Has Apple lost its cool to Samsung?
A marketing campaign that lampoons Apple has helped Samsung widen its lead in the global smartphone market, with a 28% share, up from 20% a year ago.
Samsung Electronics is succeeding where other technology companies have tried and failed: closing the coolness gap with Apple (AAPL).
The deep-pocketed Korean company has used a combination of engineering prowess, manufacturing heft and marketing savvy to create smartphones that can rival the iPhone in both sales and appeal.
Samsung, the market leader in smartphones, on Jan. 25 said its fourth-quarter profit surged 76% to a record high on the strength of smartphone sales, including its Galaxy S line. Many shoppers consider the latest version to be comparable to an iPhone -- in both design and technical features.
Apple, meanwhile, reignited concerns about demand for its iPhone 5 after reporting flat earnings for the holiday quarter, sending its stock down 14% in two days. The stock has also dropped 37% since hitting an all-time high on Sept. 19, just two days before the iPhone 5 launched in stores.
At that time, Samsung had just unleashed an aggressive marketing campaign including a television commercial that poked fun at the iPhone 5. "The next big thing is already here," the spot said, referring to its Galaxy S III phone.
The ad was part of a more than $200 million U.S. marketing blitz that Samsung launched in 2011 to lampoon Apple, according to Kantar Media. The creative vision for those ads was a former Nike (NKE) executive, Todd Pendleton, who now runs Samsung's marketing in the United States.
'It gets you thinking'
The campaign swayed consumers including Will Hernandez, an iPhone owner who bought a Samsung Galaxy S III three months ago after seeing Samsung's ads.
"If you see this stuff on TV enough, it gets you thinking," said Hernandez, a 34-year-old resident of Somerville, Mass., who adds that he likes how his Galaxy has a larger screen than the iPhone. "Now, when someone gives me an iPhone to look at a picture, it looks so tiny."
The marketing onslaught is helping Samsung widen the gap as the market leader. Samsung is estimated to have held 28% of the global smartphone market last year, up from 20% a year earlier, according to IHS iSuppli. Apple's share, meanwhile, isn't rising as quickly, moving to 20.5% in 2012 from 19% a year earlier.
Despite Samsung's advances, Apple generates higher revenue, and its profit in the latest quarter was twice as large as Samsung's. And even after its stock slump, Apple's market value of $413 billion is nearly double Samsung's $217 billion market cap.
A Samsung spokesman in Seoul declined to make executives available. An Apple spokeswoman declined to make executives available for interviews, but reiterated recent comments by Chief Executive Tim Cook. Cook has said Apple is "unwilling to cut corners in delivering the best customer experience in the world."
What Apple wasn't doing
While many analysts agree that Samsung isn't as innovative as Apple in terms of design and software capability, it has been able to match other electronics companies' products at a cheaper price.
Samsung's high-end smartphones are priced similarly to their iPhone counterparts in the U.S. But Samsung's devices have been significantly discounted at times, to less than a quarter of the sticker price in some cases.
Samsung owns its own manufacturing facilities where it builds screens, chips and other parts, allowing it to cut costs to make smartphones in a way that few other manufacturers can. Apple designs its own devices and some of the technologies it uses, but it relies on other companies, including Samsung, to help build its iPhones.
At the same time, the Korean electronics maker has capitalized on what Apple wasn't doing in the smartphone market. Even as Apple stuck to one new model each year with a narrow price band, Samsung released multiple smartphones in various shapes and sizes and with features such as larger screens.
Samsung was also quick to embrace Google's (GOOG) Android mobile software just as the operating system was becoming popular with consumers. That enabled the company to become the leading vendor of Android phones in the U.S.
The result is a two-horse race in which Apple appears to be seeing iPhone sales growth slow at a time when smartphones are set to become the majority of all cellphone sales.
Samsung's surge in smartphones has caused more than just consumers' switch from Apple. Some app developers have said they are now focusing more attention on Samsung devices.
Ken Yarmosh, the chief executive of Savvy Apps in Washington, D.C., said his company began by making apps for Apple's iOS operating system but lately has been focusing on Android as Samsung devices have become more prevalent, especially among his own company's testing devices.
"There was a major flip -- it was Apple, then if you have money, build for Android," Yarmosh said. "Now it's Android first, or Android only."
The intense competition has led to skirmishes between Apple and Samsung. In August, a federal court sided with Apple in a fight over patents, awarding it more than $1 billion in damages and saying Samsung had infringed many of Apple's patents. The two companies are also dueling in numerous courts worldwide over various other patents, including the design of their respective devices and the wireless technology that powers them.
Apple also appears to be responding to Samsung's growth by aiming to diversify its iPhone line, possibly including a cheaper iPhone line that could launch this year.
Of Heaven and Earth
Despite the threat from Samsung, Apple still sold a record 47 million iPhones in the latest quarter, and the two largest U.S. carriers, AT&T (T) and Verizon Wireless, said the majority of smartphones activated over the holidays were iPhones.
"Most people I know have iPhones," said David Barnard, founder of App Cubby, which makes utility programs for Apple devices. The iPhone's popularity is not what is at question, he added, but rather that Samsung has taken a smart tack by attacking Apple's hip image. "Painting the iPhone as a passé thing is such a perfect marketing message to counteract its coolness."
Samsung executives began taking aim in 2009 after Apple began selling the iPhone in South Korea, where it briefly became the top-seller of phones in the country.
"All this time we've been paying all our attention to Nokia (NOK)," then-new chief of Samsung's telecom business, J.K. Shin, wrote in a memo to top executives in February 2010, which was revealed publicly last year in a trial. "Yet when our (user experience) is compared with the unexpected competitor Apple's iPhone, the difference is truly that of Heaven and Earth."
A few months later, Samsung unveiled its answer to the iPhone, the Galaxy S, an Android-based model that had several distinctive features, such as an FM radio and front-facing camera. It also had an element that would eventually become an ace up its sleeve -- a bigger screen.
Apple released its iPhone 4 in mid-2010 with a new design and a front-facing camera. It far outsold the Samsung product, but the Galaxy S had made a mark and was on the radar of Apple's leaders.
Dora Daniels, 26, of Oakland, Calif., said she learned about Samsung's latest Galaxy S III because of giant ads plastered around a downtown San Francisco transit station.
"It's silly because I don't want to be a slave to marketing but it really got into my head," said Daniels, who recently switched to the Samsung phone from an older iPhone.
More from The Wall Street Journal
- Apple, Samsung find new rival in China's Huawei
- The race to unseat Apple as the smartphone king
- Global growth may be slowing for iPhone
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