Faster Followed

Samsung’s smartphone ascent was breathtaking. From having essentially zero market share in the category in late 2010 to becoming the largest vendor took less than two years. In doing so it grew to become the largest phone vendor, smart or not–a goal which eluded them during the previous decade of effort. Samsung went on to capture not only the lion’s share of unit volumes, they also took almost all the profits in the Android mobile phone market.

And in a market filled with competitors. Literally hundreds of vendors and thousands of products were available at every conceivable price point. Samsung did away with HTC, LG, and Motorola. HTC, the first Android vendor (and first to market with Windows Mobile), Motorola, Google’s launch partner in the US and “Droid” brand partner (and future owner).  Google’s own Nexus products. Samsung Galaxy ruled them all.

Galaxy swamped the Chinese market and the Indian market, the largest in the world. They were so powerful that they were singled out both by Microsoft and Apple for IP royalties.

All within two years or the average life-span of one smartphone.

But something went wrong in 2014. Growth in shipments suddenly stopped. This was not a problem with the overall market, which kept growing. The slowdown did not affect other vendors, especially the up-and-coming Lenovo and Xiaomi and the second and third tier vendors whose names are  known only in the local markets they serve.

The result of this slowdown is shown in the following graphs:

<>Screen Shot 2014-10-30 at 10-30-4.11.19 PM

Note how the wobble in units shipped was foretold by slowing revenues and an even more profound effect in profits. Peak revenues and profit occurred in Q3 2013 while volumes continued to grow until Q1 2014. Even in the last quarter, shipments are at near year-ago levels. Profits however have dropped to 2011 levels.

At the same time, Apple shipments continue to grow as do those of Lenovo, Huawei and Xiaomi. Xiaomi in fact is growing in a trajectory eerily parallel to that of Samsung from 2010. It just hit the same level of volume that Samsung had in Q2 2011. And Samsung had been making phones for decades while Xiaomi is barely two years old.

Having seen a boom/bust rise/fall pattern with other vendors (e.g. Nokia and Blackberry) it should behoove us to ask what are the causes of success and failure in this business. Samsung management suggests that they perceive speed of action, product mix/portfolio choices and hardware experimentation are the keys to their success.

However, competitors which are rising rapidly (at the expense of Samsung) are not acting in the same way. Xiaomi is patterned as a Chinese Apple, offering design, brand, attention to detail and software as differentiation. Lenovo is building on its computing roots and expanding with acquisition. Huawei and ZTE leverage networking business and operator relationships.

The crisper answer to causality may be that the market is bifurcating into an “upper” market where new jobs-to-be-done are being explored with integrated offerings (Apple and Xiaomi) and a “lower” market which is in the throes of low-end disruption. Both are competing with non-consumption though the upper market is service non-consumption and the lower market is feature non-consumption.

Samsung is stuck right in the middle[1] It defines itself on the basis of what exists. It competes only within a defined market and positions itself agains existing products. They claim to be “better” than the competition and make the point loudly with their advertising. However, being better is never a solid foundation. At some point you’ll be either good enough or someone more agile will be faster than you.

At some point the fast follower exposes themselves to being faster followed. Better to find new lands to conquer.

  1. Just like Nokia was. []
  • r.d

    if growth is the objective than obviously Samsung is in trouble.
    But like TV business, Display business, memory business, all of them
    go thru boom and bust cycle.
    Smartphone was exception because Nokia imploded and Samsung was able to take its place. Now it is in Nokia’s position.

    Xiaomi is a China story. It can’t sell outside any country that recognize American Patents Laws. Secret Trade pact that US is pushing basically makes the countries that sign it adopt American Patent and Copyright law.

    Now Google is pushing Android One in India that means Samsung can’t even get the Indian market.

    With Samsung’s ethics it should copy Goldman Sachs. Samsung already owns a country outright. It needs to short Yen, Buy up Aluminum and sell it to Apple.
    There are lots of ugly things that Samsung can learn from American Corporations
    like overthrow a country because banana plantations are nationalized.

    • charly

      Only the US recognize American patents. A lot of them aren’t recognized outside the US as patent worth.

      Samsung also does not own a country, just a quarter of SK

      • Still, they have no Seoul.

      • Sammy

        The EU recognizes EU patents own US, EU, and any other country that files and is awarded EU patents. Nokia (the company without the phones) is going to collect patent fees from anyone that sells in the EU or other countries that Nokia holds patents on telecom tech.

        Xiaomi cannot sell phones in the EU without paying Nokia and several companies that own telecom tech patents in the EU.

        They need a few more years of growth of revenue and profit before the can sell in the EU. Remember Samsung and Moto’s patent demand fees, 2.4% and 2.25% of the total selling price of the phone, not the $12 cellular chip. Now add on Nokia’s and other patent owners demands, and you can see why Xiaomi won’t be coming to the EU or US anytime soon.

      • charly

        If you develop for one market and you can sell it in an another market than the develop cost for the second market are for “free” That is why Xiaomi will enter the EU market.
        You also act like the US-EU-JP markets are that important but they are combined only a third of the world wide smartphone market and soon a market smaller than either China or India

      • Kizedek

        If you are saying that patent license payments in second market and subsequent markets replace the development costs made up by the phones sold in the primary market, one could suppose that is plausible… But it’s unlikely to happen every time, unless the product is a real “hit”.

