Battle Of The Tablet Business Models: Samsung Galaxy Tab

on September 28, 2012
Reading Time: 3 minutes

RECAP

We’re looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we focus on the Samsung Galaxy Tab.

4.0 Samsung Galaxy Tab

4.1 WHERE DOES THE SAMSUNG GALAXY TAB MAKE ITS MONEY?

When introducing the new Amazon tablets, Jeff Bezos said:

“We want to make money when people use our devices, not when they buy our devices.”

Samsung licenses its software for free from Google and, like Apple, they make their money when people buy their tablets. Unlike Amazon and Google, Samsung makes little or no money from the sale of content or apps. Unlike Microsoft, Samsung makes no money from the licensing of an operating system.

4.2 WHERE DOES THE SAMSUNG GALAXY TAB PROVIDE VALUE?

Samsung tablets provide value in (at least) three ways.

First, their hardware is generally very good. It may or may not be of the quality of Apple but it is certainly more than good enough.

Second, since Samsung gets their operating system software from Google for free, and since Samsung is an extremely efficient manufacturer, they can often offer their tablets for lower or comparable prices.

The above advantages are somewhat mitigated by the fact that Samsung has to pay Microsoft a licensing fee for the use of Android. Also, Apple’s supply chain prowess has allowed Apple to order supplies in such great quantities that they’ve been able to keep their prices quite low. Still, on the whole, Samsung tablets are almost always available at equal or lower prices than that of the competition.

Third, Samsung has excellent distribution. This should not be underestimated. The greatest device in the world is of no value to the consumer if it’s not sold in their country or if it’s priced out of their financial reach.

Samsung’s tablets provide value because they are well made, inexpensive (but not cheap) and available most everytwhere.

4.3 SAMSUNG GALAXY TAB BUSINESS MODEL ADVANTAGES AND DISADVANTAGES

Despite Samsung’s many strengths, their business model for tablets is a disaster and it must frustrate the life out of them. Samsung’s hardware, prices and distribution are excellent but it just doesn’t matter.

First, Samsung gets their Android operating system software from Google for free, and while Android has proven to be an excellent smartphone operating system it is not optimal for tablets. There is a fundamental difference between an app designed for a smaller (3.5 to 5 inch) screen and an app designed for a larger (9.5 to 11 inch) tablet screen. Google’s stubborn refusal to optimize their software in order take advantage of the tablet’s larger screen size has crippled the larger screened Android tablets. For more on this, please see my article entitled: “With Apps, Size Matters.”

Second, while Apple, Amazon and Google make money from the sale of content and apps, Samsung does not.

Third, since Google supplies the Android operating system to Samsung, Samsung has no control over the store and no control over the platform. Samsung can do nothing to make the store more attractive for their customers or make the platform more attractive for developers. Samsung is wholly reliant upon, and wholly at the mercy of, Google. This is even more unfortunate for Samsung because Google has proven to be an indifferent steward of the Android store and platform.

Fourth and finally, with the introduction of the Google Nexus 7, Google – the licensor of the Android operating system software – is now a direct competitor to Samsung. And since Google has decided to subsidize the price of their product, they’ve completly undercut Samsung’s tablet business model. Unlike Google, Samsung can’t make up lost sales revenues with the subsequent sales of content and apps. With Google selling the Nexus 7 for $200, Google has made it all but impossible for Samsung to sell their $400 to $500 tablets.

Summation

Samsung is a proud and powerful company but I don’t know how much longer they can continue to compete in the tablet market. They are being attacked from above by Apple, below by Amazon and Google and soon Microsoft will be entering the fray. And Samsung has no competitive advantages. They can compete against Apple on hardware and software but not on ecosystem. They can compete against Amazon and Google on hardware and software but not on price. And the things that Samsung needs to change in order to be competitive – content, apps, ecosystem – are entirely out of their control.

Samsung is simply in a no-win situation.

NEXT

We’ve now looked at the Apple, Amazon, Google and Samsung tablet business models. Next week, we look at Microsoft’s Surface tablet and wrap up the series.