Seoul/Singapore - Just a few doors down from the Apple store
in Sydney, where a long line of fans eagerly awaited the sale of the new iPhone
4S, another throng was gathering at a Samsung store.
Samsung was ambushing Apple at a temporary “pop up” store
offering its new Samsung Galaxy S II smartphone for just A$2 to the first 10
customers each day in the run-up to the rival iPhone launch.
The guerrilla marketing tactic is the latest flare-up in the
intensifying competition between two of the biggest players in the mobile
devices industry that has also seen them battle in courts across the world over
patents.
What makes the battle so captivating is that the two
companies are such contrasts. Apple is known for innovation and big ideas that
create whole new markets. What Samsung lacks in ideas, it makes up for with a
sleek production system that is lightning fast in bringing new products to
market.
Still, Samsung Electronics delayed the unveiling of its latest
smartphone, the Nexus Prime, by a week to Wednesday as a sign of respect
following the death of Apple’s co-founder Steve Jobs - Apple is Samsung’s
biggest customers for microprocessors.
The Nexus Prime has been much anticipated because it is
based on the latest version of Google’s Android operating system, named “Ice
Cream Sandwich” after previous versions also named after foods, such as
Gingerbread and Honeycomb.
But the war for smartphone dominance is one Samsung appears
to be winning for now, just. Third-quarter figures are expected to show it has
overtaken Apple as the world’s biggest smartphone vendor in terms of units
sold.
Apple, the world’s largest technology company with a market
value of $391bn, is counter-punching hard as the holiday sales season
approaches.
It is expected to present a positive short-term picture -
sparked by roaring sales of its iPhone and iPad - when it reports results for
the July-September period on Tuesday. The company moved 4 million iPhone 4S
units in three days - more than double its predecessor - despite lukewarm
reviews.
“The quarter we are focusing on is the holiday quarter,”
said Channing Smith, co-manager of the Capital Advisors Growth Fund, which owns
Apple shares. “We expect Apple to absolutely blow the doors off during
Christmas.”
The battle between Samsung and Apple is being waged not just in malls and stalls across the world, but in courtrooms as well.
On the same day Samsung was luring away potential Apple customers in Sydney with the Galaxy promotion, an Australian court slapped a temporary ban on the sale of Samsung’s computer tablet, named the Galaxy Tab, in the country, saying Samsung infringed on Apple patents.
Apple has also scored preliminary injunctions against some Samsung products in Germany and the Netherlands, and seeks to block sales of Samsung models in the United States, the key smartphone battleground.
Samsung is trying to counter with lawsuits of its own,
unsuccessfully so far, accusing Apple of infringing its technologies.
Fast executioner
Analysts who follow the company say Samsung may not have the next big idea but it does have world-class marketing chops.
The world’s biggest maker of flat screens and memory chips and the second-biggest mobile phone maker after Nokia can bring a product to market faster than anybody.
Samsung can leverage costs by using the chips and screens from its other divisions in its products. It has unrivalled product differentiation, offering different phones for different market segments.
But while Samsung has shown it can beat Apple in the market,
few are convinced it has the innovative corporate culture to be the next Apple.
The conglomerate’s legendary founder Lee Byung-chull set up
Samsung Electronics in 1969, producing black-and-white TVs that he supposedly
learned how to make by tearing apart a Sony. Apple claims in its lawsuits that
the Galaxy lineups using Google’s Android platform copied the look and feel of
its iPhone and iPad.
“Koreans are great at reverse engineering,” says John Strand, founder of Danish telecoms consultancy Strand Consult.
Samsung’s corporate culture values speed and adaptability,
aspiring to be what they call in Korea the “fast executioner”.
“But to capture the imagination of the public in the way the
iPhone or iPad have done, Samsung will need to take risks and produce something
unique that has a true "wow" factor and be first to market,” said Tim
Shepherd, an analyst at Canalys, a technology focused research firm.
Technology agnostic
Samsung doesn’t just rely on Android. It is technology neutral, jointly developing software with Intel, using Microsoft’s Windows, free software Linux and its own operating system, Bada, in its phones. Its vertically integrated supply chain of chips and displays also helps it better control production costs.
“With eggs in all baskets, Samsung is poised to be the
long-term winner regardless of how the dynamics play out between technologies
and standards,” analysts at Bernstein said in a report. “Samsung is unique among
leading manufacturers of being extremely 'OS-agnostic',” they said referring to
operating systems.
