In studying the history of the handset market, it's interesting to note that HTC – one of the more "premium" Android handset vendors – used to be the most successful Android handset vendor. This company was first to market with an Android-powered device (challenging the mighty Apple (AAPL +1.08%)), and even today the company's products are typically very well received by critics. However, HTC isn't in great shape today; it's losing money and market share. While one might think that the "mighty" Apple with its superb iPhone products may be the reason for HTC's woes, the real problem is Samsung (NASDAQOTH: SSNLF). In fact, Samsung is a problem for just about everybody in the smartphone market.
Copycat, blah, blah, blah – show me the money!
Samsung isn't very well liked by many investors (particularly Apple) ones. The company is often accused of "stealing" the iPhone's design and using that base to iterate and profit quite handsomely (Samsung and Apple both control the vast majority of the profits in the handset market). Indeed, when it comes to actual smartphone market share/unit shipments, Samsung is by far the leader – leaving even the well-loved Apple in the dust. Samsung is a very profitable powerhouse. But the question is, how does Samsung do it?
It's all about marketing
The key thing to remember is that consumer electronics device sales are driven as much by marketing as they are by the actual quality of the products. Does Samsung have the share that it does because its products are "better" than the competition's? This is debatable, but other than Samsung's willingness to embrace many flavors of smartphones targeted every niche and sub-niche of the overall market, there's nothing really "special" about Samsung's products. The TouchWiz UI has received mixed reviews (many simply prefer the stock Android UI), the features are often viewed as "gimmicky," and there are even complaints that even with speed-demon processors and tons of RAM the flagship Samsung phones feel slow!
But here's what Samsung has that few, if any, of its competitors have: a $14 billion marketing budget. That's right, Samsung understands that "perception is reality" and there is really no better way to change perception than with very aggressive marketing campaigns. Love them or hate them, anybody buying a smartphone knows about Samsung's "Galaxy" line of smartphones. That familiarity could be enough to seal the deal for the many millions of customers looking for an alternative to Apple's iPhone.
So, can Samsung ever "lose"?
While it's difficult to make absolute predictions over an infinite amount of time, it is very tough to see Samsung losing material handset share over the next couple of years. While Motorola via Google may be able to put up a good fight, and while Lenovo is interesting, too, Samsung is going to put up one heck of a fight. It will be interesting to see if any of the other Android handset vendors can really take some of that profit pie, but – at least today – it looks as though most of the profits are headed Samsung's way even with some very compelling product from competitors.
Samsung's marketing budget is gigantic, its brand is extremely valuable, and its willingness to put out many different variants of its devices to capture as many corners of the market as possible is a strategy that has paid off in spades and is likely to continue to do so. The only real wildcard is the potential impact of a larger iPhone on Samsung's higher-end market segment share, but this isn't going to make or break Samsung's business – not by a long shot.
