Is there another smartphone competitor that’s as profitable as Samsung? Oh, yeah. Apple. Here’s Samsung’s problem in a nutshell. Among Android-based smartphones and tablets there’s a herd mentality race toward the bottom where profits do not exist, and among Android device makers, Samsung has most of the profits, and that amounts to almost nothing.
To be fair about the prediction, I’m not the first person to say that Samsung will exit the smartphone business. Unless the company’s criminal executives can figure out a way to slice off some of Apple’s monstrous profits or keep the Chinese knockoff artists from duplicating everything that Samsung does at less than half the price, well, the clock is ticking.
Samsung knows the clock is ticking because analyst Tim Bajarin told them just that a few years ago. It’s not that Samsung’s executives didn’t listen (maybe they didn’t) but they didn’t do much about the problem that was so apparent. Being wedded to Android is like being a PC maker who sells PCs with Windows. No matter what, your box looks and works much like everyone else’s box, so it’s a race to see who can make the least amount of profit on the cheapest products because customers don’t want to spend real money on a PC when down the aisle they can get exactly the same thing at one third the price.
You will see this same thing play out with Microsoft’s Surface Book, an expensive MacBook Pro-like PC which bristles with bells and whistles but costs even more than a Mac, yet, just like the $499 riffraff at Best Buy, it runs the same Windows.
Profits are in premium products and even though Samsung’s Galaxy line of smartphones and tablets are the premium end of the Android product spectrum, they Still. Run. Android. Android devices, like Windows PCs before them, are, as Bajarin calls them, ‘good enough‘ devices. If it runs Android OS, then cheaper is better and premium products struggle to compete on two fronts– cheap, plastic knockoffs on the low end and mid-range market segments, and Apple on the premium end.
In product marketing, differentiation is a key component of success. Samsung has difficulty differentiating its products from Android-based smartphones and tablets. Why? They Still. Run. Android. Premium hardware notwithstanding, every Android device works much the same way, so the classic differentiation is price, not features or premium build.
On the other hand, Apple differentiates across the board; hardware, software, ecosystem, price, and prestige. Apple’s products are aspirational in nature and differentiated by premium quality, fit and finish, and how the device works with others within the ecosystem. Mobile device owners can see the difference and then aspire to the premium end of the product spectrum. That’s where Apple rules.
Bajarin thinks “Samsung will be out of the smartphone business within five years.” Maybe so, maybe not. There’s a lot of pride at Samsung but profits rule and cutthroat executives who don’t mind criminal charges may not mind cutting their losses and focusing resources and attention on products that have a true return on investment.
Now, one should consider Samsung’s plight and extend it to the rest of the industry. Without profits, ongoing research and development becomes hampered. How long before Microsoft decides that Windows Phone was an interesting experiment in massive financial losses, and decides to do a Samsung, and quit the smartphone business? Even mighty Google, the father of Android, has yet to see a return on the tens of billions invested to date. While it’s unlikely that Google would drop its Android business entirely, it may decide there just isn’t a future profit in Android OS and then pull a Microsoft, write it off, hand it off, and go back to doing what it does best to gather 90-percent of its profits. Advertising.