The ad opens with a shot of the young and the hip, lining up for the launch of Apple’s iPhone 5, united by flannel, black-rimmed glasses, strategically scruffy facial hair and white earbuds.
“Hey, they’re saying that this phone is going to be like a precious jewel.”
“All I’m saying is that they should have a priority line for people who have waited five times.”
One guy holding a Samsung Galaxy SIII says he’s just saving a spot in line for someone. Turns out that someone…is his middle-aged parents. Zing.
Not long ago, this recent Samsung commercial would have been laughably inaccurate—and to some, borderline blasphemy. You dare to criticize the creative digerati lining up for each and every iPhone iteration? Neuroscientists have compared brain activity in Apple fanatics upon seeing iProducts to religious zealots shown holy imagery. How the hell do you compete with that?
That’s been the question facing Apple competitors since the dawn of the iPhone in January 2007. It may have taken almost five years for someone to find an answer, but it’s happened. Over the past 18 months, Samsung has managed to not only match the iPhone’s technical prowess but perhaps more important, convince consumers that cool doesn’t have to be spelled with a lowercase i.
In the second quarter of 2012, Samsung shipped about 50 million smartphones, the most ever shipped in a single quarter by any vendor, according to market research firms Strategic Analytics and IDC Worldwide. By contrast, in the latest quarter Apple sold 26 million iPhones and Research In Motion shipped just 7.4 million Blackberries.
Just as the iPhone educated one-time giants like Nokia and RIM to rubble, now Samsung has managed to wreck havoc on Apple’s once invincible image. So how did a company that sells everything from refrigerators to insurance become the world’s bestselling smartphone maker? The answer is equals parts smart engineering, killer advertising and a volatile market where nobody—not even Apple—stays the hip new thing forever.
After years of consistent Apple domination, the quality of new competitors has risen. Couple that with the robustness of competing operating systems, like Microsoft’s Windows 8 and Google’s open-sourced Android, and smartphone consumers seem to have finally been shaken from their default settings of iPhone-or-nothing. Over the past few months, there’s been a flurry of launches, releases and unveilings in the market, ushering with it a level of competitive optimism not seen in half a decade. In May, Samsung unleashed the Galaxy SIII, beating the release of the iPhone 5 by four months. Between these two seismic events, HTC launched new Android phones, Nokia unveiled the latest offerings of its Windows-powered Lumia series, and RIM previewed its long-awaited BlackBerry 10 devices.
A lot of action, but the smartphone race is quickly becoming a two-horse affair. “Apple and Samsung are very much running away with the smartphone race globally, and it’s especially true in a developed market like Canada,” says IDC analyst Kevin Restivo. “They’ve created a growing gap between themselves and competing smartphone players. It’s still a relatively young industry, and there are a number of other players, but those two get the most attention for good reason.”
But while Apple has been a trophy-winning thoroughbred for the past five years, as recently as 2010 Samsung looked more like a sick donkey. When confronted with the original iPhone, Samsung leaders declared the company’s mobile division in crisis. In an e-mail admitted into court documents for the recent patent-infringment lawsuit Apple launched against Samsung in California, Samsung’s head of mobile, J. K. Shin, wrote: “Influential figures outside the company come across the iPhone, and they point out that ‘Samsung is dozing off.’ All this time we’ve been paying all our attention to Nokia, and concentrated our efforts on things like Folder, Bar, Slide.…Yet when our UX is compared to the unexpected competitor Apple’s iPhone, the difference is truly that of Heaven and Earth. It’s a crisis of design.”
The speed with which Samsung has been able to vault to the top of global smartphone sales comes partly thanks to its willingness to take on Google as a partner. Using Android, the search giant’s popular open-source OS, gives manufacturers a free platform that rivals the user-friendliness of Apple’s iOS. But it also allows them to tweak the system to their liking, while offering seamless connection to all Googley goods and the only collection of apps comparable to Apple’s App Store. Restivo says Samsung owes a huge part of its turnaround to hopping on the Android bandwagon and eschewing its own less popular OS called Bada. As Apple can long attest, success in the smartphone race is just as much about the software, operating system and apps you can use as it is the hardware.
But while Samsung has matched Apple’s software prowess, it’s chosen a significantly different hardware strategy. Apple essentially sells one model—the one and only iPhone. Samsung’s smartphone sales success, by contrast, is thanks to having a variety of models across all price points. Depending on the carrier, with a three-year contract you can choose from a Galaxy S Glide for the bargain basement price of $0, opt for the 4G Galaxy SII X for $49, or the top-of-the-line Galaxy SIII for $159. And the SIII boasted the big ultra-HD screen and ability to run multiple apps simultaneously long before the iPhone could do the same.
It’s one thing to build a device to match the Phone That Jobs Built or beat its price—it’s much tougher to penetrate Apple’s cloak of cool. To accomplish that, Samsung was forced to make fundamental changes to its marketing and advertising philosophy.
“We used to be very product centric in our marketing, show you a big device, show you the techs and specs, the features,” says Andrew Barrett, Samsung Canada’s vice-president of marketing. “But our advertising over the last 12 months is much more consumer-benefit-focused. In the Galaxy ads, we don’t just talk about how you can do NFC [near field communication], we show a couple exchanging a message through the glass at the airport for consumers to vividly see that benefit. So we’ve started to create some emotion around the brand, and that’s a big shift for us.”
