Samsung’s Precarious Position

Samsung, I believe is in a precarious position. I’ve felt this way for quite some time despite their continued growth in mobile over the past few years. But my reasoning comes from understanding how Samsung got to the position they are in with regard to mobile and concluding that the current strategy is not sustainable.

Firstly, you need to understand that the vast majority of Samsung’s huge sales come from outside the United States. Take a trip to China, India, and other quickly growing smartphone regions and you see a vastly disproportionate amount of Samsung devices per others in retail. Samsung’s growth in these regions is tied to form factor variety and price that is it.

Samsung’s premium line has been steady doing ok in the US but still less than 20% of all US smartphone sales of devices wholesale of $500 or more. In other parts of the world Samsung’s premium line has done better as it appears the Galaxy line is on track to ship 43-45m units this quarter. Still most of those outside of the US.

In this chart we see what the distribution of current market share estimates by sales from each vendor on a WW basis.


Apple dominates Samsung in premium devices sales in the US and to a degree in Western Europe. But when you look at the chart above you see that the rise of “others” is the source of Samsung’s precarious position. Growing strong regional brands like Xiaomi in China and MicroMax in India are rapidly eating into Samsung’s global sales of smartphones. And I don’t see this trend stopping.

MicroMax has done an amazing job managing their brand and going right at the core value proposition of Samsung in India. Similarly so has local Chinese brands like ZTE, Huawei and more important Xiaomi.

Many of these local and regional competitors are coming back and are employing strategies Samsung simply will have trouble competing with given their current strategy. What I mean specifically is that Samsung is not doing enough to create brand loyalty or ecosystem stickiness. Samsung is stuck in a continual cycle of competing for consumer choice. This is much more precarious position to be in because next year you must compete for the same customers as equally hard as you did this year.

I’d argue that this is not the case for Apple. They have loyalty that is un-parralled and upgrades from existing customers are practically an guarantee. Apple can focus on new customers, all the while satisfying existing in their ecosystem with new hardware, software, and services. Samsung does not have this luxury, they compete for new and existing customers every year.

Both Apple and Samsung, however, are going to be challenged by regional brands in areas like China and India where regional services are more relevant and more specifically proprietary. I’m convinced at this point that for Apple and Samsung to have a larger play in those regions they will need a much more regional centric strategy than they do today. I see what is happening in China and India as a problem for a global company deploying more global strategies than regional ones specific to those foreign growth areas.

Samsung understands its weak competitive position and it is the sole reason it is necessary for them to spend massive amounts of money on advertising.

Screen Shot 2013-09-26 at 10.09.02 AM

To the ecosystem point, this is exactly the fascinating strategy Xiaomi is employing specifically related to China. Xiaomi, has the potential to create services and ecosystem lock in if they do their services right. Right now they run a heavily customized version of Android but it is tightly integrated into their core services which is a cloud messaging service, security service, and backup services. This is likely to expand to media, games, social networks, etc.

The key takeaway for Samsung’s position is simply the rise of the local brands in the areas where they have been the most successful to date. We will see how Samsung responds and if they are capable of building their own services framework on top of Android. This in my opinion is absolutely critical for Samsung to get right if they want to remain a major player in the future of computing.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

6 thoughts on “Samsung’s Precarious Position”

  1. This is one of the reasons why Apple is heavily investing in iCloud. They suck at it, but it is quintessential that they have an element that invokes stickiness.

    Devices can no longer be sold in isolation. I saw this in the luxury car segment, even a few years ago, where Audi and BMW delivered a great deal of business into Apple’s lap because other phones were not (and still are not) given as much consideration when the vehicle is designed. The car becomes a $40K-$180K accessory for the phone; hence, Apple’s push toward integrating iOS tightly into cars.

    I don’t think Google understands that, though Microsoft may. There’s a rapidly closing window for entrants. Apple is effectively building a keiretsu, where the stronger your commitment to Apple, the more benefit you get from your products.

    I believe Google is realizing that Android has gotten away from them, but has not realized that they MUST win or they will eventually be locked out, lest there is government intervention.

    I’ve already heard certain statements:

    “I don’t like Windows Phone; it doesn’t work with my Withings scale.”
    “All my music is in iTunes; I’m not buying everything again.”
    “Wait. Ford Sync (by Microsoft) won’t work with my Lumia?”
    “I love how my Tesla works with my iPhone.”

    Add on commerce (through TouchID) possibly shutting out NFC, and it’s easy to see society falling along brand lines.

    “I’d like to return this phone; I can’t do iSwipe at the Starbucks/fast food drive thru/grocery store.”
    “I don’t care if the phone is free; if I can’t use it with my $50,000 car, it’s dead to me.”
    “Which televisions do you have that support AirPlay 4K?”
    “I want one of those washing machines where my phone tells me when the clothes are done.”
    “Does your home alarm system work with my iPhone fingerprint scanner?”

    1. @davebarnes – Three sentences. So you read 50% more than you perceived. The beauty of these exclusives is that it doesn’t seem like you read as much as you really do.

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