        You would have to assume that all development and tooling costs, etc. we’re covered by the sales in the primary market. The more models there are, the less likely this is. And the margins on most phones are thin as it is.

        By contrast, Apple may have already recovered all its development costs for the iPhone 6 and 6+ just from the first few days of sales (something I would love to see Horace’s analysis on).

      • charly

        Hit products are more likely to be a success in second markets. You can also skip a bit on “ad” cost. Also the major development cost for a smartphone company is not the phone but the software and that is even true for Android phone companies

        Apple has a very peaky sales profile so i hope so.

      • metric

        “but they are combined only a third of the world wide smartphone market and soon a market smaller than either China or India”

        Pick a metric.

      • charly


      • metric

        To see if your statement is either interesting or true. A “smaller market” can mean many things.

      • charly

        In units. China is rich enough that it probably will be a bigger market in feature price parity money

    • Jacek

      Finaly someone is opening eyes.

  • willo

    Samsung´s growth came from first time buyers. Gimmick does not win customers over, why fall for the same “this and that” marketing spell when you know it´s not gonna work. I think a huge number of people bought into the “Samsung way” only to realize that things could have been a lot better.

    Until Samsung can deliver strong software, it will slowly fade away.

  • stefnagel

    Imagine if Google had not “fast followed” with Android, the engine in Samsung’s car.

  • charly

    Mobile phones are also fashion which plays a big part in the Android market (and a smaller part in the whole phone market). Samsung isn’t hot anymore (most likely because all phones are good)

  • santoscork

    With having only read your email, I jumped right to the charts so I apologize for the somewhat isolated initial comments.

    Is it possible that the Android market is simply becoming saturated? I wonder if a new category is needed to drive momentum back up or is potentially a reflection of Apple have entered an otherwise exclusive large screen domain?

    Further still, is it possible that the phones sold to date represent a mature enough hardware layer that is able to support continued software (OS) updates that ultimately lengthen these product’s usefulness? Perhaps, when Samsung launched into the phone market, the idea of a touch based phone was more of fashion statement than it may be considered today, Apple being the epitome of the segment, Samsung was for the masses due to price. This fashion statement, trend or fad, however you want to position it, may be on the decline and hence we see what is declared in your chart; a reflection of this passing fad, unless it is but one component to the decline. Perhaps the phone market segment as a whole, while not having been fully exhausted yet, is starting to mature and settle to more practical levels.

    In summary it might represent a segment that Samsung has not yet thought of. I know they traditionally throw a lot of stuff on the wall to see what sticks, maybe they’ll take another swing but then again, they are not very good at innovating so depending on what the data really means, it could be somewhat of an uphill battle.

    Please note that I don’t follow Samsung very closely nor own any products so yes, everything I said is mostly conjecture.

  • robdk

    Great article, Horace.

    Makes me Think of your exposé articles of Samsungs ridiculously High marketing expenses (also known as bribery in the West!).

    Samsung bought market share with borrowed money – their own money defered to the future thru finsncial engineering, and the puffed up pack of cards has collapsed later down the line.

    The ghosts have come to roost in Seoul!

  • fivetonsflax

    I was struck by the fact that speed has been their strength, and they attributed their poor results to not enough speed.

    In other words, they aren’t saying they’re playing the wrong game, just that they’re not playing it well enough.

    • Gregg_Thurman

      Samsung’s success can be laid directly at Apple’s feet.

      Apple awakened the world to a new kind of smartphone that did not take an IT degree to properly operate. That ease of use came with the largest screen (3.5″) in the market. Those two things made it possible for the iPhone to do jobs much better than previous smartphone designs. It was the jobs that iPhone could do (better than all others) that caused the paradigm shift in the handset industry.

      Everybody (the adoption herd) wanted one. But Apple didn’t have (and didn’t want) the production capacity to satisfy the paradigm shift ‘tornado’ the iPhone initiated. Samsung jumped in faster than all other competitors to satisfy the demand that Apple couldn’t/wouldn’t. This was demand driven growth (not enough supply of the new paradigm product), fueled by lower prices. It was not driven by doing the jobs the handset was hired to do, better.

      Samsung’s sudden decline was preordained. When the new paradigm demand was satisfied, consumers started making one of two choices: better or cheaper. Samsung was neither.

      On the high end there will be but one victor. Until a new paradigm is introduced that victor will be Apple. But it looks like Apple has already introduced the next paradigm: payments.

      On the low end there will be two or three (maybe four) survivors, and those survivors will be the most efficient in terms of production costs. Their markets will be limited to geographies where functionality beyond making a call is of limited value. It will be driven by price considerations of the low end market AND competitive pressure from other low end producers.

      Apple’s share of the overall market will always be in the minority, but Apple’s share of the high end will dominate all other products combined.

      This is where I would want to play: a market where I can dominate AND protect my pricing power/margins.

      • charly

        LG was the first who sold full touch screen phones, not Apple so claims that Samsung followed Apple and not LG may be incorrect.

      • 程肯

        LOL, the Prada lives! Perhaps you should ask Samsung whom they “followed”.

        My own interpretation of the times was that back in November of 2009, the iPhone launched in South Korea to incredible success. That stunning success galvanized Samsung in a way that Nokia and Blackberry and others were not.

