Samsung Galaxy Note Edge. Samsung
Samsung leads the world in smartphone market share, and at a time of ascendant mobile computing, that seems like a great place to be. So why does the future look so glum for the South Korean hardware giant?
On Tuesday, the world’s dominant smartphone maker said that its third-quarter profits would likely drop by about 60 percent and overall sales by more than 20 percent compared to the same time last year, blaming “intensified smartphone competition” for the decline.
The prediction comes just weeks after chief rival Apple released its own phablet-sized thumb-busters to compete with large-screen devices from Samsung. Strong sales of the iPhone 6 and 6 Plus could be eating into Samsung’s revenues. But that’s not the only force at work here.
With the possible exception of radically improved battery life, hardware differences become about subtle preferences, not clear-cut metrics of superiority.
Before the new bigger iPhones were even announced, Samsung’s market share had fallen off considerably from the year before. During the second quarter of 2013, Samsung handsets accounted for more than 32 percent of smartphone sales, according to research firm IDC. By the same time this year, that figure had fallen below 25 percent. But the decline didn’t come only at the hands of Apple, which also saw sales fall off slightly. Instead, the rise of Huawei and other non-marquee brands suggests Samsung’s losses also came at the other end of the market, where budget phones lure buyers with the right mix of features and low price.
In other words, Samsung is being squeezed. And the problem is that it doesn’t have an obvious path out of its jam. As Apple keeps adapting to keep its design-centric lock on the high end—and feisty competitors on the low end keep finding ways to attract budget-conscious buyers–the end game for Samsung isn’t clear. And the problem, in the end, is Android, the Google mobile operating system that drives Samsung devices—and so many other devices across the market.
The Mushy Middle
That’s not because Android itself is faulty, but because it doesn’t give Samsung a distinctive way to compete now that hardware has become commoditized. For starters, the screen-size contest is over. Apple hasn’t won, but both Android and iOS users now have the option to pick whatever screen size suits them. Without such an obvious differentiator, Samsung will have a much harder time trying to set itself apart on hardware alone. With the possible exception of radically improved battery life, hardware differences become about subtle preferences, not clear-cut metrics of superiority.
That leaves software. If smartphone makers can’t set themselves apart dramatically with their hardware, the key difference becomes the experience of using the phone. And that piece is ultimately out of Samsung’s control. By adopting Android rather than its own operating system, Samsung aligned itself with the most popular mobile OS on earth, a popularity for which Samsung also largely deserves credit. But that popularity also means users can make the jump to another company’s Android-based phones with ease. Samsung implicitly concedes that software will not be how it sets itself apart as it tries to recapture the competitive ground it’s losing to others.
“To secure sustainable mid- to long-term growth despite intensified competition,” the company says in its guidance, “Samsung is preparing new smartphone lineups featuring new materials and innovative designs, as well as a series of new mid- to low-end smartphones with strong competitive positioning on both hardware specifications and price.”
That is, Samsung is still hoping that the phones themselves will win out. But if Samsung can’t decisively compete with Apple on design at the high end, where the profits lay, or on volume at the low end, where Huawei, Xaiomi, Lenovo, and others are diluting Samsung’s command of the market, all that’s left is the mushy middle. It’s the place where you least want to be, but where it’s all too easy to get stuck.
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