Samsung’s Real Threat to Apple

by Tim Bajarin   |   May 10th, 2013

When the iPhone was introduced, a Sr. Apple exec put the iPhone on a table in front of me and asked me what I saw? I replied by saying that I saw a black piece of glass on the table. He pointed out that what I saw was correct and then added that the real magic of the iPhone was the software. Over the last five years, smartphone vendors have continued to increase the size of the glass, put more physical bells and whistles on the hardware in areas such as audio, cameras, etc., and tried to make the hardware the real gem of their new smartphones.

If you look at the iPhone, the physical design has pretty much stayed the same. In fact, some could say its design is minimalist compared to the newer smartphones hitting the market today. Of course, that is not true. Apple has made it sleeker, put faster processors and higher resolution screens and better cameras and audio in every next generation of the iPhone. But as far as I am concerned, its crown jewels are iOS and the total ecosystem behind it that makes the iPhone sing and dance.

All of Apple’s competitors understand this but most are saddled with a core mobile OS like Android that, while getting better, is the same OS that all Android licensees have access to as well. While that is good for most, to really be competitive against Apple, vendors also know that differentiating around hardware, software, and services is what will ultimately make them competitive.

Separating From the Pack

HTC was one of the first to add its own UI layer on top of Android. Amazon and Barnes and Noble also use specialized UIs on top of their Android OS in order to make them easier to use with their own software and services. While basic Android is the same to all, one key thing that Google does allow is their partners ability to add their own UI on top of Android to enhance their devices and differentiate them from other Android vendors. This is one of big mistakes Microsoft has made with Windows Phone. All vendors can only use the Microsoft Windows Mobile UI and so all of their partners devices look and work the same (this is true of Windows 8 as well).

While hardware may differ, the magic is in the software and from the start Microsoft gives their partners a real disadvantage when it comes to allowing them to differentiate in the area that counts the most–with software.

It’s no wonder that Apple has 57% of all of the smartphone profits and Samsung 43% of smartphone + feature phone profits for the quarter. Incredible, really, when you think about it.

I have been watching Samsung very closely for many years. In fact, from 1990-1998 I consulted with them on their US retail strategy and always saw them as a major player in tech, even through their PC business in the US struggled. One of the things I understood, even back then, was their vertical integration. This means that for the most part, they make their own components that go into their devices. This gives them a real advantage over other vendors who have to outsource all or most of their components for their products. This is one area that continues to be a threat to Apple as Samsung’s vertical integration gives them quite an edge.

However, when it came to software and services I saw that this was an area that they were very weak at. This remained true until about three years ago, about the time they started going to school on Apple’s successful model. Like all of Apple’s competitors, they now know that for them to succeed they have to deliver very competitive hardware, software, AND services. To Samsung’s credit they have really taken the software challenge to heart and have been expanding their skill set and expertise in software design and development in a big way. In fact, we hear that a big part of Samsung’s facility expansions in San Jose, CA will be focused on software development.

This is really evident in the new Samsung S4 smartphone. I have been testing one for the last week and am very impressed with their software prowess. It is clear to me that while Apple’s software skills, expertise, and ecosystem is still much stronger then Samsung currently, in my opinion, I have no doubt that Samsung is serious about software innovation and is building up the team to give them the skills needed to compete with Apple head-on at the software level. They are still weak and tied to Google when it comes to services, but even here there is a chance Samsung could enhance their service position in the future.

Going Down Their Own Path

Two features really stick out among the dozens of new UI enhancements in the S4. The first is called Air View, which allows you to hover your finger over an email or message and the first 5 lines with the subject and email or message pops up so you can see the gist of the email without opening it. The other feature is called Air Gesture, which allows you to just wave your hand to answer a call or turn a page. Both of these new features tell me that Samsung understands the need to innovate at the software level and that they racing forward to do it. Regardless of how you feel about these features or whether they are gimmicky, strong hardware + software chops were required to execute.

On a side note, Samsung’s recent decision to integrate their own OS called Bada, into Tizen, an open source mobile OS backed by Intel, is also strategic. For Samsung to be successful over the long-haul they must control their own destiny. By using Google’s Android as a core OS, they are still beholden to Google for their OS directions. I personally think that over time they will eventually migrate completely to Tizen but only time will tell if this will actually happen.

Although reviews of the Galaxy S4 have been mixed, I believe that this phone starts a new chapter in Samsung’s strategy in which software is now seen as the crown jewel and for Apple and all of Samsung’s competitors, this becomes an area to watch closely as they try to use it to really set them apart from Apple and the rest of the Android vendors they compete with.

The biggest threat Samsung poses to Apple, and others for that matter, is their goal of further becoming a software company. Only time will tell if they can forget their own software path but regardless they are going to try.

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Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.
  • David Olson

    The thing that strikes me about Samsung is that it is the first time I ever thought of the number two computer maker not being a US company. Perhaps their total numbers are not there yet, but with what Samsung has learned from copying Apple and with the support of the lack of patent enforcement, they will be soon. Tim, through the years you have rightly called a number of tech trends way ahead of others. I think you have done it again.

