a looong time.
        The productivity tools on my iPad blow them away.

      • Anselm

        You can vote 10 times for nick at 9pm 855-864-2307Regarding the “case”, not sure I follow… I see casual users being very interested in the screen, especially if they do not already have an iPhone + ipad. I am seeing this with an older o-worker who traded her old BB Curve for a Note II and is climbing the learning curve. She is very happy with it and the screen has everything to do with that. Our rather dyed in the wool (but also non-techie) dual iOS owner colleague pooh-poohed it and, a week later, is considering the Note II as well. It’s anecdotal but I am frankly fascinated at how this plays out. But it’s true that Android is still wasted on non-techies unless there is someone like me to gently tutor them on an ongoing basis for at least a week or two. And that’s a big factor.

        I also used WP7 for 18 months and loved OneNote, the rest not so much. But that one factor, when tied into SkyDrive and Office, is a dream compared to other phone productivity tools, and I see broader integration and simply better Office-wide software in WP8 (but can’t confirm that anticipation). Of course your ipad has better productivity tools; it’s a different ballgame on a tablet, so it better! I don’t have any basis to compare with other tablet OS tools.

      • def4

        Have they mentioned why they like the Note?
        I’m genuinely curious why phablets are so successful.

        Personally, I’m now completely out of the market for Android phones because all models that have a comfortably large screen and easy to hold body (3.7″ – 4.2″ for my hands) are slow and janky.

    • If this were true, we’d all still be using mainframes.

      • def4

        Who’s “we”?
        I’ve never used a mainframe and don’t know anyone who has. Have you?

        As far as I remember nobody has ever claimed mainframes would take over the world and be present on every desk or in every pocket.
        Last I heard, IBM was still making decent money in their mainframe business, much better than many PC and Android OEMs.

        How about you stop using history as a blunt instrument for strawman arguments and really think about the state of things.
        I understand it’s easy to get excited about some manufacturing jobs, but that doesn’t make them the silver bullet for success.

      • “As far as I remember nobody has ever claimed mainframes would take over the world and be present on every desk or in every pocket.”

        In a way, this is what George Orwell suggested in 1949 when he wrote the novel 1984. In Orwell’s vision, the mainframe controlled information and its dissemination — thus it was in everyone’s mind rather than their desktop or pocket.

        I worked for IBM for 16 years ending in 1980. I held various titles in the Data Processing Division… all my activities were directed to the successful installation of IBM mainframe computers.

        My eyes were opened in 1978 when I bought an Apple II computer. It had roughly the equivalent processing power of many IBM/360 mainframes of that era.

        Any smartphone of today has much more processing power than any mainframe of that era. The IBM suitcase computer that got man to the moon was less artful than an Apple TV.

        So yes, in a way – we each are using mainframes and carrying them around in our pockets.

      • def4

        Let’s not confuse things.
        Mainframes still exist today and they are still doing at least some of the same jobs they have always done, right?

        Of course smaller form factors catch up in computing power over time, but the big iron doesn’t stand still either.

        1984 is one of my favourite books so I’m fairly confident to say that there is no apparent computing device employed anywhere to control information.
        The people are controlled by terror, by the potential of complete surveillance and not by its actual implementation.

      • 1john1

        But Dick, you just proved his point — if computing performance never gets good enough, why aren’t you using a mainframe and not an iPhone?

      • def4

        Are you really that daft?
        It’s because the mainframe doesn’t fit in pockets, duh!

      • But isn’t that the point? Outright performance isn’t what matters to most people any more. The basis of competition has shifted (to portability).

        — james

      • def4

        That’s oversimplifying it a bit.
        Had the basis of competition really been portability, Apple would have made greater market share gains by having the only small high end phone and maybe even kept the 3.5″ screen.

        Mainframes were never intended to be used by normal people because they don’t fit on desks or in pockets.
        That’s why the market for mainframe stopped growing: because of saturation and not because they became good enough.

      • def4

        Are you really that daft?
        It’s because the mainframe doesn’t fit in pockets, duh!

    • Noah

      What qualifies as a “low end” Android? What about one that costs $300 new and is roughly comparable to a iPhone 5 that costs more than twice as much ($700)?

      That commodity (Nexus 4) is available today.

      The performance difference between the phones is negligible, the ecosystems are mostly equivalent.

      Faced with the choice, as an informed consumer, many people can do the math and make some small compromises. That, my friend, is “good enough”.

      • Space Gorilla

        You make one mistake in your argument, while people in this thread are likely ‘informed consumers’ the vast majority of consumers are not informed, at least not when it comes to performance and ecosystems, heck I was reading some stat that half of Android users didn’t even consider the OS when they purchased their phone. I can’t remember where that was from so I can’t say for certain it’s correct, but the larger point is that nerds make the mistake of assuming every consumer thinks like they do and considers the same things to be important when purchasing. If that were true Apple would not be successful.

      • Your argument could be applied to iPhone buyers too. It appears that a majority of them don’t consider that there are Android phones just as good (performance, ecosystem, features, etc.) for less than half the price.

      • Space Gorilla

        Exactly right, iPhone buyers aren’t not informed in the way nerds assume. And you’re making my point for me by saying that there are Android phones just as good as iPhones for less than half the price. I’m sure that’s true, by *your measure* of what’s good. Man, the nerd crowd just doesn’t get it, mainstream consumers do not care about the things you care about it, they really don’t. It seems that nerds think some day Apple’s customers are all going to wake up and realize they’ve been fooled and stop buying from Apple. What you fail to understand is that people buy Apple products because those products deliver quality and value in ways that are important to the average consumer. Nobody is being fooled, consumers are just making decisions that you don’t agree with.

      • def4

        The Nexus 4 is not available in physical stores.
        I’m not about to pay so much money for something sight unseen just based on OK reviews and an attractive price for the specs.

    • Actually def4, looks like there’s emerging evidence to suggest that performance has reached good enough for most folks. I think a lot of us — tech enthusiasts — really are the ones that risk getting out of touch, because the performance we demand puts us at the top of the market. It’s the average user that makes for the majority of the market, and I think Apple has overshot (or beginning to); hence why Samsung et al have been doing so well in the marketshare stakes.


      — james

      • def4

        Apple doesn’t do well in market share because they don’t play the pricing game.

        Most people want to pay at least as possible for whatever affords them basic access and put up with low performance and poor quality (the exact polar opposites of what Apple shoots for).
        But that applies to everything, everywhere and always so using that as “proof” of commoditisation is absurd.

        What “performance” exactly has Apple overshot? Is the A6 chip too fast?
        In that case they are not putting the computing power to good use and should keep up in software innovation.

        The other thing you’re glossing over is quality.
        In any products, services and even people that never seems to go out of style or become commoditised because it’s something that resonates with us.

      • I think the underlying thing that we are both driving at is that there’s a spectrum of customers. Hanging around sites like this, it’s easy to forget that. Some customers are more demanding; some are less. My point is that for the average, I think that the quality/performance that Apple is providing on the phone as they stand at the moment has overshot what the “average” customer cares about. The speed of the device; the battery life; the camera quality; all these things were marginally improved over the iPhone 4S. While I can tell the difference, my parents wouldn’t be able to.

      • def4

        I agree the iPhone 4S is good enough, but in the sense that it is the first iPhone model that’s worth the money for a casual user.
        Its feature set and computing power should be good enough to ensure the temptation to upgrade will remain reasonable for a few years.

        The next step in software innovation that I’m suggesting Apple needs to make should deliver the same kind of accessible and easy to consume functionality that Apple usually strives for and not just spec bumps.
        Just like a front facing camera was a feature nobody used and iPhones lacked … until FaceTime.

        I think our fundamental disagreement centers around the value of improved performance to the average user.
        Raw power in the form of extra GHz, GB, MPixels, etc may well be wasted, but that is significantly less likely on computing platforms that can attract large investments and creativity.

        It’s immensely more likely to have more unused horse power for a longer time in your car than unused GHz in your phone.

  • stsk

    Excellent article? Nah. The foundational premise is that design is commoditized. Evidence? Nah. Just a series of hand waves. The notion that design is commoditized is analogous to the famous, if false, quote from Charles Henry Duell, former head of the U.S. patent office, to the effect that: Everything that can be invented has been invented already. Design is more than a feature list.

    • Splashman


      Mr. Allworth could only posit such tripe by ignoring history. The most obvious example: the iPod. After it was introduced, the industry’s reaction was, “It’s a decent device, but too expensive — cheaper alternatives with better specs will eat its lunch.” We all know how that turned out, but why? Because while Apple’s competitors could replicate the hardware, they could not replicate Apple’s software and walled garden — two huge aspects of Apple’s success — even after ten years of trying.

      With Google’s OS (Android) and store (Play), Samsung has been given (literally) the tools to compete. But that just means Samsung is now a hardware supplier for Google.

      Also keep in mind that in the US and other high-end markets, where smartphones are actually used as smartphones, Apple’s share is gaining on Android/Samsung. In the developing world, where smartphones (to a large degree) are used as feature phones, Android/Samsung is dominating. On this path, Samsung can continue to be profitable, but will never compete with Apple’s profits.

      • Tatil_S

        Why not view Google as the software supplier to Samsung?

      • macetbanget

        Hi, I’m from singapore, and would consider singapore as one of the countries that uses high end phones such as iphone and samsung s3. And my point is that last year I noticed that 9 out of 10 smartphones that people used here were iphone, however now 7 out of 10 smartphones being used are samsung s3. And I asked to them randomly why they finally decided to go for samsung, their answer was so simple that there’s not much improvement from iphone 4 to iphone 5, thus they’re trying a new kind of smartphone which samsung managed to provide.

      • SimonCopenhagen

        Hi, I used to do consumer research for many, many years. And your observation in Singapore rings true to my experience: That Asians as such are much more interested in technology and new features than Europeans and Americans. This is why it would be absolutely meaningful for your fellow Singaporians to try out the Siri feature in iPhone 4s – and move on to the next new thing, now delivered by Samsung. And move on to Lumia or something else next time. They are so to speak loyal to their feature interest, not loyal to the Apple claim to be “humanizing technology” or “it just works”. And to me this is the devide between Samsung and Apple: The one is devoted to technology per se, the other to empowering people through technology. There isn’t a universal demand for the latter, hence the shrinking marketshare for Apple. But to the best of my knowledge, Apple’s claim is addressing the most affluent consumers in the world. Hence the high margins and the repeat buying from these consumers.

      • Did you see similar “sampling” behavior in other groups worth noting? It seems a big part of the split in opinion over this whole subject comes down to choice theory and heuristics. Thanks for the info!

      • raycote

        iPhone from 90% to only 30% in one year WOW!

        Got any links to support those numbers?

    • I don’t see how two are analogous at all, beyond your wave of the hands in saying that they are!

      The difference between the performance of the solutions (Apple vs Android) has got down to the point where a number of people don’t really see that big a difference at all. Think back to the difference in 2007 when the iPhone was introduced… that’s when there was a really big difference between what Apple offered and all the competitors. Some element of that edge remains with Apple (I still use their products myself) but it’s nowhere, nowhere near what it used to be.

      That, of course, can change again, when someone makes a really big push forward on design. And that’s what Apple do best.

      If you’re interested in this topic, I really encourage you to listen to the Critical Path podcast because Horace and I discuss this very topic in depth.


      — james

      • DrewBear2

        “The difference between the performance of the solutions (Apple vs
        Android) has got down to the point where a number of people don’t really
        see that big a difference at all.”

        This may be true for the tech savvy, but not for the average consumer. Try giving someone not experienced with touchscreen devices an Android phone or tablet and they most likely will quickly run into problems. Give that same person an iPhone or iPad and they’ll have a much simpler time actually getting things done with the device.

        For the tech savvy, it’s a question of preference. Do you want to spend time & energy to tweak the UI just so or do you simply want to use the device to get things done? Would you rather deal with Samsung or Apple customer service? Do you want access to uncensored content or would you rather trust Apple’s screening process? We get to choose and live with the consequences.

        Yes, Android has improved greatly since 2007 and narrowed the gap in user friendliness, but that gap is still significant. Add quality of apps (again better UX), world-wide content accessibility, build quality & service via Apple Stores/AppleCare and you get the value-add that people are willing to pay a premium for.

        Samsung (like Dell) sells more units at a much lower average price, resulting in lower profits. They are primarily targeting the price ranges where Apple simply has no offerings (sub-$400? unsubsidized). Compare revenue in the $400+ smartphone range and I’d guess (no way to know since Samsung won’t divulge real stats) Apple leads by a huge margin. Not even close in the tablet category.

        In short, Apple is under no immediate threat from Samsung or anyone else. But things can change quickly in this field, so who knows what will happen a few years down the road? I choose to take Tim Cook’s advice and not bet against Apple.

        BTW, excellent dialogue on the podcast. I enjoyed it.

      • stsk

        James, I’m appreciative that you read and respond to the comments, but I still disagree. While there may be many who either can’t tell the difference or don’t care, between Ripple and Chateau Lafitte Rothschild, it doesn’t mean that wine is a commodity. It only means that there are segments of the market who aren’t as sensitive to quality as price (or are morons).

        Also, I suspect we’re using different meanings for “design”. If you believe that the entire ecosystem of the iPhone, which I believe to be included in “design”, including hardware, software, third party application environment, freedom from malware, ease of updating both OS and applications, support, purchase experience, etc. is fungible with ANY, let alone ALL, of the multiple flavors of the Android OS, myriad hardware implementations (including bloatware and network provider mandated shells in the “hardware”), then there is little more to say. But, although I don’t listen to podcasts, I’ll follow your suggestion. I’m a huge fan of Asymco and recommend it to anyone who’ll listen, I think this article is weak because the basic premise is flawed.

      • You’re talking like a Gestalt Engineer. 🙂

      • hey, I appreciate the way you’re disagreeing.

        I guess my point is this: when it comes products where performance can be assessed (harder with fashion, and wine too fwiw; easier with tech) then when an industry/product line starts out, particularly a disruptive one, then performance is almost invariably NOT good enough. think back to the original iphone — 2G, slow, no apps, etc etc etc.

        What happens is that performance improves, but the problem is that performance eventually starts improving at a rate faster than the average consumer is able to absorb. At around this point, you start to see a switch from integrated manufacturers to modular ones. Horace and I go into it in more depth in the podcast; but my assertion is that for the AVERAGE customer (ie. the majority), with the iPhone 5 performance (and the way that Apple is improving the product) is improving at a rate faster than they are able to absorb. Once this happens, an integrated manufacturer opens themselves up to serious competition from modular players; and eventually the modular players and their improvements open the product line up to disruption (think, for example, what the tablets have done to laptops — who actually knows/cares what speed the CPU is in their laptop? When you hit this point, you’re at the point of disruption).

        Hope this clears things up.

        — james

      • stsk

        I realize this is going on a bit more than is typical in comments, and I credit your willingness to engage in a dialogue. Thank you. I understand your argument,I listened to the podcast last night, and I’m afraid both you and Horace are wrong on some fundamental historical facts that, I think, frame the way you look at “precedent” in the PC market. If you like, we can carry this offline. Let me know and I’ll email you.