        Back then, no foreign cellphone company had achieved any success in S Korea. When the iPhone sold over 400k in the first month, they essentially doubled the S Korean smartphone market. Recall back then, markets like S Korea and Japan were mostly sophisticated feature phones, not smartphones. I don’t think Samsung had ever seen a competitor come into their home market and achieve instant success like Apple did with the iPhone. If they hadn’t, perhaps, Samsung wouldn’t have followed so fast.

        I vaguely recall that just prior to the S Korea iPhone launch, the Samsung brass announced a change in their product mix for the following year. Up to then, they were 90% WinPhone, 10% Symbian. I think for 2010 they were going to 50% WinPhone and 50% Symbian, or something along those lines. So, the fact that they quickly switched over to Android had to have been galvanized by some catalyzing event. I blame the iPhone S Korean launch.

      • iObserver

        Take a statement, strip away all context, and rewrite history. How many millions of units did any touchscreen phone sell before iPhone?

        What an ignorant remark.

      • Gregg_Thurman

        True enough, but I didn’t say Apple was the first, I said Apple awakened the world. Apple’s iOS enhanced the larger screen in ways important to the consumer. Until the iPhone innovation in mobility meant adding the ability to carry 100 songs on the handset, or adding a baby internet experience.

      • Walt French

        Your point obfuscates what I consider a much more important point: the ability to directly touch objects on the screen is very different from manipulating them through an entire user interface that included several very well-developed functions such as double-tap to zoom to a text frame, rotation, etc.

        Apple had me at the demo of the NYT page — impossibly small to read, but double-tapped on to focus on just a single story in an instant. AFAICT — and I’d been kicking tires on other mobile devices, determining them to be hopelessly clunky — Apple’s was indeed revolutionary in how it coped with our imprecise fingers working on tiny screens.

        Notably, Google was the only firm that successfully copied the user paradigms — not LG. It was a software revolution, depending on a masterful hardware implementation.

      • Davel

        It seems to me Samsung’s demise is the result of Apple introducing a phablet taking away the one defining feature of Samsung that drives profits.

      • charly

        Almost every two-bit Android makes a phablet so why would Apple be special. Don’t you think LG or Lenova etc. are much bigger competitors in the market for Samsung phone buyer?.

      • Kizedek

        Not unless they take millions of preorders every time they launch new 4.7 and 5.5 in models.

      • charly

        They take pre-orders mostly from people who already use a iphone, not a Samsung phone.

        Samsung isn’t losing customers to Apple but to other Android phone makers.

      • Kizedek

        Well, that’s millions more users in China then, because those millions of Chinese “iPhone users” who just upgraded will be passing their relatively new and perfectly serviceable iPhones on.

        As far as ongoing sales goes, I’m pretty sure that Tim Cook and co wouldn’t keep stressing that half of sales are to new buyers, unless half of sales were to new buyers.

      • HR PuffnStuff

        “This is where I would want to play: a market where I can dominate AND protect my pricing power/margins.”

        But you never will be able to play there…sorry. Almost no one plays there. It’s as if Apple zombifies ( many of their customers. It’s an extremely interesting situation.

        You will never have people like you look at your product as both the most luxurious AND a product that both completes and defines who you are. You will never have this because you will never have people like Horace. If god came to Horace and told him he had to change cellphone brands…he’d probably change gods 🙂

        It’s really this devotion to all things Apple I’m studying here. I’m attempting to write a paper on it actually. It’s titled Consumermania. That’s “mania” as in the mental disease. The thing is, I can’t find one tangible reason it exists in this fashion. Then again mania isn’t something rational after all.

        The only thing that even comes close is organized sport teams…but that’s generally a more or a regional phenom…

        More interesting is that many hardcore Apple users show symptoms of mania in other aspects of their lives. Anyway TMI and OT.

        BTW my iPhone 4 shocked the hell outta me while I was charging it. Has that happened to anyone else here?

      • I’d be really interested to read that paper. I generally conclude when people talk about the Cult of Apple etc. that it’s intellectual laziness. We don’t really understand why Apple is successful so we’ll just ascribe it to the religious devotion of their customers.

        How does Apple manage to zombify more and more people? What is it about Apple that gives it this unique (and very lucrative) ability to cause otherwise rational people to blindly devote themselves to their brand? Is this really a more reasonable explanation than that they are just selling products that people like?

        I’m not attempting to refute what you’re saying. It’s just that I’m sceptical. I’d love to read a reasoned examination of this.

        And in terms of your question; nope, not had that with an iPhone, but my old MacBook Pro shocked me quite regularly. Said shocking did nothing to diminish my affection for the thing. Perhaps you’re on to something after all 🙂

      • HR PuffnStuff

        The fun part is if one can study it, and ‘crack the code’ one may be able to duplicate it.

        The thing is, it doesn’t make any sense at all. Apple is less compatible, less feature rich, and not significantly more user friendly than anything else (this can be proven with facts). Yet it’s customers are absolutely ravenous about how much better it is…

        Needless to say the lack of useful input is frustrating… Poking hasn’t helped. There’s a set of mantras Apple users use when poked though.