    • http://twitter.com/snookasnoo Idon’t Know

      I just want to know how much Samsung paid him for this article.

      • steve_wildstrom

        I was going to delete this comment, but left it up so that I could reply to it.

        “How much did X pay you” is a charge that gets thrown around all the time by people who happen to disagree with something. Maybe they don’t realize just how serious an accusation it is for them to make without a shred of evidence to support it.

        Please feel free to disagree with anything you see written here. We really value debate and dissenting opinions. But let’s not throw around charges of serious misconduct.

        • Hosni

          Steve – I agree with the sentiments of your comment. However, now that it has been revealed that Samsung pays people to post things online disparaging the products of its competitors, the statement from Idon’t Know is pertinent. If it had been Microsoft or Blackberry rather than Samsung, then your comment would have stood on its own.

          The comment from David Olson strikes me as a strange one. He didn’t know that Samsung was a foreign company before now. Seriously?

          Samsung pays for online comments defaming competitors:
          http://www.pcadvisor.co.uk/news/tech-industry/3442252/taiwans-ftc-investigating-samsung-for-defaming-htc-on-local-online-forums/

      • Rich

        Boo hiss to you!

  • dave chisnell

    This is the exact opposite of correct. To be really competitive with Apple Hardware manufacturers need to be at a level to match the magic of the OS, then they can tilt the audience with whatever bells and whistles. This is a ridiculously tall order for any Hardware company, and it took Google, one of the biggest names in software many iterations to get there. Hardware manufacturers giving up the advantage of Google’s experience and iterations in favor of differentiation that makes the product less viable is the reason Apple is still on top. Unless Samsung et al. can truly match or beat Google/Apple on software, this advice is the absolute worst possible strategy.

  • http://twitter.com/snookasnoo Idon’t Know

    Ridiculous. Many of the new and existing Touchwiz features barely work. Touchwiz on the S 4 is widely derided as being ugly, slow, in your face, the cause of a bloated rom with many ‘features” that are designed to be used in commercials more than by actual users. Is this yet another paid Samsung astroturf article? Because it sure reads like one. My opinion of techpinions just went down a notch. I thought they were more selective than this.

    • benbajarin

      As much as we have, and will continue to be critical in our analysis, it is good to be optimistic as well and often make the bull case for companies.

      Believe me when I say that in our private analysis both Tim and I have shared our doubts that Samsung can pull off what Tim is mentioning. But we believe in innovation and we believe in this industry. Each company deserves a fair analysis and in this article, Tim looked at the potential and the opportunity more than anything else.

      Obviously if you have read much of our stuff you would know where we stand on the bear case for Samsung. There are two sides to every analysis and in our public columns we can’t cover every base like we can in our industry reports.

  • Tim Bajarin

    Perhaps I was not clear enough but the heart of this is that software is where the real magic is and whether you agree or not, Samsung understands this. I have had no trouble at all with the new touch features and in fact they work extremely well on the test version I have. BTW, we are the last on Samsung’s list to get test products as they hardly talk to us.

    • http://twitter.com/dmkraig Donald Michael Kraig

      Tim, so as not to upset Steve, I’m going to respectfully disagree. Saying that software or hardware is “where the real magic is” sees what is going on from a very narrow view. Your comment is right in line with what the people at Microsoft used to say, and now they’re desperately trying to get into hardware before they become completely irrelevant.

      The real magic is the synergy between the hardware, the OS, the UI, and the available software that runs on that quadrangle, combined with the company’s ability to constantly massage those with input to the quadrangle (Ballmer’s Developers! Developers! Developers!) as well as make endusers want to use all four.

      Few people want Samesung smartphones and fewer want their tablets. They are accepted only as alternatives to the iPhone/iPad environment. This is because Samesung cuts corners everywhere. The build quality is lower (HTC is now attacking them for this), the interface is not as responsive as the iPhone, and the Wild Wild West format of allowing anything onto their phones has resulted in over 90% of all mobile malware attacking Android (and by default, Samesung). And of course, they cut corners in R&D by copying Apple.

      Further, because of Samesung’s dependence upon Android, they are at the mercy of Google, something that companies like Dell, Lenovo, etc. have experienced in regard to Microsoft. No wonder they’re desperately trying to develop their own OS, Tizen.

      Right now, the tech media is in a “Let’s destroy Apple!” frenzy, printing silly and absurd stories in an attempt to doom Apple. One of the most recent is Bloomberg’s story of how a 14-year-old girl “discovered” that the magnets in Apple’s iPad cover could harm the functioning of a pacemaker. What they don’t say is if she discovered this, she discovered it in the manual that comes with the iPad where it is clearly explained. Any powerful magnets can disrupt the functioning of a pacemaker. I would suggest that your article is simply a late-to-the-party pile on. Congratulations on getting lots of clicks.

      • benbajarin

        Out of curiosity, have you read much of what we have written on Apple?

        We have and are criticized for overly analyzing all the points you made about their ecosystem. We do it because it’s important and interesting.

        Samsung and all tech players regardless of the publics opinion deserve a fair analysis as well. Plus in a 1000 column one can only tackle so much. Our industry reports are more comprehensive for obvious reasons.