      • ronin48

        Exactly. Well put.

  • ronin48

    I appreciate the effort but the analysis makes several flawed assumptions.

    First, the Asus-Dell and Samsung-Apple situations are different for many reasons but one big one is that while Asus was essentially an “assembler,” Samsung was a more diverse consumer electronics company when the iPhone was launched than Apple is even now. Samsung was making their own phones BEFORE the iPhone was even a glimmer in Steve Jobs’ eye. If anything, it’s more logical to say that Samsung’s experience in making devices helped make the iPhone a success not vices versa.

    Second, it’s a flaw of logical reasoning to say that based on one example (Asus-Dell), the Samsung-Apple situation’s future is known or even likely. Even if Asus and Samsung could be compared (and they really can’t be) the Asus-Dell situation is an n of one. Please review your basic statistics. Statiscally and logically, predicting Apple’s fate based on Asus-Dell is not possible.

    Third, if you’ve read anything Horace has written you know that the true advantage Apple has, beyond the durable supply chain advantage and the less-durable design advantage, is the ecosystem. In other words, the software, iOS, Mac OS, iCloud, iTunes, the easy interactions, the halo effect, the curated apps, the stores/Genius Bars, the lack of fragmentation, and more all confer on Apple maybe its most durable advantage of all. Both you and Gruber seem to miss this.

    Lastly, Christensen is simply not credible regarding Apple. He’s said Apple will fail multiple times. Jobs, Cook, and Apple have shown him to be laughably wrong again and again.

    • normm

      Good points! I would go further and say that Apple is learning a lot from their suppliers, since they are so deeply involved in their operations, at this point all the way back to the mine according to Tim Cook! So the reverse process may be about to occur, where Apple takes over processes it learned from its suppliers!

      • ronin48

        As I already mentioned, if anything, it’s more logical to say that Samsung’s experience in making devices helped make the iPhone a success not vices versa.

      • Dave Small

        I think that’s a real stretch of the imagination. The Galaxy phones are iPhone knock-offs and not the other way around. I’m sure Apple learned some things from Samsung, and from other component suppliers, but doubt very much that this information was pivotal or crucial to the success of the iPhone. On the other hand, there could be no Galaxy III without an iPhone to copy.

      • The Galaxy III looks like it does because (1) The price of large multi-touch screens fell enough and (2) Android, because all these devices are just picture frames around the OS. Your point comes down to whether Android copied iOS, but if it did then why hasn’t Apple sued Google?

      • Dave Small

        >>why hasn’t Apple sued Google?

        That’s a question for lawyers and I’m not an attorney. However, I’d guess it is easier to prove damages when a competitor like Samsung sells nearly counterfeit iPhones/iPads and collects money for them, thus taking sales away from Apple. Google gives away the Android OS and makes their money through sale of advertisements being displayed on Android based devices. Seems a bit trickier to prove damages.

        I suspect Apple also wants to send a strong message to handset manufacturers that they risk expensive legal action if they produce iPhone knock-offs as Samsung has done. The recent licensing agreement between HTC and Apple shows some validity to that approach.

        There is no easy answer for Apple. Copying has been rampant in consumer electronics for ages. Samsung has a reputation as a ‘fast copier.’ They copy everything from TVs to refrigerators. There wouldn’t be a Samsung without copying, so they naturally defend their right to do their thing.

      • alexrmurf

        I love it how this entire article is arguing how the real issue is Samsung able to mimic (and possibly beat) Apple at it’s own business (economies of scale) game, and not the design copying, and yet you write a lengthy response all about design haha. Think you missed the point.

      • gurmoksh

        Samsung is not only electronics, tvs n refrigerators…they are a group with 80 companies!! From construction to mining everything. In terms of electronics.. They do have technologies in which they have vested $$. Not copied. Like flexible displays, or the nm chip production. Those take innovation as well.

      • Apple can’t sue Google because Google is not selling Android to end-customer… it is free license OS used by phone vendors … Since there is no sales number to calculate, it is very hard to generate damage amount for a trial. It’s much easier to sue Samsung since they have the revenue/sales numbers.

      • NotEitherOr

        This is not an either or situation. It could very well be that up until this point Apple benefited from Samsung, while going foreword Samsung will be able to take advantage of that to compete more effectively with Apple.

      • airmanchairman

        I like this point a lot – if Samsung is gazing into the Abyss of Apple, then the Abyss is also gazing into Samsung (pardon me, Nietzsche…)

        But the point is clear, and is clearly manifesting. Apple has learnt a great lot from its partners, and seems always to have learnt more from its most treacherous ones from way back (Microsoft, Adobe, IBM etc.) and from recent times (Google, Samsung, etc.).

        Slow, deliberate vertical integration of all its saleable components can and should wean it off the parasitic clutches of its erstwhile “co-opetitors” and if planned and executed right, should see them gradually pull away from the madding crowd once again.

    • So Apple is disrupting disruption theory?

      • ronin48

        No. Dave Small just misunderstood. There’s no question that Samesong is blatantly and shamelessly copying Apple design again and again – anyone can see that. I just meant to suggest that Apple Inc is learning from Samsung how to assemble consumer electronic devices in a broader sense.

      • You mad bro? The Supreme Court not only decided that Samsung did not copy Apple, they made Apple say so on their home page.

      • kibbles

        Supreme Court? you mean one court in the UK, which was alone in its rulings compared to courts in the US and in Korea. ouch.

      • alexrmurf

        Actually courts in Japan, Korea, UK, Germany, Australia and others have all sided with Samsung. Show me one court case that sided with Apple outside of its home turf?

      • Jake_in_Seoul


      • “You mad bro?” Sorry, I didn’t realize I was teleported to Engadget. Please, ban the above commenter, Horace. You have to maintain some level of quality in the comment section.

      • Davel

        So the iPod was not a broadly popular consumer device?

        I doubt that Apple had to go to Samsung to teach it how to create a supply chain to produce the first iPhone.

        Apple has been producing consumer electronics for decades. This was not their first rodeo.

      • ronin48

        Please read. The point is that Samsung has been a consumer electronics company longer than Apple and still is much more experienced and diverse in terms of consumer electronics. Apple was a computer company until fairly recently. You are wrong.

      • raycote

        I wonder whether Steve Jobs ever put much thought into the concept of meta-disruption once he had been introduced to the idea?

        Seem like something a control freak like Steve might do?

        Maybe he failed?

        Or maybe it is a formal part of Apple’s corporate-culture playbook?

        They do regularly cannibalize they own product line.

    • Ronin — appreciate the response. I’m not sure I agree with you on all counts though.

      First: you say “Asus” was essentially an assembler. Sure, that’s what they looked like right before they launched their own brand to challenge their former customers. But how did they start life out? I think you’ll find it was as a manufacturer of components. I question the need for Samsung to “learn” assembly in this space: they were already a pretty big manufacturer of electronics. On the other hand, how much has Apple been spending on this to get in front?

      The much more interesting question is this: at what point in this whole process was the die cast in terms of Asus challenging Dell, even if Dell had stopped the process?

      Second, I think you’ll find that an n of 1 is a very effective mechanism for learning and generating theory. In fact, if using an n of 1 was of no value, it’s actually very difficult to analyze Apple in relation to any other company because they’re an outlier in so many respects. Similarly, the value of analyzing Apple drops pretty substantially (and I think everyone would agree there’s value in doing that). And on the flip side, if you think high n gives you better research… well, I’ve spent enough time around research to know that it simply isn’t the case.

      Third, I’m not denying the importance of their ecosystem (it’s why I’m a customer). But I’d turn it around as a question to you: if their ecosystem is as good as what you say it is, why has Android shot past it so quickly in terms of market share?

      And finally, this isn’t a Christensen prediction on the topic, it’s relying on Christensen’s research. And if you don’t think Christensen’s research is credible, I’d encourage you to give Steve Jobs a call and let him know:

      Appreciate the time you took to respond, but this didn’t really strike me as a genuine search for the truth. So, given that’s what we’re about, I am curious: how do you think Samsung has managed to come from effectively nowhere to one of (if not the) largest phone supplier in the world, in what, two years? And you think it’s only a coincidence that one of Apple’s major suppliers turns out to be a major competitor?


      — james

      • ” if their ecosystem is as good as what you say it is, why has Android shot past it so quickly in terms of market share?”

        Lower price point, globally. But a look at the US market will show the iPhone’s rise in share. And as the emerging markets get more mature, and accustom to smartphones, consumer will shift to best of breed, not just good-enough. (Or so the trends currently suggest.)

      • ronin48

        Sorry James, you still don’t understand.

        Asus was an assembler of components and products early on. As you state, Asus learned from Dell and then became a more fully developed Dell competitor. The opposite was true with Samsung-Apple. Samsung was already a huge consumer products company as well as a component assembler and phone designer and manufacturer when Apple was still a just computer company. There’s no basis for saying the Asus-Dell and Samsung-Apple cases are similar. They are, in fact, more reasonably opposites. Your foundational assumption is wrong.

        If you think a high n doesn’t give you “better research” you might need to go back to school and take a basic statistics course. You would then realize that “your time around research” (whatever that means) is essentially irrelevant when trying to determine the value of high n in data analysis and theory evaluation. The value of high n is well known and mathematically proven. You don’t seem to know what you don’t know.

        I didn’t say Apple’s ecosystem was good – although it is. I said that they had one. Android doesn’t. Android is a fragmented mobile OS used by many hardware makers. There’s no Android ecosystem that can be compared to Apple’s multi-device single manufacturer ecosystem. The Apple ecosystem locks people in to Apple not just for phones but for other products and services as well. This simply is not the case with Android. A Samsung phone buyer is not locked in to Samsung for his next phone, his music player, his music software, his computer, his TV, or anything else.

        Android has not “shot past” iOS so quickly. Total Android and iOS devices sold to date are both near 500 million with Android slightly above and Apple slightly below. Android is free to manufacturers and there are many of them. There is only one Apple. Are you now going to ask me why Hyundai, Kia, Toyota, Chrysler, and Ford combined sell more than Porsche? Why not consider how amazing it would be if Porsche could sell roughly as many cars as Hyundai, Kia, Toyota, Chrysler, and Ford combined?

        How does what Steve Jobs read have anything to do with Christensen’s laughable record on analyzing Apple? Steve Jobs also read nonsense like the Fountainhead but that doesn’t change the fact that the Austrian school has largely been proven a failure. And in case it did matter, Isaacson said the book influenced Jobs. He didn’t say or imply that Jobs agreed with all of it. The fact remains that Christensen has been repeatedly and in large ways wrong about Apple.

        Samsung grew quickly mostly by capturing more of the conversion from feature phones to smartphones because Apple has chosen not to compete on the low end. Samsung has not stopped Apple’s iOS growth in phones or overall. But Samsung has grown their Android smartphone share quickly by taking share from non-Apple vendors and, significantly, by cannibalizing their own feature phone sales. If you don’t believe me, ask Horace.

        And, once again, Samsung did not “come from effectively nowhere.” They were designing, making, and marketing phones and consumer electronics before Apple was.

        Finally, consider this: by your reasoning, there should all kinds of Foxconn, Quanta, Zeniya, Intel, Nvidia, Qualcomm tablets and phones that are competing with the iPhone and iPad. Where are they? Toshiba and Panasonic and Sony are also Apple suppliers and more comparable to Samsung in a larger sense. Why aren’t they competing with Apple in phones and tablets?

      • First: Asus started off as a circuit board manufacturer.

        Re stats: I mean seriously. I can’t see any need to take that tone (“I should go back to school and take a statistics class”… thank you). My point is simple: any researcher worth their salt will be able to explain why high n does not equate with good research, and also why very good research can be conducted with an n of 1. I don’t think that is at all controversial. This example was applied within the context of a theory that was published in a book widely considered to be one of the best business books ever published.

        Re ecosystems: You’re playing semantics. Android has an ecosystem. It might not do everything you want, that doesn’t mean it’s not an ecosystem.

        Re shooting past iOS: If Android hasn’t shot past iOS, please let these guys know:

        Re Clay: . I’ve spoken to Clay about the iPhone prediction; he missed it because he doesn’t use these devices and all he saw was a high end cell phone, not a low-end computer. But really, that’s not the point; the point is that the theory has some pretty incredible predictive power, and the guy who created Apple seemed to agree.

        Re this: “Samsung grew quickly mostly by capturing more of the conversion from feature phones to smartphones…” Given the fact that the market is still expanding to people who haven’t yet purchased a smartphone, I think that’s bordering on stating the obvious. And as for this: “because Apple has chosen not to compete on the low end”: $99 for an iPhone 4, right?

        Re Samsung — they did come out of nowhere. Nobody in 2009 would have predicted this would be the way the market was divided up; and probably very few in 2010, too. If selling feature phones was good preparation for selling smartphones, we’d see a lot more featurephone companies still around. If anything, it seems to have been a disadvantage.

        Now, your last paragraph IS interesting. Re Sony and Toshiba, being a supplier isn’t a guarantee that you become a competitor, just as all the suppliers to Dell et al didn’t become competitors. There’s management, product, etc they have to get right, and clearly, the ones that tried in this bunch didn’t.

        Why haven’t Foxconn and Hon Hai become competitors: that is a great question. I’d argue that all that’s stopping them: intent. That’s the one big thing that differentiates Samsung from these guys. Samsung got sick of looking up the value chain, seeing what was happening and having to bid for supply work. The others are content to stay there.

        Finally, can I just state, just like everyone else here, we’re taking to discuss this in a way to better understand what’s going on. There’s no need to take a snarky tone. I’m not sure any of us have any monopoly on insight or the truth. A big part of what’s wonderful about Horace’s site is both the quality and the tone of the comments.

        — james

      • ronin48

        I apologize for the tone. But my point was correct about statistics. I sincerely feel you would benefit by studying the basics.

        “Clay” missed more than iPhone numbers. His larger predictions based on his theories failed and failed badly. See the links I posted. And by the way, explaining his iPhone sales miss as being caused by not being familiar with the iPhone is even more damning. Who would be ignorant and arrogant enough to make predictions about a company or product without even knowing about the company or product? He doesn’t even see that his excuse reveals how flawed his methods are.

        Androids’ ecosystem is is an entirely different model and does not have the “lock-in” effect that Apple’s does.

        My statements about iOS and Android devices sold is correct. A significant amount of Samsung’s android growth was from Samsung feature phone cannibalization and non-Apple feature phone conversion. iOS growth is continuing at a rapid pace as the total market expands.

        Once again, Samsung did not come out of nowhere. They were making all sorts of consumer electronics, including phones, before Apple was.