        Oh and it’s not just me:

        …I didn’t go to the hospital though…it wasn’t that bad. Makes me think twice about giving it to my nephew though.

      • Kizedek

        Did you listen to Horace’s discussion with Ben Barjarin on the Techpinions Podcast, yet?

        Your problem may be that the facts you are using to “prove” that Apple products are “less compatible”, “less feature-rich”, and “not significantly more user-friendly than anything else” are numbers on a spreadsheet, not actual use cases by real people.

        There are numerous case studies proving that Apple products are indeed, for one thing, more user-friendly — certainly if their use by 90-yr old grandmas and toddlers is any indication.

        There are things that can’t be readily measured. Apple has been able to identify these things and bring them into their products. There are a lot of abstracts here that, as Horace notes in the podcast, have been studied for more than 100 years. It’s just difficult for the tech industry, with its preoccupations for facts that are almost exclusively hard numbers and data, to grasp.

        Such abstracts also include taste, quality, value proposition, TCO, jobs-to-be-done, trust, support, customer satisfaction, time management, durability, etc…

        You have taken ALL this, declared you don’t understand ANY of it (or at least failed to recognize it), and decided instead that all Apple customers suffer from a mental illness! What a lazy insult.

        Rather, you appear to be obsessive about particular “facts”, and when you can’t find the sort of “facts” you are looking for to support your preconception, you resort to an unwarranted personal judgement against a whole set of people. Get real. But don’t worry too much, you are in good company — the same obsessive failings you display are contributing to the problems that Samsung is now having, and others who have come and gone have had.

      • charly

        Toddlers or 90 year old granies are unimportant, they are not the people for which computers are made and for which they need to be userfriendly. Apple has no advantage for those for which computers need to be userfriendly.

      • Kizedek

        1) Your last sentence is quite the bold assertion. Clearly, there is an advantage, if millions upon millions of users point to that among their reasons for satisfaction.
        2) your reasoning is flawed. It’s like saying “large type is unimportant because 90-yr old grannies are blind and toddlers can’t read; but the rest of us are fine with small type, thank you very much.”

        Given the number of dumb support questions in the world, even among people who have to use a computer every day, there is something to be said for having intuitive elements that even a 90-yr old granny or a toddler can grok; things that become second nature to many of us on a tech forum.

      • charly

        If i pay more money i expect better result even if i have to fool myself. I think that is the case with Apple users.

        Being easy for newbies is a useless metric if the market consist almost completely out of intermediate users. For those users you should be easy for intermediate users and Windows 7 is that much more than MacOSX

      • Mark Zimmerman

        Broadly the reason Apple wins on customer satisfaction and customer loyalty is that (on average for most users) they make it easier to climb this curve

      • Being needlessly complex is an element of very poor design. People think they get more if they have tons of switches, nobs, lights and buttons. I think that is the case with Android users.

      • charly

        Being not complex enough is also an element of poor design

      • Walt French

        And yet, the human brain is remarkably similar in its workings. We apply our experiences to new situations.

        Grandparents have accumulated a LOT of experiences, and some of us (ahem!) actually have used machinery and computers for a few decades, can recognize and even design/implement the new approaches.

      • sad

        “It was with great sadness we learned through press reports that a Beijing customer was injured while using a ‘knock off’ or counterfeit charger, and we are looking into this further.”

      • Walt French

        As I noted above, shocks come not from the phone or laptop, but from AC power mains.

        Apple’s power bricks/blocks/wall-warts are very well designed and the linked incidents were traced to dangerous/defective-by-design, third-party power adaptors. I have bought a couple myself thru internet vendors; it’s quite upsetting that they falsely claimed UL certification, while allowing leakage current when they’re fresh out of the box.

        There’s nothing about the iPhone’s connectors that makes cheapo power adaptors more dangerous; you’re just as much at risk with a badly-made USB charger.

        No physical device is perfect but I haven’t noticed trouble with Apple equipment. And as I indicated, Apple is VERY concerned about its products’ safety; if one DOES encounter a fault you are very likely to get it replaced for free.

      • Walt French

        I won’t say this is the MOST naïve post I’ve read, but please consider that whenever People Are Different (i.e., always) and as long as there are different approaches on different devices (ditto), no list drawn up by you, the Guardian, PhoneArena or anybody else will necessarily match anybody else’s preferences.

        “The thing is, it doesn’t make any sense at all.”

        You are befuddled because you are trying to apply criteria that are wildly different from those of other users (a large minority of all users). Some of those criteria are clear wins for Apple; some are debatable; some clear wins for Windows Phone. Take “compatibility” of the iPhone as an example; on its introduction there was nothing else very much at all like it; it was utterly incompatible with the approach shown by Android, Windows Mobile and Symbian. And yet, MUCH MORE compatible with websites than its predecessors. Of course, Androids, of course, soon copied the approach, and became compatible with the iPhone.

        Another attribute you call out is “feature rich.” I personally consider privacy and security of my identity an important feature, and know of no system that protects it so aggressively. The Samsung Knox system, announced to great fanfare as good enough for government work just a bit ago, is a joke, an embarrassment, for example.