One Samsung executive helpfully suggested that Apple might want to copy the Korean company.
“What Apple might want to pursue is ironically what Samsung
is doing right now: Keep introducing differentiated products to cater to the
very low end of the market to the very top,” said a senior Samsung official,
who declined to be named because he was not authorised to speak to the media.
“We may have looked foolish by not focusing on just one
mobile platform and instead spreading our resources for the time- and
labour-consuming work of making phones with various platforms, but it showed
patience eventually pays off.”
Samsung’s speedy ascent to the smartphone summit came after
the company was sent reeling by the storm Apple created over the launch of the
iPhone 4 and the iPad early last year. Profit halved in the second quarter last
year because it didn’t have products to compete with the iPhone 4 and the iPad.
But it caught up fast. Samsung released an upgraded version
of its Galaxy S smartphone with improved processing power in April, less than a
year after it was first introduced, making it also bigger but lighter. Months
later, it unveiled upgraded versions of the Galaxy smartphone, running on the
fast 4G network with a high-resolution display.
The company was also first to challenge the iPad with
different sizes and is now the No. 2 tablet vendor.
Samsung sold nearly 20 million smartphones in the second quarter,
about one million fewer than Apple. Its market share gap was less than 1
percentage point.
But Samsung is expected to sell 95 million smartphones this
year, higher than Apple’s 81 million, and raise sales to 136 million versus
Apple’s 89 million units next year, JPMorgan analysts forecast.
By comparison, Apple’s latest iPhone followed 15 months after its previous model and had no facial changes, disappointing investors and fans who had hoped for a fancy and thinner product with a bigger screen and 4G connection.
“If users are concerned about being 'future-proof' from a
network technology point of view, Samsung clearly has a marketing edge at the
moment ... Samsung has a strong ability to release competitive new smartphones
on a timely basis,” Fitch analyst Alvin Lim said.
Clean, clear colours
Just listen to Michael Santos, an iPhone user for the last two years. The 22-year-old is about to abandon his iPhone after spending the past half-hour in a Samsung store in Singapore playing with the new Galaxy S II.
“The screen on the Galaxy is high resolution, much clearer,
cleaner and the colours are brighter,” said Santos, a student on a holiday in
Singapore.
The Galaxy S II uses Samsung’s own dual-core application processors, cutting costs there. It is slimmer and has a bigger display than the iPhone 4S and is being sold through around 140 operators in more than 100 countries.
Choice, and lots of it, has been key to its success.
“The secret to Samsung’s success is strength in depth,” said
Geoff Blaber, analyst at London-based mobile consultancy CCS Insight. “Samsung
is competing aggressively - from pre-pay right up to the high-tier, where the
Galaxy S II has arguably gained most from Nokia’s slide in market share.”
“Words once solely used to describe Nokia are now applicable to Samsung. Scale, distribution and supply chain are interdependent elements that Samsung has mastered to drive both profit and volume,” he said.
Analysts say smartphones now account for one-third of
Samsung’s handset portfolio, up from 26% in the second quarter and 12% a year
ago, lifting the profit margin of its overall handset business to around 14%.
The iPhone, introduced in 2007 with the touchscreen template
now adopted by its rivals, is still the gold standard in the smartphone market.
But phones based on Android, which is available for free to
handset vendors such as Samsung, HTC, LG Electronics, Motorola Mobility and
Sony Ericsson, have come to dominate the market.
Consumers of Android-powered smartphones tout its
customisation, price and also the fact that they do not need to synchronise
their devices with a computer like users of Apple’s operating system.
Samsung may not have come up with the concept but it has adapted
Apple’s breakthrough smartphone idea perhaps better than any other handset
maker. It tries to offer the Apple experience at a better price with better
functionality.
That was why Cho Su-ah, a college student in Seoul, picked Samsung over Apple.
“I was attracted to the iPhone 4 more since many of my
friends have it and I could get a lot of help from them if I needed. Also, as a
girl, I was attracted to the cute design of Apple,” she said.
“But my thoughts on Galaxy changed after a few days of using
it. Since it’s a Korean phone I could get technical help much more easily than
I would have with an iPhone. And although people said the Android market has
fewer applications, I didn’t have any trouble finding applications I wanted.”