        You can’t possibly know the “intent” of all of Apple’s suppliers and then further state emphatically that only Samsung had the “intent” to make smartphones. Such reasoning lacks logic and is as wrong as it is arrogant. Do you really think intent is the only barrier to Samsung-like success? The fact is there are scores of Apple suppliers that have not done what Samsung has done and intent is not the sole differentiator. You could say Samsung is an outlier. n=1

        And again, sorry for the tone but I really feel you are not honestly considering how flawed your post is. Part of being honest here is being open to constructive criticism. Please speak to Horace about your post if you aren’t willing to consider the points others have made here.

      • Your failure continues to be that you’re acting as if a learning experience has to be based on statistically significant abstract research. If I see someone walk through a doorway and get shot, I don’t need to watch a large number of others walk through that doorway and each get shot before I can decide it is a dangerous doorway to walk through.

        We’re not trying to calculate the probability of Apple being Dell, we’re trying to learn from their mistakes. That is not a statistical endeavor. Your complaints are completely valid mathematically, but also completely meaningless to the discussion because nobody is making an argument based on statistical probability.

      • ronin48

        Are all doorways dangerous?

      • Door Fear


      • mitch jogan

        i think allworth is right and he has been receptive to a number of the comments/feedback below. on the other hand, if anything, it’s only you that has been close minded. your disingenious response to just another it guy only goes to show it — of everyone here, you’re the one not open to feedback.

        out of interest, you strike me as someone who has a material interest in not have apple criticized. how much stock you holding in them?

      • Terri MacMillan

        I think truly constructive criticism takes tone into consideration: you sound a lot more arrogant than James does, and as a long-time lurker here, I don’t think you’re honestly looking to ‘educate’, but simply to argue. certainly not a convincing approach to me, but others MMV.

      • ronin48

        P.S. Please ask Horace why a free iPhone 3GS or a $99 iPhone 4 is not a low end phone. The price to the end user is not the price to the buyer which is usually the carrier with Apple. It’s important that you understand this. It a very basic concept.

      • raycote

        “any researcher worth their salt will be able to explain why high n does not equate with good research

        They will also point out that all other things being equal it does!

        Fair enough for exploratory inductive-thought-experiments about underlying mechanisms your sort of struck with a low n.

      • IDC is not, or has it ever been, a particularly reliable peg for actual marketshare. Citing IDC numbers should be one of many datapoints used to demonstrate functional marketshare. Browser usage statistics suggest that iOS’s functional marketshare is far higher than IDC’s numbers indicate, and the majority of Google’s revenue is actually generated from iOS as well.

        Since the addressable markets for Android and iOS are growing, it also doesn’t indicate that Apple is being undercut by Android; rather, both platforms are seeing success for different reasons, and in different ways. Arguably, since Google built Android to pipe its services to consumers, and browser usage and Google service usage are both higher on iOS, then Android isn’t nearly as successful a platform as IDC numbers would have you believe.

      • Davel

        I think this is the salient point

        “Why haven’t Foxconn and Hon Hai become competitors: that is a great question. I’d argue that all that’s stopping them: intent. That’s the one big thing that differentiates Samsung from these guys. Samsung got sick of looking up the value chain, seeing what was happening and having to bid for supply work. The others are content to stay there.”

        I wonder why Samsung and not others have been successful at making money. It could just be that Samsung made better choices in features while others were blind and chose the wrong features to emphasize.

      • alexrmurf

        That’s because Google’s ecosystem lies in it’s first-class services, not media or apps (although it’s Play store has grown tremendously). They don’t care which OS you use.

      • ronin48

        Good. So we agree that the ecosystems are qualitatively different.

        By the way, please explain what services Android provides that are “first-class.”

      • raycote

        Correct me if I’m wrong but I was under the impression that a lot of the low end Android devices don’t even participate in Google’s first-class-services ecosystem.

      • volubilis

        “Steve Jobs also read nonsense like the Fountainhead but that doesn’t change the fact that the Austrian school has largely been proven a failure.”
        What an abysmally ignorant and incredibly arrogant statement!!!

        Would you care to elaborate?

      • ronin48

        .Res ipsa loquitur.

      • …because Toshiba, Panasonic and Sony.. has .. what’s the word…oh yeah, “ETHICS”. .. and to a certain extent pride.

      • 1-) Apple could not compete in the low end. Motorola, Nokia and Samsung have subsidiaries(You know, real buildings, offices and plants) all over the world. And Nokia is the living proof that you compete with the Asians on price.

        Motorola and Samsung specifically creates low end phones to sell in the emerging world. Apple could never do that.

        2-) The greatest risk to Apple is that Android allows ANY Asian manufacturer to directly compete with Apple. Huawei and ZTE could become large competitors in this market, I´m sure that they will.

      • You forget the iPod and iPad. In combination Apple will sell 90 to 95 million devices this quarter. In the fourth quarter of last year Nokia sold 93.9 million phones. Also note that Apple has its own retail stores in many countries. You can review the list of stores here:

      • “if their ecosystem is as good as what you say it is, why has Android shot past it so quickly in terms of market share?” – James Allworth

        This is a disingenuous statement. The superiority of one does not infer the inferiority of the other and vice versa.

        I think it’s safe to state that Samsung already had the manufacturing prowess to be a threat to Apple, what it didn’t have was the KNOWLEDGE. Samsung LEARNED how to make great phones in its relationship with Apple. It learned about process, design, packaging, a lot of the CUSTOMER EXPERIENCE things at which Apple excels. In the process of imitating Apple, Samsung began to understand many of the intangible factors that make Apple such a unique and powerful brand. If Samsung doesn’t learn those things, no amount of supply chain prowess or vertical integration helps it swamp the market. Bottom line, the QUALITY of Samsung’s phones has improved greatly as a result of its alliance with Apple.

        So in the end, it was indeed DESIGN that gave Samsung the edge it needed. It already had scale, what it didn’t have was knowledge of what makes a smartphone a great smartphone and a brand a great brand. It learned all of that from Apple. It is because of Samsung’s scale that it is easy to believe that great design has been commoditized. However, Samsung continues to improve the design of its flagship Galaxy series, to the point that it could credibly make the iPhone look archaic in comparison in its newest commercials.

        To sum it up, Samsung already owned the howitzer and Apple provided it the shells.

      • Pete

        Makes sense. It would seem unlikely that Samsung was privy to and present at or involved at all in all the work Apple did with Corning, Foxconn, etc.

        What Samsung did was to copy more blatantly than any other company.

        Supplying processor and RAM would hardly result in Samsung making phones that look like and packaged just like phones but with a different logo.

      • “In the process of imitating Apple, Samsung began to understand many of the intangible factors that make Apple such a unique and powerful brand.”

        So, yes, I acknowledged that Samsung copied Apple. What I was trying to make clear is that Samsung copied all the RIGHT things, from which it could only learn from Apple. And it couldn’t have only been manufacturing processes. Samsung had to understand WHY Apple products were so successful. The key is their design and user experience, which includes EVERYTHING with which the user interacts. No amount of manufacturing prowess can duplicate that.

      • Davel

        I believe you are right. No other company is making money while all have access to a good os , touch screen, processor and gpu.

      • News today : Samsung will start supplying Nike with rubber soles with Air-foam technology..(after 6 months) News Flash : Samsung will enter the athletics-sportswear market with it’s flagship shoe: the Samsung Wind!

      • LOL, seems absurd … until Samsung actually does it 🙂

      • Walt French

        Bravo for defending your points. But Sammy has been a big factor in feature phones for many years; their “sudden” rise is mostly a shift of their featurephone business into smartphones.

        From a November, 2009 TechWorld.Com article:

        Samsung Electronics is on track to beat its 2009 sales target of 200 million mobile phones, and touchscreen handsets will account for one of every five mobile phones it sells this year, the company said.

        This report is from a few months before Android’s “Froyo” version, the first version IMHO that was in the same league as the iOS of its time. Obviously the company saw the opportunity for mass handset sales, and invested heavily in it, many years ago, likely well before Apple’s touchscreen innovation was publicized.

        Samsung had huge manufacturing volume, huge ambitions, plenty of capital, a strong distribution network, and, starting in 2010, an essentially free, pretty darn good OS. I support Apple’s line that Samsung *also* copied the design ethic and several attractive UI features and I don’t disagree with your point that Samsung’s close workings with Apple gave them a leg up in seeing how to go.

        But think those are a relatively minor part of its dominance today. Occam’s Razor requires us to see this as smart, aggressive business (almost business as usual), by a firm that successfully avoided disruption.

    • AnalogyMan

      While you make some good points, your condemnation of his argument based on statistics and an “n” of one does not make sense. He is making an argument based on an analogous situation, not statistics. Analogy does not rely on statistics. If you think there are areas in which the analogy fils, list those.

      • ronin48

        Please read what I wrote. I detail how the analogy fails in many ways for many reasons even if you chose to ignore statistical significance.

      • Joe_Winfield_IL

        Yet you return to the statistical argument multiple times in your back and forth. You made several valid points that should have opened up the discussion, but your combative tone and refusal to budge an inch make you difficult to engage. I sometimes get dragged into debates myself, and my wife steps in and reminds me that everything isn’t a competition.

      • ronin48

        As I said, please read what I wrote. I detail how the analogy fails in many ways for many reasons even if you chose to ignore statistical significance.

      • Joe_Winfield_IL

        Please re-read what I wrote. I didn’t say you we’re wrong; I said that you were combative and unable to concede even a minor point in service to your broader argument.

        The fact that you replied to my comment by defending your initial argument only confirms my point. You’re hell-bent on winning the debate, and ignoring civility along the way.

      • JFullerman

        I suspect ronin48 may have an autistic lack of social competence, at least when Internet forums are involved.

      • ronin48

        Ad hominem attacks – especially incorrect ones – have no bearing on the truth.

        Put another way, there’s no debate and no lack of civility and certainly no competition to win here. But there are facts and objective data that can’t be ignored if one seeks to find the truth and test theories.

    • mccldwll

      Yep. Years ago, an acquaintenance, who is now a well known academic in the soft sciences, had a theory and was well on his way to publication of a “breakthrough” academic paper thereon. However, the results of various surveys, etc., hadn’t been fully compiled and analyzed and when that finally was completed, the results didn’t support the conclusion he had already formed and which he rapidly was approaching in his writing. Oops. Nevertheless, the paper was completed with only minor tweaks and somehow the results, when “reevaluated”, now supported the conclusion. I feel that the same thing has happened here.

    • It’s not an N of 1. Samsung has done this before.

      Once upon a time, Samsung was a key supplier to Sony (e.g., LCD panels), and eventually formed a JV with them. This article ( investigates some of the reasons for Sony’s dramatic decline:

      “When the investor pointed out that Sony’s operating profits on electronic products were roughly 2-4% and that Samsung was making similar products at a 30% profit margin, [CEO] Idei hushed him by saying, “They make the parts for our products. We put them together. It’s the difference between a steel maker and an automobile maker. We make the automobiles.”

      The investor countered, “Well, I’ve got news for you—the people you laid off from the car plant are now working at the steel mill, and soon the steel mills will be building cars with your technology.”

      Samsung subsequently launched its own lower-cost HDTVs and long ago dethroned Sony as the market leader.

      So they themselves have done before exactly what James posits. More here:

      • ronin48

        n = 2? Still not significant.

      • joaohornburg

        go away troll

    • qocn

      I go with you!

      In 1999, Samsung secured the number one position in the worldwide CDMA market where it accounted for more than 50% of market share.

      Samsung’s high-end positioning, along with its quality product, helped raise the prestige of Samsung’s mobile phones to that of a luxury good.

      In Europe, for example, Samsung dominates the high-end market.
      Many were calling its mobile phones as “the best gift for Christmas”1 or “the Mercedes of mobile phones.”2(* 1 A German magazine, “Connect” 2 A Norwegian newspaper, “Aftenposten” as of 2003)

      In 2003, the company firmly held the number three rank in terms of unit sales and number two in terms of revenues. *(The first iPhone was released on June 29, 2007)

      • Walt French

        Heh, how we forget: my first cellphone in 1999 — CDMA on Sprint — was a Samsung.

    • Davel

      You make a good point

      Samsung is a large electronics company. In the trial Apple showed how the fabrication side of the company showed the design side how to make a better mousetrap. The fabrication side already had the components, they just needed he design.

      So the question is did Apple teach Samsung? The answer is yes. Apple taught the industry that they can take all the profits with a minority share. Samsung simply copied Apple and provided a substitute good and grabbed a share of the profits. As Horace has pointed out Samsungs other business has been losing money.

  • DrewBear2

    “…design actually generates much less sustained strategic advantage in any
    one product category, once performance in that category becomes “good

    Apple has never been in the business of creating “good enough” products. That is why their computer division continues to grow in profitability while the rest of the industry is hanging on by ultra-thin margins. Apple HAS sustained a strategic advantage in the “commoditized” PC business.

    How? By creating a Mac user experience (a combination of OS, software & services) that is still appealing to consumers despite the punditry declaiming that WinTel computers are “good enough”. It’s clear that consumers are willing to pay for something better.

    This is also true for iOS devices. Despite the hardware being “good enough” (very debatable for 80% of the competing devices), the overall user experience on an iPhone or iPad is still significantly better than on competing devices. The tech savvy may dispute this, but a large majority of consumers are not tech savvy.

    Apple has and will continue to succeed by serving the needs of people willing to pay a premium for the best products. There will always be competing high-end products, but I wouldn’t bet against Apple losing their dominance and profitability anytime soon.

  • “The lawsuits have simply been a convenient way to attempt to quash a threat that is of Apple’s own making”

    I appreciate how deeply you think about this, and you’re right for the most part. But saying that the reason for the lawsuit is an “excuse” is crossing the line. People at Apple genuinely believe they have the moral authority to sue Samsung for going against them while also copying them. It’s not an excuse. It’s how people think there.

    Now, why Samsung? Because they’re the only credible and profitable Android OEM. Why is that so? You’re right there, Apple created this problem.

    However I think it’s insulting to frame all this as if the reasoning behind the lawsuit is just a PR spin for the public.

    • I’ve come to view the Samsung lawsuit as signal from Apple. They let everyone know what the “grim trigger” is for this game.

      • That’s certainly a correct interpretation. The signal to Apple’s other competitors and partners is certainly something on Apple’s mind (as seen by Apple’s press release about “values” on their legal win in USA).

        It’s certainly way, way cheaper to set an example and warn everyone else rather than actually get entangled in tens of high profile lawsuit like with Samsung. You can tell top execs at Apple are tired like hell from this lawsuit. It’s slow and it’s a mess.

      • Guest

        That’s funny… notice the “reply to null” in my parent post. Did Horace actually erase my thread? I didn’t insult anybody, that’s an awkward way to censor…?

      • Disqus has done that a couple times with me. Do you always log in with the same identity?

    • KirkBurgess

      I agree, if someone robs your house you are going to want to see that person prosecuted, regardless of whether or not you are “desperate”. Litigation is also part of protecting your patents. If you don’t sue, then other company’s are also going to copy.

  • what if

    Let’s not forget Samsung is outspending Apple in advertising. Isaacson points out in his book how determined Steve Jobs was to market the iPod. “We outspent everybody by a factor of about a hundred.” They should use their deep pockets to battle Samsung in that front too.

