August 11, 2014    8 minute read

Samsung’s Sinking Ship

   August 11, 2014    8 minute read

Samsung’s Sinking Ship

Has Samsung’s time on the throne expired?

I’ve always been a little skeptical about the surge in Samsung’s success. There’s no doubt that their steep ascent to the top of the smartphone market was truly admirable, but recently it has become apparent that perhaps their rapid growth has reached its peak, and I’m going to explain why.

Samsung’s success has for the most part, been fuelled by their ability to embrace the Android platform aggressively, alongside cramming the most useless (in my opinion) specifications into a cheaply made device that would target a range of consumers. Furthermore, their agile tactic to simply saturate the market with a range of different screen sizes allowed them to stay ahead of the game, particularly in developing markets. To top it all off, in 2013 Samsung spent no less than $14 billion globally on its advertising and marketing efforts, including $4 billon on advertising alone, quadruple what Apple spent in the same year. In short, it appears that a lot of money and gimmicky features has allowed Samsung to thrive in recent years.

Yet Samsung was the only one of the top 5 smartphone producers to post lower shipments in the June quarter. Earnings fell short at $6 billion against estimates of $6.7 billion, largely due to the South Korean Won strengthening in the second quarter, causing a currency hit of around $419 million. There was also a slowdown in some of the other business lines, such as chips, where operating profits in Q2 came in at $215 million, displays which came in at $1.82 billion and consumer electronics which reeled in $752 million. Consequently, their market share dropped from 31% to 25% for smartphones, compare this to Xiaomi who reported 266% growth in its smartphone business.

The short term trigger pushing Samsung sales into a small corner largely stems from the success of Chinese manufacturers like Xiaomi, Lenovo and Huawei. These companies offer powerful phones with big screens and good quality features at a similar price tag. What’s happening now is that consumers are replacing their Samsung devices with cheaper alternatives. Huawei for example, has recorded a 95% rise in global shipments over the past year. Thus, Samsung are being beaten at their own game and it seems their biggest threat right now is from China, not Cupertino. 
 
Nevertheless, Samsung should probably watch their back on the Apple front too. Most consumers currently own Samsung mobile devices because they want the larger screens, but Apple’s iPhone 6 launch is going to change all that. It’s set to be the biggest iPhone launch yet, and Apple will no doubt hit the large screen demand headfirst whilst flying high with huge margins. This, paired alongside Apple’s deal with China Mobile, will give rise to strong competition from the premium end of the smartphone market against Galaxy devices.
The way I see it, Samsung need to shift their focus towards areas where they continue to be falling short of Apple. Firstly, and this really eats away at me when I’m comparing the two companies, is Samsung even innovating anything at all when it comes to features on their galaxy devices? This is one point I really can’t stress enough, purely because this is the only argument ever given to me in defence by Galaxy mobile owners. I’ve not seen the S5 unveil but backtracking a little further, my answer is always the same, ‘have you ever watched Samsung unveil the S4?’ If the answer is no, and it usually is, then I’m going to stop you right there. That’s because I have, and I have to tell you that if you really sit and think about the ‘cool’ features that have just gone into the S4, you’ll be surprised at how useful they will not be in your every day life.

 

Take the photo with sound for example. When was the last time you were taking a photo, that is, a snapshot in time, and thought to yourself ‘I really wish that this photograph had sound because I’d really like to hear everyone while they smile for the shot.’ Seriously, is this a feature that is filling a void in our range of smartphone features? Take also the feature that allows the photographer to be in a small secluded corner of photo. Surely if you wanted the photographer in the shot, you would just ask someone else to take the picture? Personally, I don’t remember the last time I asked someone passing by to take a family photo of the four of us abroad and they said no. I need not go on. 
 
The bottom line is, Samsung’s strategy with features has consistently been quantity rather than quality. They cram into each product a bunch of nifty, mostly useless features that really belong in an app, and consumers love it and they buy the product and a few months down the line, they probably realise that they will never use half of the features built into their phone, ever. This strategy is not a long term one, and that is why it has been so easy for Chinese manufacturers to penetrate the market and flood it with their own devices. 
 
One more thing I really can’t bring myself to understand is that if Samsung are in, and they are quite successfully in, the consumer electronics business, then why has there still not been any form of integration between their products? Why can’t my parents, loyal Samsung smartphone owners, use their mobiles to control their Samsung washing machine or switch on their Samsung television? Innovating into these areas would perhaps boost Samsung’s brand loyalty, which is rather weak at the moment. 
 
Brand loyalty for me, is the most significant factor when it comes to not wanting to invest in Samsung in the long run. Right now, Samsung will struggle because unlike Apple, they do not have the integrated ecosystem and loyal fan base that will allow them to come out on top against their competitors. If you disagree, just take a look at how quickly consumers are switching from Galaxy devices to Xiaomi. That’s because Samsung do not offer anything unique to keep their target audience hooked onto their products. They may have executed Android brilliantly and stayed ahead of the game until now, but that is no longer enough. Samsung really need to differentiate themselves from competitors if they want to stay one step ahead. 
 
One way I think they could do this is by developing their own operating system. It’s true that Samsung and Google often come to disagreements when it comes to Android and even more so recently as the smart watches are being introduced, so why don’t Samsung create their own? It could perhaps give them the competitive advantage they need, allowing doors to open in terms of integrating with their consumer electronics devices and thereby strengthening brand loyalty with loyal consumers. 
 
To conclude, Samsung have been riding on a winning streak for far too long and it’s about time they reconsidered their goals to ensure that the company continues to grow steadily and successfully for years to come. I believe that without innovation and a clear cut strategy to decipher where they are heading, Samsung will soon be outshone by their competitors in the smartphone market.
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