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AH Primetime: The Rise and Fall of Samsung’s Smartphone Market

February 28, 2015 - Written By Cory McNutt

The world of technology moves at what seems like the speed of light when compared to other industries.  None so much as in the world of smartphones – it seems as though the dog has been replaced as our newest best friend with a plastic, metal and glass device that never leaves our side.  The rise of the smartphone is meteoric, as they have become our go-to accessory.  We use them to make and receive phone calls, send/receive emails, text our family and friends, replaced the iPod for our music listening, track our daily exercise, become our main way of doing banking, replaced the point-and-shot cameras and soon will be our main source for purchasing items at POS counters.

This fast rise in smartphones has also seen the rise and fall of many manufacturing giants – Nokia and BlackBerry are the first to come to mind, but even HTC fell from its graces as a newcomer arrived on the scene…Samsung.  Samsung’s quick rise to fame came about from two things – its Galaxy S series and a successful advertising campaign under the watchful eye of their US Head of Marketing, Todd Pendleton and his team.  What Samsung thought would take them five years to accomplish, Pendleton was able to do in just 18 months.  Samsung’s Korean execs wanted to pick off HTC, then Motorola, then BlackBerry and finally, Apple.  The US team wanted to attack Apple from the beginning, creating a Coke versus Pepsi sort of fight.  It was a gamble, but it worked and the ads with lines of Apple users and “The Next Big Thing” campaign were a work of art – creating the perception that there was something better out there than the iPhone and that you, as a customer, have a real choice.

The first big ad campaign started in November 2011, with a series of ads that portrayed a bunch of hipster type people standing in long lines to purchase the new iPhone, while at the same time they spotted others walking around using something better.  The Galaxy S II had a big display, compared to Apple’s puny 3.5-inch screen, and had 4G wireless connectivity – two attributes missing from Apple’s new iPhone 4S.  In addition, you didn’t have to waste your time standing in line…you could just walk-in any carrier and grab one.

“The Next Big Thing” campaign took it to the next level and by the end of 2012, Samsung’s profit went up an unheard of 76-percent due to their mobile division.  Samsung and Apple were the only ones making a profit in mobile sales.  With Samsung beating down Apple’s dominance, in January 2013, even the Wall Street Journal published its famous headline, “Has Apple Lost Its Cool To Samsung?” Samsung was churning out the smartphones using their Super AMOLED display technology and in 2013, their Galaxy S4 was their fastest selling smartphone and sold over 40 million units.  But as we all know, “with great power, comes great responsibility,” a concept that Samsung seemed to ignore.

Even with this string of successes under its belt, the US team was constantly being chastised by its Korean headquartered company.  In Korea, all major (and most minor) decisions must be made in Korea, by Koreans, not from in the US.  There was constant distrust, internal audits of the US headquarters, and even personal displays of embarrassment that were clearly not warranted. Expansion in other countries other than the US became very difficult because of Samsung’s reputation.

In the fall of 2011, Samsung released the Galaxy Note series with a 5.3-inch display while Apple was still using a 3.5-inch.  Many critics ridiculed it as being too large and the WSJ’s own tech guru Walt Mossberg compared it to holding up a piece of toast to your ear.  In the US, only AT&T sold it, but with each subsequent year, it became a huge success, was sold on all US carriers and Samsung defined the new phablet market.  Samsung kept manufacturing larger displays while iPhone users were stuck with their 3.5-inch and finally 4-inch displays.  Samsung was flying high and Apple’s only real competition, but all of that changed with the release of the Galaxy S5 and falling profits that followed the company throughout 2014.

Despite the many indicators, Samsung refused to depart from their ‘business as usual’ approach.  They made many improvements in their Galaxy S5 device – toned down the gimmicky features of the Galaxy S4, improved the camera (still with no OIS) and added a water-resistant body – but was still all plastic and looked basically the same.  Reviewers were kinder to it than critics, but the damage was already done – it looked the same, was still all plastic, and was very expensive – it was just a rehash of the Galaxy S4 and no real innovation to speak of.

Samsung rose to the top at a meteoric rate, but they really had no idea how they got there or how to sustain their stature.  When Samsung first started selling smartphones, they had a wide distribution advantage, both in the US – where the iPhone was only available on one major carrier, whereas you could buy a Samsung device on all major and minor carriers – but also in the developing nations, where there was no competition.  As the iPhone became available on all US networks as well as on China Mobile early last year, along with China’s own companies, like Huawei, ZTE, Lenovo and Xiaomi, starting to churn out feature filled smartphone for less than half the price of a Samsung, the tide was quickly shifting while Samsung was still playing in the sandbox.  It was as if Samsung was being beat in the high-end market by Apple and in the low-end market by Xiaomi.

While Samsung isn’t going anywhere – they manufacture all kinds of consumer items, from household appliances to HDTVs to air purifiers and enterprise business items like displays, chips, memory and ‘Internet of Things’ (IoT) which will connect everyday items such as light switches, thermostats, alarms, refrigerators, washing machines, dryers and even toasters to the internet, for more consumer control.  But that does not mean that the launch of the new Galaxy S6 is not important to Samsung – it would love to reach the status it once enjoyed in the smartphone world.  However, the landscape has changed so much, that ride to the top and back down, will probably never be duplicated again.  Getting back their reputation as an innovator and selling high-end smartphones is probably all they can hope to achieve…and with Samsung’s ego, that may be enough.