    • KirkBurgess

      This leads to a valid question actually: Why has apple not spent more on advertising? Particularly in the past 2 quarters when unit shipments could have been bolstered by more advertising?

      • what if

        Exactly. I read Horace’s posts on Samsung’s ad spending and saw how everyone reacted to he 20 billion figure. I reacted the same way as to why Apple isn’t spending the same amount. This is not 2007 anymore, and as the article points out, Apple’s competitive advantages have been copied/matched by the competition. They’ve been aggressive with design, ecosystem and supply chain management, time to invest those advertising dollars.

      • tigason

        Why spend millions on advertising, when the product is already selling well and cannot be made fast enough anyway to meet the expected increase of demand that the advertising would bring?

      • what if

        Mindshare. Do you think all of those Samsung smartphones got sold to people that couldn’t get/wouldn’t wait for an iPhone? Samsung is playing an interesting strategy across all media, not just TV, where Apple’s presence is bigger.

      • DrewBear2

        Apple already dominates mindshare.

      • In the USA & Canada, yes. But go to Europe & Asia, Samsung is a very powerful brand.

      • True. Also: droids have gotten “good enough” for the kind of customer that doesn’t WANT to update their phone OS.
        Previous generations of droids were really not good enough for the non tech customer. Now they are. I’d say mount Good Enough was conquered mid 2012.

        I still wouldn’t want one, I value my time, so I prefer my Apples over Windows and Android. But in al honesty, today I’d be able to buy a droid smartphone that wouldn’t drive me nuts all the time.
        Still, I’d rather Apple spend their money on R&D for the next ‘boom, just like that’ 🙂

      • Tvaddic

        Someone could make a case to say some of the customers of the Galaxy S3, where people who saw Samsung’s customers for a cool product, and weren’t able to get an iPhone 5 because of supply. If they saw some of the iPhone’s features in an ad, the customer could have been more likely to wait.

      • PlateIsFull

        Well,given that demand outstrips supply, there may be no point in spending to increase demand.

    • Walt French

      Nice catch.

      Let me guess that since Samsung is a couple hundred billion dollar operation, they can afford to pay an analyst or two to chase down exactly EVERYTHING written by competitors and B-school profs, too. Maybe Samsung did just that, and decided to leverage the insight.

  • Great article, James. I’ve been looking forward to this followup since ep. 56.

    “Is it already too late?” is a very tough question.

    Just trying to frame a plausible answer leads to more questions. Its incredibly tempting to just dive right into game theory. But Horace is right, its impractical.

    Even more frustrating is that disruption theory is not a very clean fit to older (maybe ossified) economic models.

  • Call it “conspiracy theory” if you will…

    But any time I see a landscape dominated by two large players there are possibilities that more is in play than the obvious: enemies?

    Apparently, one of the reasons that Microsoft invested $150 million in Apple (in the 90s) was to assure some competition and avoid monopoly litigation.

    What would the smart phone and tablet markets look like today if there were no Android (Google) and Samsung?


    There are enemies — and then there are frenemies!

    • No need to resort to collusion or worry about antitrust. We’re not talking about a purely competitive market. Smartphones look like a differentiated oligopoly/duopoly to me.

      Samsung and Apple won the war, now they are dancing.

      • Thanks for the links.

        Much better explanation than mine…

        Makes me wonder if a dancing partner is really a “threat” — if held close (engaging in the activity).

        Either could go off and dance with others… or, together, they could collaborate of a new dance routine!

      • A more useful metaphor: semi-cooperative trick-taking card games, particularly those that use contracts. Bridge, Spades, Euchre, etc.

      • “I agree that to unseat Apple’s ecosystem, it takes an ecosystem of one’s own, and Samsung is clearly lacking in that regard.”

        Don’t agree. The war is just beginning. It’s far from over. Google’s Android is innovating very rapidly and MS is just starting to get its mojo back. BB10 holds a ton of potential so long as RIM executes as planned.

      • The quote regarding ecosystems seems like a non-sequiter or a typo – who made the statement about unseating Apple?

        Regarding the state of the war, maybe you see something I don’t. Apple and Samsung have gobbled up all the profit in this market and are poised to continue. Google, MSFT and RIM are at an extraordinary disadvantage.

      • DrewBear2

        Competition never ends. iOS & Android continue to improve, as does MS & RIM. But the latter are way behind in many respects. Palm/WebOS had potential and failed. Do you really believe RIM can execute? Even if they can, will they make headway against the leaders?

      • What is the evidence that Samsung is even fighting the war you cite?

  • stefn

    Most interesting. Here’s a question: Can Samsung really succeed with a new OS forsaking an “app” ecosystem like those Apple and Google own? And that Amazon is shaping up? That’s a 3-5 year effort, yes?, dependent on thousands of developers making independent decisions. Can it be commoditized? I’m guessing, instead, Samsung will buy Google outright. Something Horace has hinted at.

    • I suspect part of the answer to this is in Horace’s “jobs to be done” line — the app ecosystem may not be critically necessary if Samsung supplies built-in apps with 90+% coverage of functions that people want their phones to do.

      iPhone users seem to hire their phones as general computing platforms and internet access devices. But perhaps the general computing platform aspect isn’t necessary for most users — then the app ecosystem may be more of an anomaly like code development tools or graphic arts tools are in the desktop market. A device that performs the core functions that most of the market wants may indeed be “good enough”. I do think a really good web browser experience will be crucial, though.

      So yes, I think by taking a page from Apple’s playbook and focusing on a doing a few key functions well, Samsung could manage with their own OS. It wouldn’t have the breadth of applications iOS does, but that might be okay with most users.

      • I wonder…

        To many (myself included and especially my grandkids) — any mobile phone is a tether — putting us at the beck and call of others.

        The smart phone is an enabler — providing access to the world when and how we want it.

        Put another way: Before the iPhone, I carried a cell phone only when I absolutely had to. Since the iPhone, I carry the cell phone because I want to.

        It is unclear to me that Apple or Samsung is prescient enough to design a mobile OS and a few apps that will satisfy a majority of users for the useful life of the device.

        You only need look at the offerings of 3rd-party developers with apps like: Proloquo2go, Square, Star Walk (to name a few) — to see the added value of a flexible, expandable ecosystem.

      • Personally, I’d agree. But I’m not a typical user. And it appears a lot of people are buying low-end Android “smartphones” and not doing much more with them than they did with feature phones. It may be that, for many customers, especially those in areas of the world where Internet access is less ubiquitous, a smartphone with good basic programs and a good web browser *might* be enough. And the higher-end phones would still be there for people who wanted more.

        But I’m partly looking at the adoption of the iPad vs. the PC here, and it does look like there is a case to be made that a lot of users don’t need the full power of a desktop or laptop most of the time. I’m wondering if the same thing might apply here. Of course, this is partly Google’s thesis in developing the Chromebook — a device where the notion of a “local app” is almost non-existent.

      • “And it appears a lot of people are buying low-end Android “smartphones” and not doing much more with them than they did with feature phones.”

        People buying low-end Android phones, or any low-end phones for that matter, are doing two things – phone calls & text messages. I see this first hand.

      • stefn

        I agree with Dick Applebaum. Independent developers offer huge creativity shifts. And probably rescued the iPhone from oblivion. Let’s not forget that the pool of developers also represents thousands of advocates and enthusiasts. Microsoft’s current situation will prove the case one way or another. Can it succeed in the mobile sector with a minimum of apps?

      • Again, I’d agree — a platform that people can easily build on moves into a huge number of new jobs, many unexpected. The question I have is how many people actually need even one of these jobs? For whom “good enough” web access couldn’t compensate?

        I don’t know the answer, and right now I’d bet that the typical jobs a portable network device will do 10 years from now haven’t all been unearthed yet. But there’s a chance that a device with a broad enough set of basic functions *might* catch hold. Undoubtedly it would have to have a lower price point, since it’s more limited. And I certainly wouldn’t want to buy it.

        But Google is definitely betting that it’s possible to sell such a device with *only one app* — the browser. I really don’t think that will work. But there may be some intermediate point that would. It would probably look in broad outline a lot like the original iPhone (or the Palm OS phone), with only built-in and web apps.

      • Google’s approach isn’t entirely without merit. Over time, I think faster chips and better networking will help close the performance gap between native apps and HTML/JS. I certainly wouldn’t bet against Google’s ability to scale performance on the web.

        But I don’t see anything leading towards sustainable business models for developers, better security, privacy or discoverability.

        Without the constraints of a robust, curated, un-gameable App Store, we’re left with the same search-driven, SEO-distorted, ad-financed business models that we have now. Mining the long tail and monetizing every possible niche is a race to the bottom in terms of product quality.

      • I don’t think the problem with Google’s model is the device performance, though that does factor in right now. And I believe it will *always* factor in with respect to power — there’s an energy cost to running any kind of interpreter (or JIT compiler).

        The real problem with Google’s model is that there are too many places for things to go wrong, and too many potential performance bottlenecks outside the user’s control. This is a perennial problem with thin-client models — the user experience is unpredictable, and that frustrates users. Having the app and its data *on* the device provides predictable performance and a feeling of being in control of things. Of course, not all applications are suited to the local code/local data model, but minimizing the amount of dependence on remote servers and connectivity to them is the way to go, in my experience.

      • Excellent points. There ain’t no such thing as a free lunch, particularly when designing a global computing platform to support 9 billion users.

      • Reminds me of John Siracusa’s dissection of iCloud and various file systems on Hypercritical and in his OS X reviews. There are fundamental differences in culture & philosophy between Apple & Google when it comes to server-side architecture.

      • obarthelemy

        Goodle have given up on the “only browser” pipedream. Even Chrome OS is startign to have significant offline capabilities.

      • I think they always had some notion of “offline”, but my impression was that they thought of it almost entirely as caching, with the notion that the cloud was where all the programs and data *really* lived, though they might keep local images of both all the time in case of going offline (which is not *quite* caching). Have they changed this? Or did I misunderstand their approach?

      • obarthelemy

        – Chrome has persistent local code, and persistent local data, that get synched when you connect. It’s indeed still cache in the sense that Google wants your online copy to be the main one, but on the other hand, it no longer *has* to be.
        – The latest x86 Chrome OS gizmo has a regular HD (320 GB I think). I don’t think most people generate that much data themselves, so we can safely assume Google has finally gotten that people like to have access to their media when off-line.

    • Walt French

      Since Samsung’s devices use pre-built ecosystems, both their own and Google Play, what’s to build? If Samsung customers presently are a good share of Google Play customers, I’d assume most developers would have no trouble in porting their apps over. They might even use it as an opportunity to experiment with revenue model.

      • stefn

        I’m following the author’s scenario, in which Samsung leave Android and moves to another OS or builds one. See article.

    • obarthelemy

      if the “new OS” is an Android fork that keeps compatibility, a “new OS” is a 6 month effort, tops, to setup the store and sign up apps providers.

      • stefn

        Missed my point. And the author’s. Which was Samsung moving to another OS altogether if Android got too expensive.

  • Splashman

    Mr. Allworth’s analysis completely ignores the value of Apple’s walled garden and operating system — two huge aspects of the phone/tablet business which neither Samsung nor any other supplier has the ability to replicate. Right now, only Microsoft and Google have that ability (and it remains to be seen whether they can succeed).

    I truly don’t understand how (or why) he chose not to address those aspects. Perhaps he thinks an Android device used as a feature phone has the same market value as an iOS device? Regardless, the omission makes his analysis literally worthless. I’m surprised Horace approved such a shoddy piece.

    • obarthelemy

      iOS has been replicated at least by Android and Win8, both are at least at par, Android for example has better notifications, widgets, a more consistent UI, better multiasking…

      Android has an optional walled garden too, and MS’s is not optional.

      So I don’t see your point.

  • You and your pseudo scientific approaches are getting on my nerves. Loads of waste of words and not even able to make a point. That’s the Apple advantage that you totally missed. Simple beauty. And btw, are there any better designed products than Apple? No. So it’s still a CA. And execution. You’re not able to execute reasoning, and competitors aren’t able to execute design. Keep it simple.

    • But you have to offer an explanation of what is the cause for “simple beauty”. You can’t assume it’s just magic. Mainly because if it is magic then Apple themselves don’t know how they are doing it and you can’t count on them being able to repeat it.

  • Pingback: How Samsung built their Galaxy on the back of Apple |

  • poke

    No doubt Samsung gained from being Apple’s partner but I don’t buy the commodification of the smartphone market. We’re talking about platforms. Apple can have the dominant platform as long as its platform keeps creating software and services hits. It’s a bit like arguing that Pixar has become commodified because Dreamworks also has the technology to render computer animations.

    • obarthelemy

      I think the “platform” thing is wildly overblown. You”ve got a phone, apps, content, and peripherals. Content is already taken care off, pretty much all platforms have access to any content. Apps are getting there, Android is on par with iOS as a phone, getting there on tablets. Peripherals are marginal to start with, and once you take out the standard USB/bluetooth/NFC peripherals every platform has (except iOS, no USB, crippled BT, no NFC), there’s almost nothing left.

      Most important is the device itself, its screen, its camera, its design.

  • A rather basic observation: Samsung is not an outsourced assembler or manufacturer for Apple. It is a component supplier, and one of many, though an important one.

    Moreover, Samsung was making phones before Apple, and knew perfectly well how to make consumer electronics at scale before Apple came along.

    There is a legitimate concern about what visibility Samsung gets on APple’s thinking from long-term component orders, and whether this is properly run-fenced.

    But the idea that the threat Samsung poses to Apple (if indeed it does pose a threat, which is pretty debatable) is a function of Apple’s outsourcing model really doesn’t stack up: Samsung isn’t part of that.

    • Hey Benedict

      Thanks very much for the response. You are of course correct in stating that Samsung are not an assembler for Apple, and that they also already had a very good understanding of assembly.

      I think perhaps this is an issue with me not being specific enough around my language, or the perspective I’ve taken — for example, Apple is in the business of chip design… but not in the business of manufacturing those chips. They’ve outsourced the manufacture of the chips to Samsung, and despite the fact that they’ve just sued the company and won in the US for $1B, Apple are relying on Samsung to manufacture the chips that go into what is arguably their most important product. And that’s why I said they outsourced to them, but of course, calling them a supplier would also be absolutely fair.

      Appreciate the comment and helping make the post more clear!


      — james

      • raycote

        How can Samsung demonstrate their long term threat to Apple’s consumer device design dominance?

        Disrupt the TV/Computer ecosystem integration market before Apple does.

        Place your bets!

      • Actually, I think Apple’s best bet as an integrated player lies in them moving into a new product category — the TV is a great example. Samsung, on the other hand, as a modular player is actually better positioned to sit back and watch, and once the blueprint for how to build the product is made then modularize it and compete.


        — james

      • raycote

        An integrated TV/Computing platform is going to be very hard to slipstream into the marketplace.

        The complex topography of the incumbent stakeholder’s interests is proving to be very hard to penetrate.

