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Samsung Turns Up the Heat on Apple

By Doug Ehrman - Apr 5, 2013 at 2:00AM

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This move by Samsung make scare Apple and save Best Buy.

Samsung has been the only real threat to Apple's (AAPL 0.17%) iPhone empire over the last few years. Where other smartphones running Google's Android rely on wireless providers to compete with Apple's 400 brick-and-mortar retail locations, Samsung recently announced that it will be opening mini-stores within Best Buy (BBY -1.31%) locations across the U.S. Beyond the direct threat posed to smartphone and tablet sales, the move has the potential to give Samsung a far more significant footprint in the ecosystem space, and Apple shareholders should pay attention.

The Samsung way
Just as 2012 saw Samsung outspend Apple on advertising to the tune of $400 million to $333 million, the Galaxy manufacturer is entering this fight with a roar, not a whisper. Five hundred Best Buy stores will soon surrender roughly 500 square feet of prime real estate to the effort in which the full range of Samsung products will be displayed, explained, touted, and supported; 1,000 smaller locations will follow by late June. Given the location of these mini-stores, consumers on their way to make an iPhone, iPad, or MacBook purchase will necessarily pass by the new retail locations, giving the dedicated Samsung sales force the opportunity to steal sales.

While no financial terms between Samsung and Best Buy were revealed, the move is likely a win-win. as the struggling retailer gains a strategic driver of traffic through its doors and the Korean concern gets to boast roughly 100 more retail locations than Apple without breaking a sweat (counting just the initial larger mini-stores). Given the importance of the move for Samsung, investors should also look to see if Google's Motorola responds in any meaningful way; Samsung's importance within the Android world has been of increasing concern to Google. If the mini-stores are well received, they have the potential to shake things up on multiple fronts.

Ecosystem genius
An easily overlooked advantage of the move for Samsung is the opportunity it gives the company to extol the interoperability of its various products -- to push the burgeoning Samsung ecosystem with the Samsung MediaHub and growing number of native apps at its center. While Samsung laptops, smartphones, tablets, and televisions are each gaining an increasing level of ecosystem interdependence, thus far there is no real distribution channel for this idea. Wireless providers can mention to Galaxy buyers that it is an option, but by bringing all of the devices into one location, the true power can be demonstrated and touted. At present, only Apple has this feature in its physical locations.

By giving consumers a place to be educated on this functionality, Samsung has the potential to see an exponential return on its investment because the ecosystem model is inherently sticky. Furthermore, by launching the concept within the embattled Best Buy chain, Samsung is likely able to mitigate a huge portion of its risk and move quickly to market. Apple investors should pay heed to this move because Samsung has already demonstrated that it knows how to successfully attack Cupertino.

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Apple Inc. Stock Quote
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Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
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