        Anyway, different strokes. This website is supposed to promote discussions of “success and failure in mobile” and yet you persist in applying standards that you yourself admit are obviously irrelevant to the website’s goals. That might be fine if you asked for help, or accepted the ideas freely offered here, instead of making ridiculous claims that “[i]t’s as if Apple zombifies …many of their customers.” If you were a professional analyst, you wouldn’t be, with such vapid claims.

      • charly

        Knox is not an embarrassment but needs to be setup by a professional. Something that doesn’t happen in the consumer market

      • HenkPoley

        Knox stores it’s passwords in plain text. That is an embarrassment.

      • Martin

        A different way of putting it might be this:

        By delivering a consistently excellent product, the job the iPhone seeks to do is to assure consumers that they are buying a device that will not disappoint and frustrate them. That extra cost buys the consumer the ability to ignore specs, relax about software and hardware compatibility, getting service and assistance, whether they can later customize the device to suit them, and so on. It doesn’t matter if the iPhone isn’t superior in every given metric, consumers know that it will never fail in any of them.

        That’s a sign of a maturing market. We’re LONG past the early adopter phase and pundits need to realize that most consumers aren’t early adopters. Most simply want a good phone that they won’t later regret having bought.

      • digitalclips

        If your MBP made you tingle I’d guess you might have been using a third party power block. There is a pretty sophisticated earthing system in Apple’s own.

      • Peter

        Actually, no. Apple’s MBP power bricks aren’t earthed. My MBP has a low-level but discernible (to me) voltage above ground. Running my finger across the surface feels slightly “juddery”. If I touch my other hand elsewhere on the case – no judder. This is with a stock-standard MBP and Apple brick (tested with two of them).

      • digitalclips

        Apple’s adapter does not have any grounding connections if used with 2 pins, true, but the extension cable does and will provide the internal circuitry with an earth ground. It is a common misconception that they are not earthed. Hence so many people are happy with cheap third party versions with plastic earth pins and wonder why they feel tingles.

      • Peter

        Ah yes. The ground connects to the metal “button” IIRC. Thanks for the tip.

      • digitalclips

        Hope it cures the tingles 🙂

      • Walt French

        @DigitalClips wrote, “…the extension cable…will provide…an earth ground.”

        Sorry, that’s simply not possible.

        There must be an uninterrupted connection between the ground and the touchable parts. If any part of the path only has two wires (as I described earlier), the case cannot be guaranteed at ground potential: any small leakage between the AC and DC will put 110/240 (whichever) at the case because the DC is connected to the case.

        There will always be a minuscule amount of leakage; it should be well below what’s detectable.

      • digitalclips

        The genuine Apple brick has a metal button that does allow an earth when using the apple attachable cable. Many third party bricks replace this with a plastic button thus preventing the earthing.

      • Walt French

        I finally got around to testing one of my adaptors (yes, genuine Apple).

        The metal button indeed is connected to the ground pin on the plug if the plug has such a pin. (Two-wire plugs do not.)

        However, there is not a direct, low-resistance path between the button and any of the pins, or the outer frame, of the cord that goes to the MacBook. I measured 1000 ohms, which was not a lot lower resistance than the resistance to the active, line-voltage pins. (I suspect these measurements go through a diode/rectifier, and vary quite a bit depending on the tester.)

        My advice still stands: if you notice any tingling, certainly if one of those cheap neon testers shows a live voltage on the case, take your adaptor+book to an Apple store and express your concern.

      • Walt French

        My MBP power brick has the option of a cord or “direct” plug. Removing either, one sees exactly two electrical pins underneath. I believe most, if not exactly all, MBP bricks use this technology.

        Grounding (apparently “earthing” outside the US) requires a wire that runs from a reliable ground connection (e.g., the cold water pipe that comes into your home) via a third pin, to the frame of the MBP. In fact, “polarized” plugs were used in the US but whether the neutral wire is indeed connected that way is quite unlikely given older wiring in homes, extension cords that aren’t polarized, etc. Mistakenly connecting the hot wire to the case could be fatal, so is never done intentionally. (And even with the right connections, ordinary wire resistance when carrying heavy loads could lift the “neutral” wire well above ground. In a lab with lots of heavy equipment, I’ve even seen ground connections float well above ground.)

        What @Peter is noticing is possibly leakage between the AC mains and the DC output of the block. So-called GFCI outlets detect different current levels between the two pins relative to ground, and are quite sensitive. Feeling the current while it’s plugged into a GFCI should interrupt the circuit (CI) from the ground fault (GF).

        The design of these blocks is such that it’s extremely unlikely to present an actual risk, but apparently, something is wrong. IMO, safety issues are NEVER limited by warranty and if indeed the GFCI outlet or an electrician’s neon tester shows voltage between the case and the ground, Apple very likely wants to replace it.

      • cellojoe

        I’m going to call nonsense on your “writing a paper” claim. if this were an instance of irrational group behavior there are certainly entire libraries filled with research on conformity social pressure , identity formationNo one who is doing serious research would find this inexplicable. interesting certainly but not inexplicable.

        and somehow every comment and with a thinly veiled criticism of Apple. You use a flimsy appeal to academic methodology to create the illusion of objectivity all to add a bit more gravitas to the snark.

        also there are many objective measures which corroborate the excellence of Apple products, look at the latest benchmarks for the phones and the iPad etc. look at the number of apps and so on. none of these features individually may destroy the competition but if as you claim you are making argument for some kind of mania you were going tohave to do a lot of heavy lifting to discard all of the rational reasons why someone would prefer the products

  • HR PuffnStuff

    Okay I really don’t care if Apple or Samsung have the highest market share…but isn’t it a possibility that Samsung will follow a path similar to Apple’s on the chart?