        It will require a sudden disruptive and integrative reconfiguring of multiple legacy industries across multiple legacy product lines in one fell-swoop.

        The first mover that can pull that off will create an avalanche as consumers and industry partners fleeing the insufferable tedium of 1970’s interface torture that is the present state of affairs for most consumers.

        That sudden cross industry/product-catagory disruptively integrational shift will make it much harder for Samsung to fast follow or modularize.

    • I think the only way Samsung truly threatens Apple is to match the quality and usability of Apple’s products but at significantly better price points. If I can get a computer with the amazing fit and finish of the MacBook Air at 80% of the price from Samsung, THEN I would say Apple is in trouble. But “good enough” has been around for awhile now. Based on Allworth’s analysis, HP should be cleaning Apple’s clock. But that obviously isn’t the case.

      In the end, a competitor has to at least match the quality of Apple’s product and THEN produce it at scale enough for it to significantly beat Apple’s pricing. But, as others have pointed out, Samsung must rely on the innovations of others on the software front. That alone is a huge weakness.

  • The argument is more plausible if you replace Samsung with Foxconn, and then say that Foxconn could to to Apple what Asus did to Dell

    • obarthelemy

      do you think the assembly is hard to execute than the parts are to manufacture ?

  • JohnDoey

    I disagree. I don’t think Samsung is a threat to Apple at all.

    Dell and Asus are both being killed dead right now by iPad. Not by Mac — by iPad in the low-end PC market, which is all they have left since the Mac took the hole high-end and almost all the profits.

    A future iPhone nano will kill Samsung’s low-end generic phones. iPhone has already done the Mac-style taking of the whole high-end and all the profits. Feature phone buyers are buying Samsung iPhone clones and then all they know how to do is calls and texts. They will be much happier with a phone built just for them in the same way an iPad is built just for the low-end PC market and a Dell or any Mac clone is not.

    People who say that smartphones will end up like PC’s keep forgetting that Apple won the PC market between 2006–2016. Took the while high-end and then the whole low-end that was left vulnerable because of the games that Dell and Asus and others were playing.

    So Apple has yet to do for the low-end phone market what they already did for low-end PC’s. In January 2010 the low-end PC market looked out of Apple’s reach also. Now, they have the cheapest tablet PC and the best $329 PC.

    • Jake_in_Seoul

      I would like to agree, but what is not being factored into this conversation enough, perhaps, is Samsung’s “business as war” orientation. The company now has decided that Apple is “enemy #1” and is essentially on a war-time footing, demanding (according to press accounts) that senior officials report at 6:30 a.m. each day. Massive money is being spent on PR and it is hard to exaggerate the sheer volume of anti-Apple press spewing forth here in Korea. The press aggregator each day presents 20 or more articles unfavorable to Apple, often ludicrously so, all parroting the current bullet points: “Since Jobs’ death Apple has no innovation”, “Apple is the new Sony”, “Apple resorted to patent litigation because it is declining”, “Apple has nothing to offer in intellectual property beyond pathetic design patents, esp. the rounded corner one”, etc.

      In short a holy war. Given Samsung’s huge financial resources (including a securities company), it would not surprise me at all to learn that they are attacking AAPL in the marketplace as well, although this is only speculation. Every Samsung employee (like all South Korean men) has served in the military for 2+ years and the corporate culture is easily amenable to military-style thinking concerning strategy and tactics. As far as I can tell, no one in the U.S. or Europe adequately appreciates the tenacity, resolve, and military style of Samsung in confronting their presumed corporate enemies. It’s to Korea one looks for samurai businessmen these days, not Japan. Personally I have great faith in Apple’s future, especially in China, where Korean companies such as Samsung face an uphill battle for long-term historical reasons that are unlikely to change quickly. But Samsung remains an organization that should not be underestimated.

  • Mike Stone

    You could run the same argument the other way.

    Apple isn’t a hands-off customer of its suppliers. It’s notorious for going after vendors with an endoscope, mapping out the entire production process out to the penny, then saying, “here’s the razor-thin profit you can keep.”

    In other words, Apple probably knows more about Samsung’s core competencies.. equipment, processes, factory configurations, staffing, supplies and suppliers, things that have worked, things that have failed, things that are coming up on the horizon.. than Samsung knows about Apple’s.

    If Apple wanted to plunk down a few billion dollars building factories and training a workforce, they wouldn’t be starting from scratch. They’d be starting with a very well informed guess of how to go head to head with one of the strongest fabricators in the world. I’m sure there would be a learning curve, but it would be on the order of 2-3 years, not 15-20.

    During that time, Samsung would see a multibillion dollar revenue stream dry up.. funding that would have allowed them to stay ahead of the competition in their own markets.

    Replacing a supplier like Samsung would be difficult and extremely expensive. Replacing a customer like Apple would be impossible.

    • obarthelemy

      And knowing = doing, of course. Also, you do seem to assume Apple know a lot :-p

  • EpicLies

    I think Apple has already read the case study on the mistake Sony made againsts Samsung, Cook even mentioned about Sony in his interview. Samsung is just using their tried and true formulae that have beaten just about any silicon challenger. I think Apple as a company just focuses their efforts on making the best in class products. Of course best is a relative term but for Apple they will go the last mile to truly make things special. They are not focusing on RoA or the next Wall Street analysts. This is one of their differentiation factor. They also care a lot about their customer like no other big corporations out there. One will be hard press to find another Fortune 500 company with the same level of attention. Walk into any Apple store and talk to the sales and feel the vibes from the patrons. You won’t get that from a Samsung store. Eventually you will see this company outlasting all their competitors because of their focus on best in breed products.

    • “You won’t get that from a Samsung store. ”

      That’s assuming you can find one.

      • They have set up some kiosk for the christmas season in some mall. They had plenty of costumer service people, but many not well versed in the products yet….temporary at this point.

    • EpicLies, you address the elephant in the room: the ownership experience. Apple has and will maintain this advantage as a result of its focus on the customer, its narrow product line, its growing network of retail stores, and by virtue of the fact Apple continues to “build the whole widget”.

      We see how powerful the connection is between Apple and its customers is with each misstep (real or over hyped) Apple makes. Customers and the media flip their lids over (Original) iPhone price drops, antennas, a under performing yet self-proclaimed Siri beta, Maps, etc. Android as an OS does not generate the same level of Henny Penny Apple does with its missteps. Samsung doesn’t either regard to their Android handset. Surely these “products” as as imperfect as any of Apple’s.

      The experience of owning an Apple will not grow Apple at the same rate Samsung’s handset business, as we’ve witnessed, but once Apple earns a new customer that consumer stays…because if the ownership experience as much as for Apple’s sex appeal.

      For this reason Samsung current success might in fact be fleeting.

      • obarthelemy

        “but once Apple earns a new customer that consumer stays”. Not true. Plenty of people are switching away, mainly in the search of a bigger screen, or more solid device, or pen input, or lower price.

      • I certainly didn’t mean to imply that Apple retains 100-percent of its customers. But if you look up the last few years of data, including the most recent, you’ll find that Apple’s customer retention rate – like most of its metrics – is astonishing within the industry as a whole.

        2009-2011: “Despite the base of Apple iPhone users more than doubling over three years, the retention rates seen by the company remain unprecedented in the handset industry at c.85% (down from 89% in 2011, and 95% in 2010, given early adopter bias),” said Jenkins and Miluvich.”


        In 2010 the “next nearest competitor, HTC, had a retention rate of 39 and the subject of this article, Samsung? 28%. See my original argument for my take on one the primary reason for this.


        Customers will “save money” and choose Android. They might not know any better and be persuaded by sales reps who get paid to push Andriod and not iPhone. The might believe the overblown stories about how Apple is a “walled garden” (most customers don’t suffer from this, nor do they need to understand what that means, but it does connotation as a consumer).

        But the statistics demonstrate that more than 2-of-3 defect all other manufactures. Again, the opposite is true in the case of Apple’s iPhone, where 9-of-10 _stay_ with Apple…and given Mac sales, iPad and iPod sales, these customers buy more Apple products.

      • Data?

      • Jake_in_Seoul

        You may be interested in a survey of mobile phone users conducted in South Korea in November with n=3696. Fully 68.5% of current iPhone owners indicated they plan to buy another iPhone, while for Galaxy owners only 56.2% intend to purchase another. Instead 32.8% said they plan to buy an IPhone. Of the iPhone owners 23.8% intend to buy a Galaxy phone. In short, even in South Korea, where the anti-Apple media coverage is massive and relentless and Samsung has great after service, iPhone fans remain more loyal and Samsung owners differentially more likely to switch to Apple than the reverse. It’s hard to find data in Korea showing a progressive Samsung triumph.

      • obarthelemy

        68% fidelity is very good indeed, though nowhere near 100%. 56% is not bad either too.

        Intentions are relevant, but actual actions are more important. Again, an iPhone is twice as expensive as a GS3, and Samsung’s Galaxy line covers a very wide range of models, from budget ($100) to premium ($600).

        In a neutral, developed zone (the EU), where both are well marketed,iOS is at 15%, Android at 75+%. There might be some local differences, but I think the US situation is as anomalous as the Korean one.

      • jawbroken

        Where are your EU numbers from and how did you adjust them to take into account carriers where the iOS and Android aren’t similarly available?

      • I have a reply to you waiting for the moderator…but here’s a quick summary.

        I did not mean to suggest that Apple retains all of its customers (I thought that would be implied), but current research demonstrates that Apple’s customers are overwhelmingly “loyal”. Devastatingly so when compared to its competitors:

        According to the study cited, 89% of current iPhone owners said they’d buy another iPhone. That’s 9-of-10. The nearest competitor isn’t even close: only 39% said they’d buy another HTC. Samsung? 28% said they’d buy another Samsung. In other words, only 1-in-3 said they’d stay with the brand featured in this article.

        Retaining 9-out-of-10 iPhone customers not only demonstrates that Apple has a meaningful advantage in the category, but when combined with the fact that Mac sales are _growing_ while PC sales are shrinking suggests that Apple is also winning over new customers for its other products. Now factor in iPad.

        The claim you make that “plenty of people are switching away” is not only wrong, but the facts demonstrate that the trends do not bode well for companies competing against Apple. Apple’s clearly getting many things “right” at the moment.

    • obarthelemy

      “They also care a lot about their customer like no other big corporations out there” Not true. They’ve been caught outright lying about malware: Geniuses were *specifically instrcuted* to deny there was rampant malware on Macs. Customers were told they are “holding it wrong”. They choose to boot Google Maps when thir own offering is not up to par…

      • mccldwll

        There is no “rampant malware” on Macs, but keep trying to spread that false information. As far as Maps, since google wouldn’t support turn by turn navigation for iOS and the entire purpose of the Andrrhoid OS is to support advertising for google, choices had to be made. Other map apps are available for those whose needs are not presently being met by Maps, which actually is a fairly small percentage. Many prefer Maps to google maps.

      • obarthelemy

        it’s not so much about the amount of malware, but about specific instruction to deny it exists:

        I woudln’t call that “caring a lot about their customer like no other big corporations out there”

      • mccldwll

        That’s funny. First, you retract your “rampant malware” allegation. Then, you link to a negative Apple article (one of thousands out of the cottage industry) where the “hit whore” title supports your specious claim, but the article, in fact, states the opposite: “…stopping just short of outright telling their reps to pretend that Mac malware doesn’t exist.” “Stopping just short.” That means Apple DOES NOT instruct anyone to deny malware’s existence. The Apple memo doesn’t come even close to saying what the title caims it says. Apparently, either you read the article and didn’t understand what it said, or understood what it said and now are intentionally misrepresenting the facts. Which is it? And, what other anti-Apple “facts” throughout these comments have you misrepresented?

      • obarthelemy

        1- stating that the important fact is not whether it was rampant or not is not retracting that it was rampant. You don’t get the difference. That’s not important (though that doesn’t mean that there isn’t a difference, heh ?)
        2-If you go to tech support with malware, the tech knows you have malware, and can’t tell you that you have malware, how is that not denying you have malware ?
        3- how on earth can that tech support policy be described as “caring a lot about their customer” ?.

      • mccldwll

        “[H]ow is that not denying you have malware?” It’s not denying you have malware because the memo specifically says not to deny it. Read what the memo (assuming it’s an actual Apple memo, and not a blogger’s creation) actually says and not what a self-described “snarky technophile” says it says. You stated that Apple was “caught outright lying” and “geniuses were ‘specifically instrcuted’ [sic] to deny there was rampant malware on Macs.” That was false. It’s not the Apple geniuses who were caught outright lying.

  • the Ugly Truth

    Remember Sony? Sammy did a great job making better looking and cheaper TV over time. It is using the same model with mobile.

    IMHO, Sammy has already stolen enough from Apple to allow them to leapfrog all the other Droid makers (wonder why Sammy does so well in mobile).

    The question is: Will Cook and his team be able to provide the same consistent meaningful refinements within its ecosystem over time?

    • obarthelemy

      why “stolen” ?

      • the Ugly Truth

        Follow the docs from the trial…

      • obarthelemy

        Which one ? The very flawed US one, that’s yet to be appealed and is based on at least 2 patents the US copyright office is starting invalidation proceedings about ? Or the one Samsung won in their own home country ? Or any of the hundreds that have yet to be fully played out ?

      • the Ugly Truth

        A very flawed US one? very well then….

        Samsung (the company that hails from the country which has the highest plastic surgery per capita) is indeed not slavishly copying at all.

      • the Ugly Truth

        “flawed” US one? unless it is reversed, it is what it is.

  • I think it would be more like : Samsung=Dell, ZTE/Huawei=ASUS, Android=Windows.
    It’s not the ODM issue, but H/W & S/W issue.
    As long as there is an independent OS supplier, disruption will occur in H/W vendor space.
    Samsung is in more danger here.
    ***(Developing OS is very, very hard…)

    • obarthelemy

      It’s not like Samsung already had developed their own mobile OS and named it Bada, or had a smorgasbord of open source OSes to chooses from (Android, WebOS, Firefox OS, Tizen…)

      Oh, wait…

      • Android is only viable OS here… Bada/WebOS/Tizen is supported by nobody … not much developers or customers or Ecosystem….

  • It’s worth mentioning that Dell really added almost no value to the computers it sold beyond the convenience of not assembling them from the same pieces yourself. There was and is no Dell ecosystem, for example. Indeed, in the late 90s, Asus stood out among the Taiwanese vendors of mass-produced licensed components (motherboards and video cards mainly) — people who paid attention tended to prefer Asus components — i know i did. In a sense, Asus was a brand name in a way Dell never has been.

  • “if Google’s operating system gets too expensive to use, there’ll be a switch made to Microsoft” Like if this were easy. Google has been giving a considerable part of its potential OS profits to Samsung in exchange for web service dominance. Microsoft’s business model is another one: profit on the OS, so it’s hard to see how a MS OS can become cheaper than open source.

  • I think it is more like: Samsung=DELL, ZTE/Huawei=ASUS, Android=Windows.

