It's long been suspected, but only recently confirmed: When it comes to advertising, Samsung (NASDAQOTH:SSNLF) is crushing Apple (NASDAQ:AAPL). Newly released documents from the firms' ongoing patent trial paint a troubling picture for Apple's advertising strategy -- the company knows it's getting beat.
Not only is Samsung outspending Apple, but it's putting out quality ads that have impressed even Apple's top management. Obviously, Samsung's willingness to spend is a threat to Apple, but it's also a challenge to Google (NASDAQ:GOOG)(NASDAQ:GOOGL).
Spending an "obscene" amount of money
In an internal slideshow, Apple noted that its competitors were spending an "obscene" amount of money on advertising. While it didn't name Samsung in particular, it was definitely referring to the South Korean tech giant.
Samsung's advertising budget is many times that of its competitors, most notably Apple. Last year, Samsung spent $4.3 billion on ads, more than 5% of its annual revenue. Apple, in contrast, spends less than 1% of its revenue on advertising -- in total, about $1 billion last year, according to Ad Age.
Playing from behind, Samsung's advertising budget may be necessary. Although Samsung ships more phones than Apple, it sells fewer high-end handsets: While Apple sold about 150 million iPhones last fiscal year, estimates suggest that Samsung shipped only half as many high-end Galaxy S4s and Galaxy Note IIIs.
Not just quantity
Of course, spending a lot of money on advertising is no guarantee of success -- consider the extensive, yet seemingly worthless, ad campaign for the original Surface tablet. Still, there's more to Samsung's advertising than spending a lot of money: Its aggressive ads targeting Apple fanboys have been widely praised.
Even Apple's management admits that Samsung has done a terrific job of marketing its products. In an email exchange with Apple's advertising firm, Apple's Senior VP Phil Schiller compared Samsung's advertising to an athlete "in the zone," admitting that it was "pretty good."
Google's other hardware partners feel the squeeze
It isn't just Apple that's exposed to Samsung's massive marketing budget: Google's other hardware partners, shipping devices that are arguably more of a competitive threat -- it's easier to switch from one Android-powered handset to another -- have been largely pushed out of the market.
HTC, for example, has seen its share of the U.S. smartphone market erode to almost nothing in recent quarters, while other would-be Android manufacturers, including Sony, have struggled to gain a foothold. The latest flagships from both firms are arguably better than Samsung's current offering, yet it would be quite a shock if either firm was able to outsell Samsung this year.
Investors and tech enthusiasts may be familiar with Android brand, but the average person is decidedly less so. They may be more familiar with Samsung's Galaxy brand than Google's Android, if search trends are any indication. Google has reportedly begun requiring its handset partners to display "powered by Android" during any Android device's boot-up period -- an odd requirement, but one that makes sense in light of Samsung's branding dominance.
Samsung's competitive advantage
A recent survey from ChangeWave Research suggests that Samsung's flagships have gotten (and continue to get) more popular over time. Samsung's customer loyalty, meanwhile, isn't as great as Apple's but, with 58% of previous Galaxy owners opting for another Samsung, is relatively impressive: Even by offering better hardware, Samsung's Android-powered competitors haven't been able to dent the demand for its flagships.
More than larger screens or cheaper phones, Samsung's biggest advantage -- over Apple and to some extent others -- may be its advertising budget. It's difficult to ascertain exactly how much Samsung has been helped by its ad spend, but it's definitely had a positive effect.
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Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.