Samsung (NASDAQOTH: SSNLF) is back at it.
The Korean tech giant has returned to its tried-and-true strategy of bashing Apple (AAPL +0.30%). Samsung's new advertising campaign boldly declares that "6 is greater than 6," and pits its own flagship, the Galaxy S6, against Apple's competing iPhone 6. It's a strategy that's worked exceedingly well for Samsung in the past, but it's not clear that it will succeed this time around.
Source: Samsung.
Six really is greater than six
Samsung isn't exaggerating: In terms of features, the Galaxy S6 is, in many ways, the superior handset. The Galaxy S6 has wireless charging -- the iPhone 6 doesn't. The base Galaxy S6 sports 32GB of internal storage -- the iPhone 6 comes with 16GB. The Galaxy S6 Edge has a curved display -- the iPhone 6 doesn't.
Samsung's ad campaign highlights these differences. In one TV spot it notes that "the Galaxy S6 Edge... displays colors when your top five contacts call. The iPhone 6 edge displays nothing." In another, it shows several iPhone owners struggling with power cords, while a voice boasts that the Galaxy S6 will allow you to "change the way you charge."
The reason for Samsung's success
Samsung built its mobile business around offering an alternative to the iPhone. From its earliest days, flagship Galaxy handsets were available at every major American carrier, and Samsung offered plenty of cheaper variants for prepaid and overseas customers.
In contrast, it took more than six years for the iPhone to arrive on T-Mobile, the last of the four major American carriers to get it. China Mobile -- the largest carrier in the world -- didn't start offering it until early last year. Despite calls for a cheaper iPhone, Apple has stuck to its premium pricing strategy.
Samsung offered LTE a year before Apple, and pioneered the large-screen trend while Apple continued to offer smaller iPhones. Samsung played up these differences in its advertisements. In one of its ads for the Galaxy SII, it cited its LTE capabilities -- something the competing iPhone 4S lacked. In another, it noted that the Galaxy SIII had a bigger screen than the iPhone 5. Samsung also flooded the market with these ads. In 2012, it spent $4.3 billion on ads, according to Reuters, compared to just $1 billion for Apple.
It's hard to judge their effectiveness, but at the very least, they were solid enough to attract the attention of Apple's top brass. In an email uncovered during its patent trial with Samsung, Apple's marketing head, Phil Schiller, admitted that Samsung's ads were "pretty good."
Profits followed. Samsung's mobile division was enormously successful from the Galaxy line's inception in 2010 through most of last year. There's much more to Samsung than smartphones, but rapid growth in its mobile business contributed directly to its bottom line. For a brief period in 2013, Samsung was even more profitable than Apple, as it generated slightly more net income for two consecutive quarters. In the third quarter of 2013, it brought in $7.6 billion in profit, compared to $7.5 billion for Apple.
Why this time could be different
But the market has changed quite significantly in the last few quarters. Wireless charging does not appear to be as much of a must-have feature as the larger screen once was. Earlier this month, Samsung announced that its current-quarter earnings would decline on an annual basis -- admittedly, a modest 4%, but that's still worse than what analysts had anticipated.
The curved display is unique, and has attracted consumers, but it hasn't helped Samsung's bottom line much. Samsung's management admitted that it misjudged demand for the Galaxy S6 Edge, and that it had failed to manufacture enough to satisfy early demand.
Supply levels have rebounded, but Samsung is about to face a wave of increasingly competent rivals. Apple will likely announce its iPhone 6 successor in September, and Samsung's Android rivals, including Motorola, should have new flagships in the fall.
More aggressive ads could help, but Samsung may need something more unique to turn its mobile business around.