    • obarthelemy

      how so ? does Dell actually manufacture anything ? Especially components ?

      • I meant that ZTE/Huawei will soon have H/W cost advantage over Samsung.
        And since the OS, application and Eco-system is provided Google, S/W does not matter … Google couldn’t care less who would be Android H/W king.

  • tomwest

    Either build the components itself, or buy the companies that do. Given Apple’s cash pile and (relative) lack of expertise in the component-building game, I’d bet on the latter.

  • youclay

    What do you think is the reason for the rise of Samsung over other Android phones? It’s almost a perfect experiment where the operating system is sort of the same but other variables drive Samsung? Was it the design of Samsung phones or TouchWiz?

    • TouchWiz is junk. The stock Android experience on the Google’s Nexus 4 is much better which is why I hope Google gets their act together and capitalizes on the Nexus brand kicks Samsung to the curb.

    • Walt French

      I think that Samsung believed a narrative very much like the one presented here: that success in Smartphones was going to be one of INCREDIBLE scale, and would require rising above the carriers’ preferred “yassuh, boss” response to building devices that met their specs.

      By Horace’s analysis of earlier this week, Samsung has poured $BILLIONS into creating a strong brand, and it risked $BILLIONS of lawsuits in establishing itself as different from your average Android. Oh, plus, they geared up to make many tens of millions of devices so that they had a strong presence with recent designs at EVERY outlet. I would say that each of these components multiplied the success of the others, which has led them to the place they are today.

      Basically, Samsung has had a vision for itself of being not just Korea’s largest company, but the leading name for cellphones in the world; it asked itself what it had to do to get there, and it went ahead with that bold plan.

      • Jake_in_Seoul

        Plus, Samsung apparently learned the mastery of creating the image of success, reality or no. They stopped giving any information on unit sales around 2010 and instead have relied on promoting numbers put out from “independent analysts” (all the usual suspects) who may or may not have a fiduciary relationship with Samsung, and who use undisclosed proprietary methods to make estimates. All the sales numbers, and most of the shipping numbers, the press has reported as fact for Samsung for the past few years lie under a cloud of potential suspicion. Moreover, there seems little doubt in my mind that Samsung PR is able to influence a wide range (the majority?) of tech journalists globally, directly or indirectly. A simple example: search for the Samsung flack phrase “quickly building on its supremacy with sleek designs” and note the 40K+ hits, many deriving from a Reuters story. Note, too, when was the last time you saw an article, any article, on the iPhone in the mainstream media that did not reference Samsung? In South Korea it is almost a constitutional imperative: never mention Apple without reference to Samsung.

      • Apropos:

        Subject: Reaching out on behalf of Samsung

        Hi Horace,

        I saw your recent article in CNN Money | Fortune, and I assume you’ve been following the ongoing developments of the Apple vs. Samsung trial. We are representing Samsung, and would like to have a discussion with you to 1) give you some background on Samsung’s position and 2) hear more about your opinion on the current trial and overall patent landscape. You are clearly well-respected in this area, and so we’d very much appreciate 15-30 minutes of your time for a call. Please let me know if you are open to this and I’ll gladly coordinate a call between you and one of my colleagues.
        Edelman | Washington, D.C.

        via web search: “Edelman is the world’s largest public relations firm, with 65 offices and more than 4500 employees worldwide, as well as affiliates in more than 30 cities.”

      • Jake_in_Seoul

        Whoa! Thanks for posting this. It’s likely the first time anyone has provided an actual example of how the Samsung combine approaches analysts and bloggers.

      • Walt French

        Samsung’s PR efforts are certainly a part of its marketing. But I think they pale in comparison to its massive assault on the market, up-selling its hundreds of millions of feature-phone customers. Really, what they’ve done is merely to put bigger CPUs, RAM/Flash chips, batteries and screens into the typical device that they sell, and load Android onto it.

        No, it’s not really that simple, but yes, it is this straightforward; toss in a few billion dollars of pretty-obvious (even tacky) marketing, a modest design/skinning group, and oh yeah, some good mouthpieces.

      • Jake_in_Seoul

        No disagreement at all about the growth of “smartphones” derived from feature phone subscribers. Here in Korea it’s a common lament among older subscribers, who only want to use their phones to talk, but are being force into buying basic snartphones with pricey data plans.

  • Ittiam

    “And then they said, its all luck”

    This is the last line of a poem about a person who worked hard and toiled a lot to find success. This article fully epitomizes the feeling behind the poem.

    Smartphone / PC makers are not making money… You know why? because of Apple

    Smartphone / PC maker IS making money… You know why? because of Apple

    Its like whatever anybody does in the tech world today, the credit HAS to go to Apple

    If any Samsung engineer is reading this – Kudos to you guys. You have worked hard these years to earn your spot. And its not luck…. nor its Apple

    • Tatil_S

      That is one great straw man right here. I’ve never heard Apple as the reason why PC or smartphone makers are not making money. Android, Intel, MS, yes, but not Apple. PC makers are not making much money, so the half of your latter argument could not have been made by anybody in the last 5 (10?) years. That about leave a quarter of your straw man right off the bat.

      If you’d like to denigrate articles trying to explain Samsung’s success by claiming that it is due to the hard working engineers and not much else, I suppose that is equivalent to saying HTC’s or Nokia’s or RIM’s engineers are not working hard enough.

      • Ittiam

        Isn’t the entire article straw man’s argument!!!

        Since many comments have already countered the article well, I did not bother to repeat… Basically, Apple went to Samsung for majority of components, because Samsung already had the capability to scale (and not the other way round). It might have been that Tim Cook might have learnt a lesson or two from Samsung, which he has utilized to develop alternate vendors.

        Here is another aspect to ponder. If I am not wrong, Samsung has always been a major supplier to Apple. But if one sees Samsung’s profit, it started breaking away only since 2010. What happened in 2010? Lee kun-hee returned to Samsung and created a crisis situation within Samsung. He changed the pace and thinking at Samsung and got Samsung to where it is now. In a way Lee kun-hee come back story is similar to that of Steve Jobs.

        I am far more inclined to believe cultural change brought in by Lee kun-hee is responsible for Samsung’s success, than Apple teaching them few manufacturing tricks.

        And regarding HTC / Nokia / RIM point… I think you are purposefully making the point for the sake of making… Ofcourse engineers at those companies are working hard, but the companies lack strategic direction, without which no amount of hard work will bear fruit.

  • Pingback: How Samsung built their Galaxy on the back of Apple | The Bob Clark()

  • “But there’s also no denying that Apple has begun to rely extensively on a network of suppliers across Asia.” I’m going to deny this. Since day one of the iPhone this has been the case. It happened a decade ago with the iPod. What’s happening now, is Apple has taken control of much of the network of suppliers with a mix of investments, multiple sources for difficult to build components, specialized in-house design and strong IP protection.

    Tim is on it.

  • bystander

    Correct me if I’m wrong, but Apple only buys parts from Samsung – Samsung does not assemble for Apple. So what is it exactly that Apple has ‘taught’ them? That they make popular parts? They already know that. The comparison to the Dell-Asus situation does not hold, in that case.

    • jawbroken

      How to scale production, something that gets even more dangerous as Apple moves away from them as a component supplier and they have more capacity available for their own phone business.

    • One big advantage Samsung had over other Android vendors is that they made the main processor chip that controls all iPhone/iPad interfaces/subsystems … they knew everything about the whole product and what is needed to make a good hardware that would sell. (I’ll bet they had some prototype iPhones in their test lab provided by Apple to test the chips……)

    • You have to imagine the time frames required to make product development decisions. Phones and programs and portfolios need to be developed years before they reach the market. As Apple was placing orders for hundreds of millions of iPhone components with Samsung the market potential was being signaled. This unmistakeable signal in 2008 to 2010 would have indicated clearly where the puck was going to be in 2012. It’s an actionable signal giving confidence if not certainty of where to apply resources. Note that this signal seems to have been missed by Nokia.

      • ronin48

        The business intelligence was available to others besides Samsung.

      • It’s one thing to listen to analysts and another thing altogether to listen to your orders.

      • ronin48

        But order data and supply chain data are, in part, what makes up business intelligence. The data Samsung had was neither complete nor exclusive to them.

      • 1john1

        Everyone’s wrong except you, ronin48. Right?

  • I find the refrain “we’ve moved into a world where performance is now “good enough”” miss leading. If we are speaking about making phone calls, then my Razor flip phone was “good enough”. If we are speaking about a hand held mobile computer/communication device then I disagree that Android phones are good enough. They maybe good enough to make phone calls but do not appear to be good enough to use to surf the web. Hoarce has posted that the majority of mobile Internet traffic comes from iOS devices, though the number of Anrdoid devices exceed iOS devices. Obviously not “good enough” as of yet.

    • Mark, thanks. I’d encourage you to listen to the podcast. I think a lot of the users that frequent Asymco are not average users, but they are a majority of the market.

      When performance exceeds what an average user is able to absorb, that’s when modular players are really at their best. Eventually, they keep improving the product to the point where basically nobody is able to absorb the improvement, and then they get disrupted.


      — james

    • ronin48

      Mark. You are correct.

      Allworth has no data to back his assertion that Android phones are good enough. He doesn’t even has a definition of “good enough.” If you can’t define it you can’t measure it and he hasn’t done either.

    • Funny how you seem to draw the line at browser to determine if it is good enough. What about other important services such as Maps (need I say more?), Search (Voice Search vs Siri), etc.?

  • markrogo

    Samsung makes >one< iPhone part as far as we can tell at this point. Apple has moved on from Samsung, costing Samsung billions in business. Yes, Samsung is making huge profits from Galaxy phones, but they lost a significant chunk of business — most likely forever — in order to win that business.

    • obarthelemy

      at least 3 parts: 100% of the SoCs, some the the flash, some of the SDRAM.

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  • Cmauro

    Here is a long-form post just written on the Apple v. Samsung case that discusses in significant detail the implications and impact the case will have on UX Design and Product Design (the core issue in this piece). It also goes into detail on what, exactly, Apple was trying to protect…the answer is surprising when taken from the stand point that Apple’s core asset is the design of its total user experience.

    Charles L Mauro CHFP


    MauroNewMedia, Inc.

    NYC / USA

    • Walt French

      Pro Tip to @Cmauro: especially for readers who come her on an iPhone or iPad, a link such as yours is at best a distraction from what’s generally a very well-reasoned discussion; at worst it’s an invitation to a bogus site with drive-by malware.

      Want readers? State real clearly what you conclude, then provide a link to your reasoning for people who think your argument might be important. Not just “answer is surprising” that’s simply a teaser.

    • DesDizzy

      Excellent article thanx for sharing.

  • Great article, James, and thanks for having him as a guest author, Horace!

    This other article argues that Samsung and other suppliers did the same thing to Sony ten years ago:

    “When the investor pointed out that Sony’s operating profits on electronic products were roughly 2-4% and that Samsung was making similar products at a 30% profit margin, [CEO] Idei hushed him by saying, ‘They make the parts for our products. We put them together. It’s the difference between a steel maker and an automobile maker. We make the automobiles.’

    The investor countered, “Well, I’ve got news for you—the people you laid off from the car plant are now working at the steel mill, and soon the steel mills will be building cars with your technology.”

    The warning was not heeded.”

  • One issue with this post is the assumption that design is limited to GHz, GB and cores. It is not

  • Samsung are a manufacturing powerhouse across a range of products, so they very well know how to scale operations to lower costs.
    Good article.

  • JoTimmJo

    I jumped the iPhone ship almost a month ago. In doing so I immediately realized the iphone is so 2009. My Galaxy S3 right out of the box runs circles around any jail broken iPhone I ever had!

  • ronin48? Would you (if you haven’t already) write a post on how Christensen’s been wrong on Apple? Would love to read it.

  • Tech2nontech

    I’m trying to relate Supply-chain-create- competitor analogy
    to auto industry or pharma industry. I guess these industries don’t fit as they
    are in “innovation evolution” partly because of never good-enough technology or
    government regulations which tech industry lack. Arguably, I understand it’s
    the tech industry’s short half-life of cutting edge technology due to
    competition making hard to keep up the real innovation balancing business and longtime interest. I’m not against of these industries, but we are at the very beginning of manufacturing out-sourcing revolution and I guess everybody learning things enough to build some data points (it’s only what, a decade or two old phenomenon?). It would be too soon to announce a winner or loser unless we have a large database. Nonetheless good article in its own right

    • obarthelemy

      you can’t, because pharma and auto companies not only *design* and *market* their products, as Apple does, but also *make* them, or at least assemble them from parts partly made in-house, which Apple doesn’t.

      It’s as if Porsche had no factories, only a design bureau, stores, and a PR service.

  • So…when we’re talking about about “scale”, do you truly believe that Samsung is “smaller” than Apple? It’s only in the recent 3-4 years where Apple has been valued highly – the premium cellular phone market has been dominated by Samsung the past 20 years. Samsung is a global electronics designer and manufacturer where Apple is limited to computers and cellphones. There in lies Apple’s strength: their resources are all focused on the their one of two products whereas Samsung’s product portfolio is completely diversified.

    Also, Tim Cook seems to be a genius at vendor selection; however, to call “vendor selection” as mastering “operations” is a bit of a stretch. Apple can design their products but will never have the capacity to build them for their own. They started out with a small developer team and they are still a developer team. The matter of fact is, Apple has yet to make a large, innovative hardware footprint in the industry. It doesn’t drive technology; it follows. They have amazing software, and this is again, where Apple excels. Their resources are focused on developing and implementing software – not manufacturing power of scale.

    • obarthelemy

      in the US, “big” or “small” applies to profits, stockmarket value, or sales. Not to number of employees, production capacity, technical know-how…

      • Right because clearly, number of employees, production capacity, technical know-how is irrelevant to profit, equity and sales?

    • capnbob67

      Couldn’t be more wrong. Apple doesn’t have to own assets to massively influence them. Apple has pioneered the manufacturing processes to produce its milled aluminium bodies, have pushed SOC design (somehow integrating vastly better graphics into a chip with better overall power consumption characteristics than competitors), have pushed the retina display industry, battery design. etc. It does all this by investing in and closely directing its vendors. Buying/funding the purchase of the CNC mills, the LCD factories (e.g. IGZO), the battery technology (not just chemistry but arrangement within the device), prepaying for product specifically to enable component makers to make the massive investments required to create innovative manufacturing are all down to Apple. Foxconn, Sharp, LG etc. would not be able to make Apple equipment without Apple developing, proving, paying for the technological advancements. Apple absolutely does drive the underlying technology and also the supply chain that delivers it. Who else produces millions of devices for launch day availability? And before you say Foxconn – they could not do it (nor do they do it for anyone else) without Apple’s resources, planning and design.

      This doesn’t belittle what Samsung does but they don’t seem to be innovating all that much, rather successfully applying brute force to many problems, primarily funded by copying Apple’s vastly more profitable business model (which Samsung never would have achieved without Apple blazing the trail).