    Isn’t it also a possibility that the drop is due to the demand for phones decreasing until the next model year just like it happens with the iPhone? Lets face it, many of Samsung’s low end offerings are just unacceptable to the masses (in first world countries) these days. It’s all about the flagship Galaxy, Note, and the Mega.

    Reading Samsung their eugoogly yet may be premature.

    ..But honestly it looks like they are being cannibalized by their competitors in the mid-low end market to me.

    • pathfinder

      When you talk about “a path similar to Apple’s” are you just talking about shipments? Because the steeply declining sales and profits are the main concern, and those don’t seem to be very seasonal (already had 4 quarters in a row). That dropping their ASP/margins couldn’t continue to boost their shipments is a concern on top of that.

      • HR PuffnStuff

        Well shipments would relate well to profits, non? I’m aware there’s a slight disconnect in terms, but one is a good indicator for the other.

        I was asserting actually that Samsung may have accidentally pigeon-holed themselves into “premium” brand status and that the mid to low end is where the highest amount of profit is.

        Interestingly the new up-and-comers seem to hang out in those mid to low range areas (Lenovo…ugh). With the cellphone market being nearly saturated by Samsung alone they are in a position where they can only lose as others enter the fray.

        Make no mistake there is a huge amount of profit in the mid and low range segments especially for Samsung. Those are the segments in which Samsung gets almost all it’s parts at cost..because they make them. Since we don’t have adequate data to determine which segments they are hemorrhaging business this is all conjecture. We could Google it, but in 2014…that seems worse than going to the library…

        I was mostly stating the possibility exists and never write off Samsung. They may not be everyone’s favorite company but they were pretty much the only company making money during the asian financial crisis.

      • HR PuffnStuff

        I have to correct myself… shipments only speak to sales… in today’s market sales don’t always mean profits.

        Even with the brain farting I think I still explained myself well enough…maybe.

      • Sam

        “Make no mistake there is a huge amount of profit in the mid and low range segments…”

        Tell that to IBM, Dell, HP, Lenovo, Acer, and Asus,

        If you don’t own the OS, how do you make the profits?

        MS made money on licensing, Google makes money thru data collection and targeted ads.

        How does Samsung, LG, Sony, Moto make their money on commodity hardware?

        This past quarter, Samsung earned a signicant part of their operating profit from selling ARM chips to Apple.

        Did you look at the first two charts?

  • poke

    I think this is going to turn out to be a huge problem for Google. Not so long ago the “Galaxy” brand was more compelling than “Android” and Google spent the last couple of years masterfully taking control of Android. This was mostly done by removing stuff from AOSP and making it proprietary. I was actually kind of surprised by the ruthless efficiency with which they did it. They also seem to have made a lot of moves to give them leverage over Samsung (including, I suspect, buying Motorola). The overall result is that they destroyed any chance Samsung had of creating its own ecosystem and building a stronger relationship with its customers.

    Nobody is going to take Samsung’s place, not for Google Android at least. I can’t help but think that Google is now in a much worse position. Could they have helped Samsung maintain its position by working with them to differentiate Samsung’s phones and help Samsung to build an ecosystem? That would have brought its own risks, and might not have even worked, but now they’re faced with a situation where every Google Android manufacturer is weak and AOSP forks are getting stronger. It seems to me that Samsung was their only real defence against Chinese AOSP.

  • Taiwanosaurus

    The funny thing is how everyone now more or less knows the name Xiaomi on the blogosphere yet already in here in Shanghai there are already two or three brands (in particular watch Smartisan – unbelievable build quality for the price; company founded by a former English teacher (echoes of Jack Ma)) that are far more interesting to the local market. The coming Shenzhen Android dog-fight is going to take the current Android mess and amplify it enormously.

  • Taiwanosaurus

    The other thing that Samsung was notable for was to provide the world with the Asian version of what a smart phone should be. Globally Phablets may not have major share but the phenomenon was driven by Korean and then Taiwanese innovation and suited the additional ‘job’ that a smartphone (particularly an Android device) is hired to do: act as a video player on the way to work. Plus, the extra screen real-estate is great for looking at pictures of cake and God knows, all I see out here is young ladies enjoying fancy dessert and pushing it to social media.

    So kudos for that work, and also well done to Apple for belatedly listening.

