Why Samsung’s Challenge to Apple and Google Is Great for Consumers

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Adrees Latif / REUTERS

Samsung Electronics Co's latest Galaxy S4 phone is seen during its launch at the Radio City Music Hall in New York March 14, 2013. Samsung Electronics Co on Thursday premiered its latest flagship phone, the Galaxy S4, which sports a bigger display and unconventional features such as gesture controls and will spearhead its effort to challenge Apple Inc on its home turf.

Over the past few years, tech giants Apple and Google have emerged as dominant forces in the mobile-technology market. Although they’ve pursued radically different strategies, each company has been wildly successful: Apple generates $1 billion per month on iPhone sales, while Google’s Android operating system has racked up massive global market-share gains. Now, both companies face a rising threat from South Korean electronics titan Samsung, which has surged to become the largest handsetmaker in the world. Samsung appears poised to intensify competition in the mobile space, and that could benefit consumers.

Samsung’s ascent was underscored last week when it introduced its highly anticipated new Galaxy S4 smartphone at an extravagant event at Radio City Music Hall in New York City. The company showed off hands-free eye-tracking technology, among other new features. Google and Apple, meanwhile, are pushing toward next generation wearable computing, including Google Glass and Apple’s rumored iWatch.

In 2012, Samsung eclipsed Apple in global smartphone market share. Samsung had 30.3% of the market, a dramatic increase from 19% in 2011, according to data cited by Reuters. Apple’s 2012 share was 19.1%, up from 18.8% the previous year. In January, Samsung reported a 76% increase in profit, driven in part by strong sales of the company’s Galaxy smartphone and tablet devices. It was Samsung’s fifth consecutive record quarterly profit.

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It’s important to remember that Apple accounted for 69% of the smartphone industry’s 2012 profits, compared with Samsung’s 34%, according to Canaccord Genuity analyst T. Michael Walkley, as cited by Forbes. (The total is higher than 100% because of operating losses at BlackBerry, Nokia and Google-owned Motorola Mobility.) Still, as a result of Samsung’s ascent, the mobile landscape is shifting toward a three-way struggle for dominance among Apple, Google and Samsung.

Is Apple feeling the heat? On the eve of the launch, Apple’s marketing chief Phil Schiller gave a pair of interviews in which he blasted Samsung and Android. It was a rare and uncharacteristic preemptive attack on a rival’s impending launch. Speaking to Reuters, Schiller disparaged Android as a “fragmented” platform because updates have to work on dozens of devices and thus get rolled out more slowly than Apple iOS updates. As a result, he said, most Android users are still using software that’s one to two years old.

Schiller pointed to research showing that over half of Apple iOS users are using the latest version of the company’s software, according to the interview. He then went on to cite rumors that the Galaxy S4 would ship with a year-old version of Android. Those rumors, however, turned out to be false because the S4 will, in fact, ship with Android 4.2.2 Jelly Bean, which was released just last month. One well-known pro-Apple blogger called Schiller’s mistake “an unforced error.”

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On the widely-read Monday Note blog, former Apple director Jean-Louis Gassée suggested that Apple is losing the p.r. battle with Samsung, in part because Apple is held to a higher media standard thanks to the iPhone’s perch as the world’s most admired smartphone. “Because of its position at the top, Apple should have the grace to not trash its competitors, especially when the digs are humorless and further weakened by error,” Gassée wrote. Of course, Apple has memorably launched ad campaigns mocking its rivals in the past, but Gassée suggested that Schiller’s broadside was, well, déclassé.

The Galaxy S4 received mixed reviews — some called it a “dull” upgrade, others called it a “firm stride forward.” Shortly thereafter, Apple’s marketing team launched a new online campaign touting the iPhone. “There’s iPhone. And then there’s everything else.” For its part, Samsung also launched a new marketing initiative to support the S4, which it is calling a “life companion.”

The dueling ad campaigns highlight the escalating competition between Apple and Samsung. Writing on Fortune.com, Philip Elmer-DeWitt cited the viral success of a S4 YouTube video, which has garnered over 2 million views, to call this round a Samsung win, though he added that’s not a surprise “considering how much money the South Korean manufacturing giant put into it.”

Samsung doesn’t pose a threat only to Apple, however. In recent months there have been reports that Samsung’s surge has been generating agita for Google. It’s an interesting situation because Samsung, Google’s largest Android partner, has been crucial to the success of the search giant’s mobile platform. Samsung sells 4 out of every 10 Android-based devices worldwide. At the Samsung Galaxy S4 launch, it was telling that Android garnered nary a mention.

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According to the Wall Street Journal, Google executives are concerned that Samsung could leverage its growing market power and Android influence “to renegotiate their arrangement” and demand a higher percentage of Google’s lucrative mobile-ad business. “There is a threat from Samsung to Google that is real,” Rajeev Chand, a managing director at boutique investment bank Rutberg & Co., recently told the Journal. “Over time, Samsung will be able to leverage its market-share dominance to negotiate better terms from Google.”

As a result, Google is hoping that new Android-based devices from HTC and Hewlett-Packard will serve to tamp down Samsung’s increasing clout in the Android ecosystem, according to the Journal. And former Android chief Andy Rubin, who recently stepped down from that role, has suggested that Google’s recently acquired Motorola Mobility division could also serve as a bulwark against Samsung’s growing market power, the paper said. In particular, Google hopes that Motorola’s rumored “X phone” could serve as a strong competitor to Samsung’s Galaxy line.

Needless to say, the competitive landscape in the mobile space is growing more complicated. Despite its recent stock slump, Apple continues to produce the most admired mobile products in the world and still commands 70% of all smartphone-industry profits. Google’s Android operating system dominates the global mobile-software market. And now, both Apple and Google face a growing challenge from Samsung, which is moving aggressively to capitalize on its new position as the global handset leader. Ultimately, more competition means more innovation, and with three powerful giants in the mobile mix, competition in the smartphone and tablet markets could accelerate — and that’s something that consumers should cheer.