    • Premium is hard to pin down. When I was at Nokia I took pride in carrying what I thought were the best phones in the world (and as a competitive analyst I should have known). They were not Samsungs. But, putting aside our prejudices, there is a way markets put a number on “premium” and the creation of value. It’s called operating margin.

  • PorterProtege

    You and Gruber are restating everything that michael porter teaches in competitive advantage and strategy. A distinctive product and distinctive value chain. Apple starts out with a distinctive product then uses the distinctive value chain to deliver that product. But now it is iterating on an increasingly less distinctive product. Time to imagine something new and use that value chain capability to deliver something unique again. Apple needs to do both. Merely shifting operations away will not solve the problem. It is both.

  • Our author proposes an hypothetical explanation in terms of an analogy of proportion. Analogies must be handled with care: it’s all too easy to focus on the similarities while neglecting the dissimilarities. Still, analogies can be very valuable too. So, for an analogy to have explanatory value the similarities must be significant and the dissimilarities must be irrelevant. A conclusion of the discussion is that, perhaps, the proposed analogy is less valuable than its author initially thought. Another conclusion is that, perhaps, the relationship between Sony and Samsung could be more relevant than the relationship between Dell and Asus in order to explain the relationship between Apple and Samsung and might be worth studying. We could ask: Is Samsung trying to do to Apple what it did to Sony? In my opinion Apple should never be compared to Dell, a company which had logistics as its ‘core competency’ and always was poles apart from Apple. Apple is far more difficult to ‘copy’ than Dell. This does not mean that the post is irrelevant and we can safely ignore it. Most of the intelligent people I follow consider it thought provoking though none seems to agree wholeheartedly with it.

    • What Apple claims itself in the numerous lawsuits brought against Samsung is that Samsung copied without

  • Aarf

    Getting ready to throw my Nexus 7 away and also stopped exploring Samsung phones. Why? They don’t have iTunes or anything close to it. Itunes to music lovers is a Gigantic Apple product. And also for users like myself who can’t stand confusing computer products, Nexus 7 as an example, Apple continues to be our savior. And the other companies just DON’T GET THAT. Apple has always understood that. Their products work. Their stores work. Their attitude toward the customer works. It’s the ONLY store in the USA where you are truly welcomed like returning family. And no other company has that attitude.

  • After all, nothing is free and everything comes with price. That is life.

  • In order to be direct threat to Apple, one must have :

    [1] better design team

    [2] better H/W team (including component)

    [3] better OS team

    [4] better S/W team

    [5] better on-line digital media sales team

    [6] better retail sales team

    [7] better logistics team

    [8] better marketing team (in narrow sense)

    [9] better production team

    Only #2, #7, #8, #9 applies to Samsung.

    • ronin48

      Better hardware? Nope. Not even close.
      Better logistics? Are you kidding? No way.
      Better marketing? Well they spend a LOT more if that’s what you mean.
      Better production? Apple isn’t in this race.

      • [1] Samsung is the best semiconductor company … they have the highest yield rate (so the best margin). Their IC chips are the most reliable ones.
        I’m not sure about the mechanical and PCB side though… but they are more rugged in most cases.

        [2] Samsung handles way more items than Apple globally. They have huge distribution centers around the globe. They ship TVs into remote regions in Africa…

        [3] They do spend a lot … but also very effectively to sales guys on the shop floor. That’s why every sales person tries to sell Samsung phones instead of iPhone.

        [4] Apples is in the race… they own most of the manufacturing equipment and oversees the production, with not owning the factory.

      • ronin48

        1. Apple is not a semi company. You can’t compare them in this area. And Intel is better anyway. So is TSMC.

        2. Samsung is bigger in logistics but Apple is better.

        3. Samsung spends far more than Apple on advertising and their return on ad dollars is far lower than Apple’s.

        4. So you want to say Apple is in the manufacturing race? OK. Who makes a better phone in terms of tolerances, technology, fit and finish? It’s not even close.

      • 1. Actually, Apple is a fab-less semi. This is why Apple is dependent on Samsung’s fabulous fab. They can’t find a decent replacement. They are testing TSMC right now, but we’ll have to see if TSMC can handle it. (i.e. Samsung is better H/W (semi) company)

        2. Logistics includes supply operations. Apple is better at delivering end goods, but Samsung is better at procuring various components timely. Apple always has supply problems…

        3. True, but Samsung always has been market share first and kill off competitors… it’s business as usual.

        4. Yes, Apple makes art pieces, but Samsung excels at mass production scaling. They ship more units although profits are lower…

        I guess it’s just a different view point ….

    • Walt French

      I note this post was labeled, “CATEGORIES: Theory

      Several commenters have taken issue with how the theory is applied—factual points. But you seem to be the only one to assert a NEW theory of business, that “[i]n order to be direct threat to Apple, one must have: [1] better design team…[9] better production team”

      So I’m curious where your Rule of 9 originates. Sure looks ad hoc, and actually at odds with the dominant paradigm here, Christensen’s Disruption Theory.

      “Exceptional claims demand extraordinary proof.” Care to amplify?

      • I’m not asserting any theory here really.
        I’m merely stating obvious “necessary conditions” to beat apple in current “large scale competition” market.
        The 9 conditions are general check list used in competitive analysis of product planning stage.

  • LeSavant

    This whole article (and the analogy used) would make sense if it was Foxconn and not Samsung who were challenging Apple with their own product.

    Of course, Samsung learned from the western companies (like Hyundai and Kia did in the auto sector), but it is not specifically because of their relationship with Apple. The Japanese did similar things with the auto industry and consumer electronics decades ago. Through effort, hard work, copying, improving and using your own brains, things do get better over time.

    Right now, on the hardware front, Samsung is no less innovative than Apple (flexible OLEDs, memory, mobile processors…). AND they manufacture their own stuff! That’s a significant advantage.

    That said, in general, I agree that American companies have been quite short-sighted (and downright dumb) in transferring their technology overseas for cheaper manufacturing. Now, even the brands are being acquired by the Asian companies. So the US (and Europe) is really just the marketing face and R&D lab (even that may not last long).

    • orthorim

      I agree that FoxConn would be a much bigger threat – but they have never made mobile phones, unlike Samsung. I am convinced Samsung has gained a quite big time advantage over the competition with the work they were doing for Apple. Even if they didn’t see the finished product, they did enough components so they’d have a pretty good idea. They’re still making Apple’s CPUs, which seems … insane, for lack of a better word. Other competitors have to wait until the product is released, then buy it and take it apart. Samsung knows what’s inside 6 months ahead of time.

      American companies seem to think that western rules of conducting business apply. Well they don’t, not in Asia. NDA contracts with Samsung components are not worth the paper they’re written on.

      • current

        By “make”, you really mean “sold mobile phones directly to consumers under their brand name”. If FoxConn doesn’t make mobile phones, nobody does!
        They have an even more intimate knowledge of Apple’s design and processes (and not just Apple, but also almost every other American H/W business).

        It’s just a matter of what they want their business model to be. When they want to, they can buy a well known brand and push their phones through them.

  • I can’t take this article seriously with all the disagreement in number errors. “Apple have” huh? Apple is a corp, thus is singular. If you author can’t get that right, who cares what else “it” has to say 🙂

    • Accent_Sweden

      The regular contributors to this site take pride in avoiding personal attacks and petty complaints. The discussions are, for the most part, respectful and grounded. Your comment is neither. It is simply ill-informed. In British English, it is perfectly fine to use the plural verb with a corporation. In the interest of maintaining this site’s standards, I won’t go on about your provincialism or lack of tolerance for what you perceive as unforgivable errors, regardless of their complete insignificance to the discussion.


      James is Australian, and in British English, it is generally accepted that collective nouns can take either singular or plural verb forms depending on the context and the metonymic shift that it implies.

    • obarthelemy

      “The police, always come late, in they come at all”. Tracy Chapman song.

      I very precisely remember my (euro-) English teacher teaching me that communal bodies (the police, companies…) are plural, same as ships are feminine, not neutral.

      There are different dialects of English. Before playing pedantic grammar police, you should broaden your horizons.

  • Jesper Mathias Nielsen

    A very appreciable post. It seems to me your argument at its core refers to what is described in academic literature as the learning race between engaged companies. Notably, learning races are two-sided. Yes, it is very possible Apple in its attempt to reap synergy effects by outsourcing work to Samsung has taught Samsung aspects of the Cook side of the equation – and through it dilute some Apple’s operations based competitive advantages. However, on balance it’s important to consider what Apple has learned from the engagement with Samsung? I do not have a concise answer to this, but long term it seems paramount.
    Critically, Apple’s past engagements with Motorola, IBM and Intel suggests the management at Apple has significant experience dealing with the effects of outsourced work and intertwined companies, and in fact emerge better off from all of them.

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  • I have an observation to make. I’m not sure how much time is given to authors to pen their articles, however I imagine, it is not nearly enough time than what they’d like. They need to make decisions about how much research they are going to do and what they’re going to cover. Planning out the content of an article takes some time and I would say that more time often produces a better result. Writing, editing, correcting, proofing and then posting. Then the comments come, and more than often, there will be those commenters who revel in pointing out inaccuracies or want to argue with how certain points of view are arrived at, as well as the premises that they use throughout the article. It is rare however to see the few lines of commenting, actually eclipse the total content of the original post. That is to say, it is easy to read an article and then start pointing out ‘weak points’ – very rarely do the commenters properly do a re-write, which is really what they should do. At least I feel that way. And I will add, I have been a guttersnipe at times, so I’m not pointing fingers at anyone in particular.

    On another tangent, I think that there are some reasonable arguments here. I do believe that Samsung has benefitted tremendously from Apple. I happen to know people who worked for Samsung Mobile in the 00’s in Korea and I very rarely if ever heard anything coming out their mouths that was positive about their approach. Original thinking was definitely not mentioned either.

    Thank you for taking the time to write this article and share it with us.

    • orthorim

      I think Apple has actually fallen for a shameless copier of products – they should have done their research on Samsung it’s not like they decided to do this just now. They’ve always operated this way.
      Giving these people a half year headstart by letting them build your own products – yes that was probably a very bad idea. I mean I am sure there’s contracts where Samsung components isn’t allowed to talk to Samsung mobile about what they’re doing for Apple. But guess what’s going to happen? Samsung ignores patents, they don’t give a shit about those contracts. The approach is, so sue us, it’ll take 10 years in court and by then it’s way too late.

      • Maybe Apple and Google both enabled Samsung on purpose.

        Everyone ignores patents, but Samsung isn’t ignoring the verdict. Galaxy is no longer an iPhone clone, and Samsung just pushed an OS update with new features to Galaxy S3 owners.

        Apple doesn’t have to fail for Samsung to succeed.

    • “What we’ve got here is failure to communicate – some men you just can’t reach…” – Strother Martin as ”The Captain” – Cool Hand Luke

    • Asymco is a black swan. So far commenters have generally avoided the GIFT. I think Horace stated he only has to delete 1/1000 of the comments.

      However, a Daring Fireball link to a controversial opinion is bound to draw a crowd – who do not necessarily share the culture.

    • Asymco does have rules:

      Show work.
      Attribute and cite what is not your work.
      Share data.
      Cite only public information.
      Extraordinary claims require extraordinary evidence.
      Maintain zero tolerance for lack of civility.

  • capnbob67

    I think where the analogy falls down is that Samsung did not primarily benefit from the direct relationship with Apple (being a component supplier), but rather from ruthlessly copying and improving upon the broader elements of Apple’s success model that anyone can see but few had the capability or ambition to replicate.

    Apple proved the following KSFs (in the phone market) which Samsung has leveraged
    1) Creating device branding direct to consumer – create power to use on carriers
    2) Proving there is an OEM-advantaged approach to dealing with carriers
    3) Creating differentiating software/hardware features
    4) Lock in users to your devices/ecosystem
    5) Create & then leverage economies of scale with narrower product lines
    6) Limited & segmented market approaches drive superior profitability
    7) Do all this at scale – ship millions, early and often

    Samsung has succeeded because it copied these but has also “improved” on the Apple model in several ways:

    a) Produce cheaper (but still decent) hardware (e.g. cheap plastic bodies, etc.) – most consumers don’t care and it improves margins under the Apple price umbrella
    b) Attack multiple price points/segments immediately and consistently – low end, mid range as well as direct iPhone competitors from the start to lock in users to brand and ecosystem
    c) Brute force distribution – leverage prior phone relationships to get more devices in more carriers in more countries than Apple (see China, India, etc.) and convert existing Samsung dumphone users. Accept worse terms if necessary
    d) Evolve the model – as they build consumer brand equity etc. move from carrier subservient to dominant strategies. Apple’s model intransigence seems to be what is keeping it off China Mobile and largely out of India.
    e) Attack the market leader – Apple (who can Apple attack? – classic #1 dilemma)
    f) Accept lower net margins – not obsessing over only highest margin business leads to the profitable growth that allows you to improve margins later (economies of scale, market power, changing product mix, etc.)
    g) Spend (much) more to achieve success – carrier subsidies, marketing slush-funds, copying Apple proprietary software (S-Voice etc.) etc. to get ahead of Apple in the core channels

    Samsung is producing smartphones at unprecedented scale, with margins second only to Apple but massively higher than anyone else is achieving, increasing margins as they improve their high to low-end product mix while also supporting their own component businesses. I would suggest that from the incumbents in 2007, only Samsung and Nokia had the wherewithal (assets, capabilities, scale) to take on the evolving Apple juggernaut. Samsung did it and did it well. Nokia obviously lacked the vision or ambition to do so and will probably pay for it with its independence (at least). Apple have shown Samsung the way, left the door open (through their margin focus) and partially funded the early stages of their evolution (with the component profits) but Samsung have executed very strongly and continue to do so.

    I may bleed the Apple rainbow logo, and dislike Samsung’s ethics but I tip my hat to them for the speed, agility, commitment, investment and ultimately the success of their strategy.

  • Oldvillain

    ronin48 hit the nail squarely on the head with:
    “the true advantage Apple has, beyond the durable supply chain advantage and the less-durable design advantage, is the ecosystem. In other words, the software, iOS, Mac OS, iCloud, iTunes, the easy interactions, the halo effect, the curated apps, the stores/Genius Bars, the lack of fragmentation, and more all confer on Apple maybe its most durable advantage of all.”
    This just keeps getting overlooked by journalist, industry pundits and investment analysts, or more likely, very few really understand the magnitude of this crushing advantage.

    • The problem with experts is they just have no taste.

      • SSShu

        Experts aren’t what they used to be.

    • obarthelemy

      Well, the lack of fragmentation is not so obvious. iOS is on, what, 5 different screen sizes by now ? And, contrary to Android, the OS has no built-in way to gracefully handle different screen sizes.

      And the integrated approach cuts both ways: it’s wonderful if you’re full-Apple, it’s a pain if you aren’t. iTune on a PC for example is even worse than iTunes on Mac.

