Samsung launched its new Galaxy S5 smartphone with fanfare last week, but at least one analyst believes the pace of innovation is slowing and there is not much that’s really new in the product.
Frost & Sullivan ICT Consultant Lawrence Lundy offers the following comment:
While the Galaxy S5 is an evolutionary product, there is not enough in there to make people upgrade from the S4. It doesn’t push the envelope in any real way; we are in a sort of stasis now when it comes to smartphone innovation. We are going to see sustaining improvements as the market reaches maturity.
That is not to say that smartphone innovation is finished, but much of the innovation is going to come from the introduction of sensors into the phone, and the improvements in software, and how the phone will interact with the range of wearable devices.
The innovation will move away from hardware towards the kinds of services and platforms that are enabled on the phones. Services such as ordering taxis, mobile payments, and location-based services will add value on top of the smartphone platform.
In the premium segment, Samsung’s scale and supply chain strength is less of an advantage. The key to success in this segment is differentiation, and as the market has matured it is less about features and more about design and brand.
As competitors such as HTC, Huawei and ZTE catch up quickly on design, brand differentiation is critical, as well as the omnipresent Apple, its success with the premium line comes down to a huge marketing budget and a huge spend across the channel.
Samsung is now completely unable to differentiate on the software side, with Google driving Android consistency. A quarter of Android handsets sold in China last year did not include Google services, and therefore were not as valuable to Google. The company is therefore preventing fragmentation of Android, making it even harder for Samsung to truly differentiate itself.
Margins are coming under continuing pressure and price leadership has been difficult to maintain in emerging markets with OPPO, Wiko, Micromax, all producing handsets in the $100-200 segment.
The bulk of Samsung’s business, despite the high profile nature of its Galaxy line, is in the mid- to low-end. This is where Samsung is losing share as other cheaper manufacturers build capacity and experience, and can utilise lower labour costs. The bulk of growth in the market will come at the $200 and less price points, and these segments are simply less profitable than the high-end. For Samsung, this means increasing pressure on margins.
A long term view would ask where Samsung sees itself in the value chain in the Internet of Things. Profit will be captured at the data and app layer rather than the hardware layer which is where Samsung’s competitive advantage lies. The proliferation in internet-enabled devices will offer vast hardware opportunities for Samsung, especially with its expertise manufacturing hardware such as refrigerators, washing machines, and TVs.
Samsung already has the largest portfolio of hardware, and it has a huge opportunity to connect these and really add value for the customer. However, Samsung does not have the internal software and machine learning capabilities to provide best-in-class solutions in the post-mobile world.