    • AJ S

      samsung is great mate you are just wasting your time talking to these dI*ks

  • Armando

    Techpinions – Perspective. Insight. Opinions…Got to love this site! To all contributing writers, keep up the good work.

  • http://www.facebook.com/profile.php?id=1573495479 Rene Stein

    I think that you, like the features described, are being very superficial. Samsung doesn’t have the experience of maintaining a successful OS. This is much more difficult that creating whiz bang features on top of an already created OS.

    Where Samsung currently fails is creating an OS with rich APIs that are widely supported by developers. I don’t see them with any type of experience in this. This is where iOS has the largest lead. Apple currently has the largest percentage of phones running on the most current APIs out of any of the software vendors. This allows developers to create the most modern software and have it used by a lot of people.

    This is why iOS is such an attractive platform for software, and software innovation. I don’t think that Samsung is anywhere close to Apple in terms of this. Google is having a hard time doing this.

  • def4

    I’m curious about this notion of Samsung moving away from Android to Tizen.
    It has been parroted by many bloggers without any supporting arguments.

    Samsung may indeed like the idea of having all of their Android customers magically using Tizen over night, but that’s obviously impossible.
    Making the transition happen in reality and not just in bloggers’ wild imaginations is difficult, time consuming, expensive and very risky.
    Why should Samsung risk their dominant Android OEM position on the same kind of stupid move as the Windows 8 Metro fiasco? Keep in mind that Samsung’s position is nowhere near as strong as Microsoft’s Windows monopoly.

    It seems much smarter to me for Samsung to continue to add to their software differentiation on top of Android instead of trying to duplicate Google’s effort with Tizen.
    Tizen is fine as a hedge just in case Google turns on them, but voluntarily abandoning Android would make Elop’s public execution of Symbian look like a genius move.

  • Hwangula

    Apple should purchase the entire production of Samsung GS4 and sell them as Apple iPhone 6. Apple will make more money than trying to make their own iPhone 6.

    • http://www.facebook.com/art.hackett.3 Art Hackett

      Haha good one…….but seriously, why are you here? This is from the sack Tim Cook school of business advice, which would suit Samesung, but I’m sure where you come from, it’s a good idea.

  • Alfiejr

    Samsung has the usual fixation of the Asian OEM’s on gadget/feature overkill – bells and whistles you don’t need and few actually use. this started way back in the early audio/video hardware era. basically it’s just too complicating.

    Google has a similar kitchen sink attitude about web services. some work out great, but many are just complicating distractions that few use too.

    i really don’t think any of that adds up to a “threat” to Apple’s simple & easy iOS mantra. but Apple does have to stay at the top of that approach, since the rest will copy what it does ASAP. iOS 7 will be crucial – along with Jon Ivy’s new look, it has to include some significant advances in “easiness.” a universal fingerprint password system, for example, would be a true “killer” feature.

    so a critical turning point may be coming next month at WWDC when iOS 7 is unveiled.

  • http://www.facebook.com/people/Roy-Liu/703443252 Roy Liu

    This is why I think Apple’s acquisition of semiconductor/microprocessor design teams will be critically important. If you view the hardware “stack” and software “stack”, given that everyone is using an ARM-based core, there’s only so many areas to achieve true differentiation.

  • mhikl

    As an aside, in regards to some of the posts that have been appearing in T•P of late, I suspect words couched less like an attack would encourage thought and are more likely to generate discussion. I never reply and eventually don’t read such returning writers and to even give a negative vote shows notice is being taken and may be interpreted as justifying the writing style. I’ve noticed here that irrelevant comments most often are just ignored.

    What a newcomer to T•P might not recognise at first is that the analysts’ constantly challenge us in delightful and thought-provoking ways. Skim reading is a sure way to miss points and subtlety in high content analysis.

    • benbajarin

      Thanks for making a solid point. The challenge we have is that we are growing and getting many new readers, and many will not have read much of what we have written in the past on such important topics or understand the foundation we have laid with many of our columns to date. I think I am going to start including some footnotes on columns like this that counter balance some points and like to articles that further flesh out elements that there were not enough room to dive into in the stand alone column.

      Still experimenting :)

      • jkcomics

        Good idea – this from an occasional reader.

  • http://twitter.com/jonnyevans_cw jonny evans

    Hi Tim,

    I completely agree that software (and services) is the new rock N roll. You could of course argue it always has been, since iPhone 1, which offered a software based accomplishment no one at that time was able to match.The other battlefield is a funny one: smartphone sales are hitting a new wall comprised of access to components, Samsung has some advantage here, but even it needs to secure certain components elsewhere. Given that it’s likely all players will have to navigate a market in which growth is boundaried by access to components, the value of the user experience will become even more critical. Sure, component manufacture will catch up, but customer loyalty and retention becomes even more important when the number of phones that can be manufactured can’t actually match demand. Anyway, I wrote some other stuff here. http://blogs.computerworld.com/smartphones/22218/smartphone-biz-hits-component-barrier-apple-loses-its-throne