      • We rarely agree, but you are right on these two. Life is full of rough edges and jarring transitions – Apple is not immune.

      • jawbroken

        That’s an absurd statement. It has a lot of built in ways to gracefully handle different screen sizes: from the retina screens mostly only requiring images to be produced at double res and dropped into resources with an @2x suffix to flexible layout systems.

  • eilfurz

    i think apple still got their own software and their strenght in retail & service that givew them a unique position and competitive advantage

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  • Thanks for the post, James!

    Maybe the worst case, for Apple, is Apple renders as playing catch up and, sort of, irrelevant like Microsoft in mobile? Or, Apple will be like Chanel, Hermes in fashion industry?

    Samsung makes quite some money building parts of iPhone. But I wonder how much money they can make with their excess, originally, for Apple’s manufacturing capacity making phones for themselves. Can they sell as much phones as Apple? Are there as many people who wanna buy Samsung’s product as Apple’s?

    What if Samsung become so dominant that it takes over Andriod or build their own mobile OS?

    What is the role of Google between the two? What if Google flavors HTC or LG now?

    It seems like there are more uncertainties on Andriod side than on Apple side.

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    Let me just add two things:
    1. I think you have lack of research in terms of how Samsung became so big.
    Samsung has two main businesses: one in parts for set businesses as you say.
    that may contain Application processors, DRAMs, and displays including Organic light
    emitting display. Two in set business in areas ranging from Consumer electronics and
    Mobile business including smartphones.. etc.
    In terms of revenue and operating profit wise, smartphone is an important but small portion
    of the overall company profits.
    So, sir, you not looking into this is really lack of research to present as a harvard level
    of thesis.
    2. You said “low-margin ODM” or rather “Low-value added ODM”.
    let me just agree, it’s a known fact across the industry that Hardware businesses create a very low margin/profit.
    However, Samsung is Number one in the ‘status level of Intel’ in Parts that require much intelligence and incredible amount of value-added products in such as DRAM, OLED, and Application Processor. In Semiconductor industry which is a big business for Americans, too, do you know what is market share of Texas Instrument?

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  • In my honest opinion, the biggest differentiator that allows Samsung to make incredible profit in this smartphone industry, besides learning & copying the curve, is the elephant in the room: Google’s Android. It’s not so easy to come up with a good OS let alone an ecosystem. Coupled with scale & marketing strategies, Samsung changes their games faster than other OEMs and managed to ride the smartphone boom in time.
    Take a look at an OEM that has failed eventhough with hardware prowess and know-how: Motorola. We can agree that Motorola (in the older days before Google & Android) made really, really good phone. They probably still do. But the OS and UI sucks. So OS is a key differentiator.
    HTC, LG etc all other Droid makers did not copy and wasn’t fast enough to capture eager buyers ready to move from non-consumption/feature phones to smartphones. The thing about Koreans (Samsung especially) is they do things really, really fast. It’s in their culture. I’ve seen them manufactured ships within the shortest time that most engineers would estimate.
    So, in conclusion: they got this Android OS on their hand, seeing the rise of Apple, copied some few features very fast, manufactured several versions of them, adds own features (s-pen, split screen etc), and manufactures some more, and spends a lot on marketing.
    Samsung profit in smartphone business=Android + manufacturing scale + imitating features + adding features + marketing.
    But it’s only good for first-time buyers. Good enough does not cut it. Majority of my family members who have bought Samsung smartphones are all planning to get iPhones.

  • Jake_in_Seoul

    A perspective from Seoul: what is not being factored into this conversation enough, perhaps, is Samsung’s “business as war” orientation. The company now has apparently decided that Apple is “enemy #1” and is essentially on a war-time footing, demanding (according to press accounts) that senior officials report at 6:30 a.m. each day. Massive money is being spent on PR and it is hard to exaggerate the sheer volume of anti-Apple press spewing forth here in Korea. The press aggregator each day presents 20 or more articles unfavorable to Apple, often ludicrously so, all parroting the current bullet points: “Since Jobs’ death Apple has no innovation”, “Apple is the new Sony”, “Apple resorted to patent litigation because it is declining”, “Apple has nothing to offer in intellectual property beyond pathetic design patents, esp. the rounded corner one”, etc.

    In short something of a holy war. Given Samsung’s huge financial resources (including a securities company), it would not surprise me at all to learn that they are attacking AAPL in the marketplace as well, although this is only speculation. Every Samsung employee (like all South Korean men) has served in the military for 2+ years and the corporate culture is easily amenable to military-style thinking concerning strategy and tactics. As far as I can tell, no one in the U.S. or Europe adequately appreciates the tenacity, resolve, and military style of Samsung in confronting their presumed corporate enemies. It’s to Korea one looks for samurai businessmen these days, not Japan. Personally I have great faith in Apple’s future, especially in China, where Korean companies such as Samsung face an uphill battle due to long-term historical associations that are unlikely to change quickly. But Samsung remains an organization that should not be underestimated.

    • PeanutGallery

      So a question I have been meaning to ask is whether Samsung is now an aspirational brand in every market that Apple addresses? Is it the top brand in markets where Apple doesn’t compete yet?

      • Jake_in_Seoul

        Good question. Can’t answer generally, but in South Korea the Galaxy cachet has been mostly trashed by free or nearly free offers. Samsung is trying to keep the Note II prestige high by charging around US$900 + 2-year contract, but cracks are beginning around it. The iPhone 5 (just released last Friday) looks to be another hit in spite of negative press saying it had nothing innovative at all and sneering at the maps app. It is highly aspirational.

        In China, the iPhone is hugely aspirational (to the point people will on occasion sell body parts to get it), Samsung much less so, as while China appreciates South Korea’s quick development and fascinating popular culture, historically they saw themselves as ritual overlords over various Korean kingdoms and generally believe (to Koreans’ universal irritation) this pattern will eventually reassert itself. So: Samsung phones are massively advertised and probably sell all right, but no one is making youku videos about dreaming of buying one, the way they are of the iPhone. [this one is a year or so old, 1.74 million hits, in Chinese, but can be mostly understood without it]

    • Wow. Thank you – this is an important thread to pull and goes back centuries, doesn’t it?

    • KirkBurgess

      This would explain the huge surge in negative apple / positive Samsung stories permeating American “news” networks over the last 6 months.

      It seems Samsung is essentially buying editorial control at some of these networks (cnbc being a prime culprit).

  • Rahul

    Very thought provoking post. Apple needs to get into a different product category, definitely. So James /Horace, do you see Apple succumbing any time in the future to the supplier phenomenon?

    I believe the key lies in how Apple manages to integrate and dis-integrate to capture value and maintain the momentum. Acquisition of a supplier maybe necessary to meet long term needs. I would say referring to Clays’s job-to-be-done theory is also vital in ensuring sustainable competitive advantage.

  • Danny Price

    Great analysis! Remember though that Apple have only announced plans to move some *Mac model* assembly (equating 200 jobs) to the US, not any of it’s iOS devices. Does Samsung supply components for the Mac?

    I think this move is a ‘just in case’ experiment to pre-empt raising wages in Asia as opposed to a long term plan to beat Samsung at their own game. Apple used to manufacture everything themselves and while the world has changed, it’s not changed enough to make that worthwhile in the short or medium term, especially when the US economy rebounds and those 200 workers expect higher wages (or perhaps Apple imported Asians?).

    Also, Samsung lacks Apple’s focus and ability to do one thing well. Samsung are like Sony – they make a huge range of products, only some of which make a return. Apple’s success is as much about corporate culture (“innovation is messy”) as is it’s supply channels.

  • Samsung beware. My unlocked N8000 Android is shipped from Hongkong to me in 6 days. Available through Amazon at $180 for 5″ screen.

  • davedsone

    Note about the HTC ONE series being crushed by Samsung- as soon as HTC announced no removable battery and no micro sd slot, most android fans got off the bus. Samsung was smart enough to include those, and if HTC had listened to nearly any Android enthusiast’s comments about iPhones, they would have known that those things were crucial to the phone’s success.

  • The__Truth__Hurts

    HTC One series being crushed by Samsung had nothing to do with samsung.

    Distribution is what the primary issue: While you could get the Galaxy S II/Galaxy S III on about every carrier out there…. The One X…? Not so much. It also didn’t help that they sealed in a small battery and gave “so-so” amount of storage without a microSD slot.

    Galaxy Series? Great hardware, great battery life, great expansion and on countless of carriers, etc…

    • Jake_in_Seoul

      This author is a well-known astroturfer for Samsung. I do not know for certain if he is pad for the many comment he posts on various boards, but believe he is.

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  • gbyrd

    A thought provoking piece that has prompted plenty of lively debate. My biggest issue, is that I just did not recognise Asus, as the Dell eater thus described.

    This interview with Jerry Shen Asustek President, in 2007, describes where they were and what they wanted to achieve.

    A clear and strong focus on innovation, comes through here. The Dell of 2007 was the king of PC/Laptop logistics. Dell represented the benchmark for good quality affordable commodity products made to order. This was not a model for innovation and a focus on the business market from both HP and Dell, offered an opportunity to more creative competitors, such as Apple, Asus and Samsung to appeal directly to consumers.

  • WinnerMan

    You know what I find the most annoying thing is that everyone think’s samsung just appeared, when they didnt, look at their new line of TV’s they are quite frankly awesome, Samsung are the biggest electronics company in the world and they have been in the mobile phone market for a long long time,”Samsung has been researching and developing mobile telecommunications technology since at least as early as 1991 and invented much of the technology for today‘s smartphones. Indeed, Apple, which sold its first iPhone nearly twenty years after Samsung started developing mobile phone technology, could not have sold a single iPhone without the benefit of Samsung‘s patented technology” Another Quote “Apple‘s utility patents relate to ancillary features that allow users to perform trivial touch screen functions, even though these technologies were developed and in widespread use well before Apple entered the mobile device market in 2007. Samsung does not infringe any of Apple‘s patents and has located dead-on prior art that invalidates them” “Apple also uses patented Samsung technology that it has not paid for. This includes standards-essential technology required for Apple‘s products to interact with products from other manufacturers, and several device features that Samsung developed for use in its products”

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  • jrob

    Thanks for the great article!

    Three additional options for averting the threat, which I would like to hear your opinion on:
    1. Move to another supplier or multiple suppliers. Ensure no one supplier has enough pieces of the puzzle to compete. Is this feasible in the near term?
    2. All the various Android and now Windows phone manufacturers eventually end up competing for non-Apple market share. Over time, with weaker brands and decreasing differentiation, the playing field is actually leveled more among them than between them and Apple, delivering Apple a commanding lead once again. Of all scenarios, I think this one is most critical to Apple’s success. I don’t think they benefit from having one other dominant competitor like Samsung.
    3. If Apple does migrate to other suppliers, and competition from Chinese android manufacturers and Nokia heats up, is it possible this would change Samsung’s profitability or ability to remain as dominant as it has? Can MS/Nokia offer even sweeter deals to carriers than Samsung?

    Also, pure speculation, but wondering if maybe Samsung thought they had Apple by the balls and weren’t worried about losing them as a customer. Also, how many other potential suppliers have such a huge conglomerate behind them which would allow them to absorb the loss of a huge customer like Apple, and also subsidize predatory pricing/marketing, as in the case of Samsung, to outmaneuver competitors with very little real differentiation (like HTC)? I would guess not many or none.

    Hopefully Apple knew what they were doing when they were feeding this beast, and have a plan to tame it before it is too late.

  • Kev

    Samsung/Android is nowhere near ‘good enough’ as you put it. Android has gained massive share only based upon this ridiculous marketing spending. iOS in a winner despite this. As someone put it, Android can only fool most of the people for some of the time.

  • Roman

    399 comments… Unbelievable. Lots of interesting debate here – I spent almost an hour reading. Congrats Horace (and James)!
    …Make that 400…

  • Kev

    or 401. Long live iOS.
    Down with haemorrhoid phones.

  • Much as I’m writing this on my beloved Apple, this analysis seems frankly unfair to Samsung: they haven’t been an outsourced assembly company for several decades now.

    The iPod Nano couldn’t have been built without Samsung flash drives. The core of Samsung’s business isn’t low assembly costs, it’s huge R&D investments, whether you calculate them as % of sales, or as a total.

  • johynnybegood

    But the author need to do more thorough research before he write this crap.!! ie Samsung is not a contractor to Apple that he assumed. There is a big difference between supplier and contractor. Samsung has been making mobile phone since the 1980’s and have gone through millions of designs… but it was only Apple that ‘crack’ the smart phone that comsumers liked.

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  • Zsolt Barczy

    Interesting article. Seeing so many greedy businesses cutting lines and eating each others’ profits is an interesting, colorful zoo to observe. Apple repatriating its operations is a self-explanatory move, just like betting on Asia winning on the long term in everything, not only in technology and innovation. There are much, much deeper moral, philosophical implications here, that is why business analysts are going in circles, seeing only the surface.

    To sum up, Asians are even better at greed than Westerners. The West could only get away with cashing in on its insatiable greed because Asia was asleep. Now that we poked the tigers awake, our panicky moves will only delay our demise.

    The moment anyone understands that consumers are not stupid sheep who just buy anything that you put on a shelf, rather more and more sophisticated, armed-with-Internet-search and open-source-philosophy, and now thanks to the financial crisis also price sensitive rats (see the “good enough” levels being reached ever faster), one can see that relying on Asian markets (and indeed even Apple relies on them) will always benefit Asian designers, Asian manufacturers, for many reasons.

    The beautiful quadrant with the 3 US giants (Apple, Google, MS) on one side tiptoeing each other to the amusement of all the Asian tigers en bloc will be the status quo for some time to come, and the sooner we get used to it, the better. The bottom line: we are not greedy, not mean, not merciless enough, and will never be. We are bad at deception, too. And unless the West wants to admit defeat, we better start copying, too… or at least, learn from those who learn from us.

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  • The way you write this you would think Samsung didn’t exist before Apple. Samsung were a *huge* multi-national before Apple achieved this! They make lots of other electronics apart from phones and have done for decades.

    Also, they have already done what Apple are doing now, bringing manufacturing in-house, so Apple is actually learning from what Samsung did 10 years ago. No doubt Apple will copy Samsung and get their own fab… oh wait 😉

    How you can turn this whole thing on it’s head is testament to the bedazzlement that Apple has on the willing press, ready to be spoon fed this nonsense.

    And to take it one stage further, your collective epiphanies about this microcosm seem to be in ignorance of the fact that this has happened in every market, in every country, since the industrial revolution! This happened Henry Ford!!

    It’s at times like this that I wish history taught in American schools wasn’t so myopic.

    I am not a “fanboi” but an observer, but obviously a more objective one.

    • You must not be aware that the author of the post is Australian and the site is produced in Finland.

      • Well then, wherever he is, it seems like it must be in a bubble. The post makes no sense if you have an awareness of the consumer electronics market over a 20+ years period.

  • ???

    if they were that big of a threat apple would just buy samsung outright. Ever think why they don’t want to?

  • Cool update I found here.

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