    But for Samsung, it is really hard to see a way back into the game. I’ve done business with them before and they are soooooo politically riven and bureaucratic that when the game changes from rapid iteration to new ideation, they find it very difficult. But hey, there is always Tizen :)…

  • Ray

    One of the parallels to be found in this blog and the press lately is that Samsung might follow the trajectory of Nokia, Motorola or Blackberry. This is a lazy and fundamentally false analogy: Nokia & Blackberry were mobile phone companies, Samsung is not. Even if we focus only on Samsung Electronics (not taking into account the companies in the Samsung Group – Chaebol), the company is a massive electronics company that produces from semiconductors and other components to finished products, both B2C and B2B (TVs, fridges, microwaves, medical equipment, etc.). Just focusing on components, Samsung is the 2nd largest semiconductor company in the world, behind Intel, and growing faster than Intel:

    Samsung is also a scientific powerhouse, #2 in number of patents filed, ranging from new wireless technologies (5G) to new innovative displays (flexible)

    Samsung is also a leader in TV sets and many other consumer categories.
    So, even if Samsung smartphone sales drop to 0 next year (highly unlikely, we can easily agree), the company will still be a $100B+ electronics powerhouse (unlike Nokia, Motorola or Blackberry)

    • Walt French

      Taking your example of BlackBerry: it is NOT a cellphone company, it is a secure communications company for particularly demanding/secretive government and business users. Its recent deal with Samsung underscores that—customers want the security of the BlackBerry messaging and the management control, just as they always have. The (first) pagers and (later) handsets were merely delivery vehicles, just as Android is for Google’s ad business.

      Despite this, RIM (BlackBerry) was disrupted—nearly knocked into bankruptcy—by a consumer electronics company formerly labeled Apple Computer Inc. The labels that companies use aren’t irrelevant, but they’re not all-encompasing.

      So if you want to emphasize Samsung’s other businesses, you should justify how they will help Samsung fend off the competition from very low cost local companies using MediaTek designs, and higher-end competition from Apple, among others. Particularly on the blog of a person who emphasizes companies values, priorities and resources over “names” and notes “no credit without a clear trail of logic…” in his site rules.

      • Ray

        RIM / Blackberry is essentially a mobile communications company. They started doing pagers and then moved onto cell phones. Now they can’t compete in those markets so they’re trying to monetize their secure communication system (one of the key features of their cell phones). Much narrower in scope than Samsung Electronics.

        Just a quick look at the patents they filed last week gives you an insight on how diversified they are: solar cells, display technologies, software-defined networks, gesture user interface, lithium batteries, text-editing system, etc.

        ” you should justify how they will help Samsung fend off the competition from very low cost local companies using MediaTek designs, and higher-end competition from Apple, ”

        Again, I’m not saying that Samsung will be able to keep the impressive 35% global smartphone market share they achieved. What I pointed out is that Samsung will not likely follow the trajectory of Blackberry or Nokia because they are not a mobile phone company. Their mobile product line might (or might not) follow that trajectory, but the company will not given their diversification. If you look at their other divisions, they are doing quite well and following the growth trajectory they had before the Samsung Galaxy family was launched.

      • Diversification does not afford protection. Sony was diversified before it was disrupted by Samsung and Samsung is diversified as it is being disrupted by Chinese manufacturing.
        There is no safety in numbers. Each component of a conglomerate can be attacked and disabled because the opposition is focused on that particular problem.

      • Ray

        Diversification does afford a certain level of protection, that’s the main reason why companies such as General Electric, IBM, Siemens and Sony have been able to survive many decades and through many technological transitions and disruptions (investing in growth markets and new technologies, and divesting in dying / commoditizing markets), and are still around. Highly focused companies such as Netscape (browser), Delta (airline) , Chrysler (cars) with revenues depending of a single product disappeared or went bankrupt when their market was disrupted or suffered increased competition (platform envelopment of browser into OS, low cost airlines, SUVs better and more efficiently manufactured by Toyota).

        Diversification does not prevent focus per se, particularly in conglomerates where specific business units run independently and can be highly focused in their particular market. Some will succeed, some will not, and the conglomerate will reallocate profits to the business units that are more competitive, and divest from the ones that are not. This offers protection overall to the conglomerate.

        By the way, Apple is also following a strategy of diversification as well (albeit not as wide as Samsung’s). It started with computers in the 1970s, almost disappears when the Wintel duopoly took over that market, and then in the 2000s it diversified into music players, music downloads, smartphones (now 2 models), TV, tablets (2 or more models), mobile apps… and now music streaming (Beats), payments and smart watches.

        Apple board and executives know that staying focused in one product category is very risky, even if their product is better than the competition’s, especially in the fast-changing technology industry, as it learned in the 1990s.

    • You are describing the phenomenal strength of Sony in the 1990s. By the way, Nokia used to be a conglomerate and so was Motorola.
      Disruption theory is predicated on the observation that when it comes to firms, size does not offer protection.
      Companies are more fragile than we imagine. They are certainly more fragile than individuals.

      • Ray

        I agree that size does not offer protection against disruption, but diversification does. Even if a product category gets disrupted, a company that has a wide portfolio will be able to survive, while a company that is narrowly focused on one or two product categories will not. My point was that Samsung Electronics is not a mobile phone company, but a highly diversified electronics company. It has become better known in the West particularly because of it successful smartphones, but before then it was already a very successful company in categories such as semiconductors or TV sets.

        If you look at your graph “Samsung Sales” in this article, in 2011 Samsung mobile handsets sales were just one product category more in their product mix, and this is probably the situation the company will return to in the next few years. However, this does not mean that the company will become irrelevant in the tech industry, as Blackberry and Nokia have become. Samsung will still have leading-edge semiconductor technology (competing head-to-head with Intel), leading-edge OLED technology (which provides more vivid screens to its Galaxy phones) and top-of-the-line consumer products such as TV sets and home appliances. Samsung was doing very well in before 2011 in other product categories, and continues to do so. Notice for instance how semiconductor revenue (and profits) continue to grow steadily for over a decade.