Samsung Canada scored a major hit when a simple Facebook exchange became international news. Back in May, 26-year-old Shane Bennett posted a note on the Samsung Canada page asking for a free SIII and cheekily attaching a doodle of a fire-breathing dragon. The company responded that it couldn’t send the freebie but “your drawing of the dragon is epic, so we’re returning the favour. Please find attached a drawing of a kangaroo on a unicycle.”
Bennett posted the exchange on Reddit, and the story spread online with cat-video-like quickness, covered by news outlets around the world as a prime example of corporate social-media marketing done right. Three months later, the story got more legs when a customized SIII showed up on Bennett’s London, Ont., doorstep, with his dragon drawing printed on the exterior of the phone. A simple gesture, rewarded with millions of dollars’ worth of positive media.
It also hasn’t hurt to steal directly from the Apple playbook. Those Samsung ads lightheartedly mocking iFollowers? Written by the same guy who wrote some of Apple’s insanely popular “Mac vs. PC” spots.
Samsung’s hard-fought campaign for hearts and minds in its marketing is also affecting the battle in the trenches at the retail level where emotion translates into dollars and cents. At Toronto’s Eaton Centre on a busy Friday afternoon, outlets for Bell, Rogers (which owns Canadian Business) and Telus are bustling with twitchy-thumbed consumers eyeing the multitude of mobile options. But two models stand apart in both prominent placement and customer demand.
“They’re basically the same,” says a bubbly Telus sales rep, when asked about the difference between the iPhone 5 and the Galaxy SIII. “The Samsung is a lot more fun, with more free apps and customizable screen options. The iPhone 5 is selling great, but the Samsung is still going strong.”
A Bell sales rep says the store sells about 70 Galaxy SIIIs every day, and sales actually went up the day the iPhone 5 launched.
Over at the Rogers kiosk, the rep sums it up simply, “The iPhone 5 is easy, but the Samsung is fun.”
Apple’s iPhones are never deeply discounted or subject to sale specials. It’s set-price strategy has worked well so far, but now that rivals are technically measuring up, cracks are beginning to appear. None of the three carrier’s sales reps went into detail on the iPhone 5 when asked to compare it to the Galaxy SIII. The conversation went immediately to all-things Galaxy. Which, incidentally, was on special in some cases for $0 with a three-year contract, compared to iPhone 5’s $179 price tag with the same plan. Meanwhile, this past summer Samsung opened its first independent North American (and very Apple-esque) retail store in Vancouver, with plans for more across the country.
Matching Apple in the marketplace has led the two into courtrooms around the world, where accusations of patent infringement abound. In August, a California court awarded Apple $1 billion in damages after ruling against Samsung. A month later, Samsung asked for a retrial based on its investigation of the jury foreman. They claim that in 1993, the foreman lost a lawsuit to his former employer—a Samsung partner that was later acquired by the company—and ended up filing for bankruptcy. But whomever wins in the courts, the proceedings have provided an unexpected benefit to Samsung, by essentially touting its less expensive products as Apple’s equal. The suits are “a sign of how seriously Apple takes Samsung as a competitor, trying to whack them with a legal stick as well as a competitive one,” says Neil Mawston, executive director of Strategy Analytics.
Despite the legal hair-pulling, the two companies remain incredibly close business partners. Samsung is Apple’s single largest parts supplier, selling its rival a number of key components for both the iPhone and iPad. A Samsung executive recently told Reuters, the “supply contract remains a separate issue from the litigation, and there’ll be no change to it going forward.”
Samsung’s hasty ascent among smartphones is also a testament to the volatile nature of the mobile market, one where the next major disruption is never far away. Back in the 1990s, Motorola’s clamshell flip cellphone design reigned supreme. Then it was Nokia’s candy-bar style. Next came the CrackBerry, followed by Motorola’s Razr flip phone. And then Steve Jobs changed everything. But now a multi-tiered market is emerging, with three distinct competitive arenas. While Apple and Samsung battle for top spot, brands like BlackBerry, Nokia, HTC, LG, Sony, Motorola and a few Chinese brands like Huawei duke it out in the second tier. Lastly, there’s the rest of the pack, made up largely of low-cost Chinese competitors like Lenovo, ZTE and Xiaomi.
It’s in these low-cost competitors that some analysts see the potential for another major market shift. “There are hardly any iPhones in Africa but more than 700 million phone subscribers,” says Restivo. “In theory, that’s a massive opportunity to get smartphones into people’s hands. So the low-cost phone and OS producers could arguably be a disruptive force in the industry.”
At the upper end, others contend things are due for a shake-up. RIM chief marketing officer Frank Boulben says the smartphone user experience is at a point of maturity. “Five years to change a user paradigm is a normal life cycle,” he says, pointing to iPhone’s 2007 debut as the last major market development. “The consumers are ready for the next wave of innovation.”
RIM is hoping its approach with BlackBerry 10 will be that next wave, one that uses the mobile device as a primary computer with the ability to jump from personal to corporate use seamlessly and securely.
The difference between disruption today and even just a few years ago is the increased emphasis on software, and how much consumers invest in their chosen ecosystem. Once upon a time, your only constraint in switching brands was the cost of the phone. Now you get sucked in deeper with paid-for apps and increasing customization, and it gets difficult to escape. “It’s about the total offering,” says Mawston. “Not just hardware or software, services or advertising, but all of those points combined.”
With more apps, developers and users than anyone else, Android and Apple are the undisputed leaders of smartphone ecosystems. And while there are still a multitude of brands using Android for their devices, the overall success of Google’s mobile OS has become more and more synonymous with Samsung. It may be atop the leaderboard today, but if Samsung’s recent success tells us anything, it’s that the race for cheaper, faster, better isn’t over yet.