The rise of Android’s biggest OEM: The Samsung story

October 25, 2013
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Samsung

It has been 75 years since Lee Byung-Chull founded Samsung with just 30,000 won (about $28). It would be fair to say that the South Korean company has come a long way since then. In the third quarter of this year Samsung cleared an operating profit of 8.12 trillion won (around $7.4 billion). Much of that profit derives from Samsung’s position as the number one smartphone manufacturer in the world with a market share north of 30%.

The story of the rise of Samsung is intertwined with the rise of the Android platform. The world’s most popular mobile OS is pushing for an 80% share of the market and Samsung manufactures around 40% of all Android smartphones.

The Galaxy brand looks unassailably strong. Samsung’s marketing machine is formidable and the company leaves no rock unturned in the race to cover every form factor and be first to market with new cutting edge technology. Recent unveilings, after a heavy investment in R&D, suggests the company is determined to shake off the copycat allegations and prove it is a real innovator. Samsung wants to get comfortable at the top, but just how did the company become Android’s biggest OEM?

In the beginning

Samsung started out in 1938 as a trading company exporting fish and vegetables to China. It grew over the decades and spread its tentacles into a number of other businesses like textiles and insurance, but it wouldn’t start on the electronics path that would eventually lead to its domination of the smartphone market until the late 1960s.

In 1970 Samsung’s first black-and-white TV went on sale. The following decade saw the company expand into heavy industry, and it began manufacturing washing machines, refrigerators, and microwave ovens. By the 1980s Samsung was focused on electronics and it had a telecommunications wing which started with switchboards and fax machines, before moving into mobile with a car phone in 1986.

The king is dead, long live the king

When Lee Byung-Chull died in 1987 his son, Lee Kun-hee, took over. He was to transform the company beyond recognition, but his 26-year reign has not been without controversy, as The Verge has pointed out.

Lee_Kun-hee

Samsung began to produce mobile phones in the late 80’s after investing in ten Motorola mobile phones for benchmarking. The first mobile phone it produced was the SH-100, but the quality was very poor. In fact the quality issue was company-wide and Lee soon moved to modernize Samsung and change its ethos. In 1993 he famously commanded his employees to “change everything but your wife and kids”.

The new emphasis on quality was neatly summed up by the SH-700 which was a new, lighter, more compact design than Samsung’s previous cell phones. Every handset off the line was thoroughly tested and Lee showed his determination to improve Samsung’s reputation by burning faulty handsets worth 15 billion won. The new “Quality is Pride” motto was to be taken seriously.

First mobile success

In October 1994 Samsung released the SH-770 under the brand name “Anycall”. This improved version of the SH-700 was backed by a serious marketing campaign and a charm offensive on distributors. Within a year Samsung had eaten Motorola’s South Korean market share and become the biggest mobile phone manufacturer in its homeland.

The Samsung SCH-100 and SH-770 at the Samsung museum.

Mobil The Samsung SCH-100 and SH-770 at the Samsung museum.

As CDMA service launched in 1996 Samsung was ready to capitalize with its first digital handset, the SCH-100. The same year Samsung signed an exclusive agreement with Sprint to provide phones for the U.S. market and this sparked an international assault by the company. By the late 90’s Samsung was going up against Nokia, Motorola, and Ericsson in Europe. By 2005 Samsung was the third largest mobile phone manufacturer in the world behind Nokia and Motorola. It claimed second place in 2007, but it would be 2012 before it would claim the number one spot.

Smartphone revolution

It took a while for smartphones to come down in price and capture the public’s imagination, but when they caught on they really caught on. Samsung did develop its own smartphone platform; Bada OS was announced in late 2009, but the company had already released its first Android smartphone, the i7500, or Samsung Galaxy, in June of that year. Success was far from instantaneous, but it soon became clear where Samsung’s future lay and Bada was quietly ditched.

Samsung i7500 Galaxy for O2

Samsung i7500 Galaxy for O2

The Samsung Galaxy S was announced in March 2010 and went on sale in June. Samsung has sold more than 25 million Galaxy S handsets since then. The original boasted a 4-inch Super AMOLED capacitive touchscreen display, a 1GHz ARM Hummingbird processor, 512MB of RAM, and a 5MP camera. It wasn’t a world beater, but it certainly didn’t look out of place at the cutting edge of the Android charge.

Samsung bent over backwards to cater for the U.S. carriers and while all the variants (Vibrant, Captivate, Epic, Fascinate, and Mesmerize) may not have helped Samsung’s brand image with consumers, they did build bridges with distributors.

Samsung wins

Before long Samsung’s triple pronged approach of quality hardware, marketing muscle, and good distributor relations, was paying dividends. The Galaxy S2 was released in May 2011 and it was jaw-droppingly good. The 1.2GHz dual-core processor, 1GB of RAM, 4.3-inch display, and 8MP camera met with widespread acclaim. It was a big contender for best smartphone on the market. Sales were strong and Samsung has shifted over 40 million S2 handsets to date.

samsung galaxy s2

Filling in the gaps between Samsung’s flagship Galaxy S series was a tidal wave of cheaper Android smartphones and experiments with new form factors, most notably the Galaxy Note series which seems to have kicked the phablet category into gear.

In the first quarter of 2012 Samsung finally overtook Nokia to become the world’s largest mobile phone maker by sales. It was a great start to the year and things were only going to get better with the release of Samsung’s most successful Android smartphone so far in May. The Samsung Galaxy S3 boasted a 4.8-inch 720p display, a 1.4GHz quad-core processor (1.5 GHz dual-core in the U.S.), 1GB or 2GB of RAM, and an 8MP camera. It has deservedly sold more than 50 million units (10 million in the first three months on sale). Cutting edge specs and interesting software features, combined with a serious marketing push, and strong branding put the “latest Galaxy” alongside the iPhone in terms of desirability.

galaxy-s3-sales-samsung-ces-2013-1

Amidst its greatest success Samsung was pulled back down to earth by Apple’s $1 billion patent case win. This looked like an indictment of the company’s supposed Achilles’ heel. Analysts have long leveled the same complaint at Samsung, namely that it knows how to dominate an existing market by analyzing the leaders and beating them at their own game, but it has no idea how to truly innovate.

Copycat, copycat

You could argue that human advancement itself is a story of taking what works and building upon it to improve things. There’s no room here for an in-depth analysis of the patent wars in the smartphone market, suffice to say that many lines of human endeavor are not subjected to the same claims of ownership (though many are). The basic truth remains that only the most determined Samsung apologist could overlook its policy of copying the competition.

apple-samsung-patent-claims

The company started out analyzing Motorola and trying to best it. Samsung’s focus on Nokia nearly led it down a dead end. Nokia’s continuing hold on the number one spot masked its overreliance on the dying feature phone market. Documents that emerged during the Apple case revealed that Samsung execs felt there was a “crisis of design” at the company and there was a realization that it should be competing with Apple not Nokia. That led to a concerted effort to beat Apple, which began with analyzing, and sometimes copying, what was good about the Apple experience.

It’s possible to sneer at Samsung for being derivative, and many people do, but no company grows this successful without delivering a good product to its customers. It’s also a perfectly legitimate approach in many industries which is why Samsung executive vice president, Kim Hyun-suk had no qualms about telling the New York Times, “We get most of our ideas from the market. The market is a driver, so we don’t intend to drive the market in a certain direction.”

Leading the field

With 2013 nearly at an end we can see evidence that Samsung is adjusting to its new found status as a leader. The gap has arguably narrowed as the S4 is not streets ahead in hardware terms compared to the rest of the Android flagship pack. Samsung clearly tried to add value with its software features, but any drive towards its own ecosystem is going to clash with Google’s services and they’re part of what makes Android so great. The Note 3 is more clearly the best device in its category, but the phablet wars have only just begun and we’re seeing a lot of new releases that will compete.

Galaxy Gear Note 3 find my device

Samsung’s more interesting moves, in the shape of the Galaxy Gear smartwatch, and the Galaxy Round, aren’t looking too impressive. The Galaxy Gear is horribly limited and it’s no surprise the reviews are not glowing. There’s no substantial improvement on what Sony and others have already done in this space. The Galaxy Round looks like a determined effort to announce a flexible display device before LG. The benefits of its design are far from clear and the news that it will be a limited release to test the market can only dampen any potential excitement.

Before we get too negative let’s point out that Samsung is seriously outspending the competition on research and development. It spent $10.6 billion in 2012, compared to Apple’s $3.4 billion. It will take time for that investment to bear fruit and the company has a lot of work to do to change the mindset that has served it so well. The fact it is spending this much on R&D suggests awareness that staying on top requires true innovation. Only time will tell if Samsung can transition to pacesetter and make that number one spot its own for the long term.

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