        Blackberry and Nokia were essentially mobile communication companies (revenue-wise), and were terribly disrupted by the arrival of the iPhone. (Nokia was a small conglomerate that started producing paper but they were not a significant global company until they found the success in the 1990s with GSM phones. This success increased their size by an order of magnitude. )

        By the way, I guess there is something missing in the graph, Samsung Electronics total revenues are larger ~$200B (around $2T won).

      • Walt French

        Yes, Samsung has many businesses that are NOT disrupted.

        So? Samsung won’t pump earnings from those, into futile efforts in smartphones, and the smartphones business has, as a result, shrunk sharply, with no obvious plan how Samsung will re-attain its previous glory.

        Just today a twitter buddy noted Samsung is closing down its video store; the hopes of an ecosystem that could sustain/justify a third platform (Tizen) are fading fast.

        Why Samsung hasn’t shuttered the overall Tizen effort is interesting; it’s very hard to give up on a project that was, just a year ago, going to cement your leadership. Perhaps the CEO shuffle will free a successor to refocus on some new strategy.

        Nobody said the question was whether Samsung would drop out of tech, or consumer products; the question is whether their brand, marketing organization, prodigious manufacturing or software efforts could keep them as the ONLY non-Apple smartphone maker with visible profits.

        That game appears over. Without profitability, there is no reason for investment and without investment there’s no significant improvement in features or new capabilities.


  • Nex

    I find it completely shocking that NOBODY at Samsung thought that their mobile business in the golden years of 2012/2013 was built on a house of cards. Just their average marketing budget per phone sold alone in 2013 is enough to buy 120 million people a $120 Redmi with specs and software that trounces the entire low to midrange lineup. In other words, the Chinese manufacturers are already burying Samsung alive BEFORE Samsung even spends a dime to actually build a phone.

    With this sort of ludicrous cost structure, I wager they won’t survive past 2015 in China and developing markets, and 2016 globally as a major player.

    • Ray

      “when they don’t have anything head and shoulders than the competition in any particular department”

      It’d be better if you could refer to data backing up your assertion. If you had spent a minute researching Samsung you could have easily found a few products where they are the global leader: high-end TVs, DRAM, NAND Flash memory and SSDs, OLED, Li-Ion batteries… and still smartphones.

      I highly recommend this HBS case where you can learn how Samsung Electronics managed to create both competitive advantages (differentiation and low-cost) that were thought to be mutually exclusive by some business strategy professors:

      Because of that, they are now in the position of controlling over half of the world’s supply of mobile DRAM (that smartphone makers such as Apple have to buy)

      QUOTE – Samsung’s mobile DRAM revenue increased by 18.4% in the third quarter (2014Q3), bringing market share to 50.7%, nearly twice that of SK Hynix. Now that Samsung is back in Apple’s supply chain, SK Hynix and Micron are expected to lose orders, widening the gap between the memory makers. Samsung is busy producing 23nm LPDDR products, which have the best cost structure. With reliable product quality, Samsung is the MOST PROFITABLE memory maker in the industry.

      I’d say a growing market share (already surpassing 50% global M/S) in a growing market with superior technology and scale (highly defensible strategic competitive advantage) and highest profitability in the industry qualifies as “head and shoulders” above the competition.

      • Nex

        “high-end TVs, DRAM, NAND Flash memory and SSDs, OLED, Li-Ion batteries… and still smartphones.”

        I believe these are called “commodities”. Except for the last one, where they were making above-than-normal profits for being a fast mover, before overwhelmed by competitors offering much cheaper and “good enough” products. Sounds familiar?

      • Ray

        High-end TVs and display technologies are not commodities. They are differentiated by unique product features, not simply price. Samsung is able to charge $5k, $10k even $30k for TV sets that other TV companies around the world simply can’t offer: organic self-emitting OLED technology with offers best saturation and dynamic range levels (true blacks) – something extremely important to cinephiles, ultra high-def, curved screens, and now coming flexible and rollable screens, etc.. Other companies simply do not have the organic LED display technology that Samsung has (developed through many years of R&D and protected by patents and trade secrets) that eliminates the back-lighting. This is the main reason also why Samsung Galaxy phones have simply more vivid colors and better saturation than most other smartphones.

        Li-Ion batteries are also not commodities, there are many features and characteristics that distinguish one maker from another. There are actually many Li-Ion technologies (depending on anode and cathode materials, dimensions, morphology, etc.) which lead to different charge and discharge times, different battery shapes and configurations (flexible batteries for wearables), etc. There is a lot of innovation going on in this space.

        Flash memory is redefining the architecture of data centers, particularly hyperscale data centers (Amazon, Google, Facebook, etc.)

        All these innovations and features allow Samsung to differentiate and charge higher prices than their competitors.

        I highly recommend you review this HBS case where you’ll learn how Samsung managed to scape commoditization and charge a price premium in a memory market thought to be “commoditized”:

        Korea is now the country with the highest level of R&D investment in the developed world, and this is driven mainly by Samsung and other large technical conglomerates. This allows them to be at the leading-edge and operate at non-commodity margins in markets that are commoditized at the trailing edge: