Samsung is screwed

Benedict Evans writes in the post Unbundling innovation: Samsung, PCs and China 

It seems pretty clear now that the Android OEM world is starting to play out pretty much like the PC world. The industry has become unbundled vertically between components, devices, operating system and application software & services. The components are commoditised and OEMs cannot differentiate on software, so they are entering a race to the bottom of cheaper and cheaper and more and more commoditised products, much like the PC industry.

Years ago I read (in "the Great Game of Business"?) that for a business to succeed, it must:

  • be the low cost provider
  • or have something unique to offer that customers are willing to pay for

During the early, rapid expansion phase of a new product/business category, this isn't apparent. Everyone seems to be able to grow. During the late 1980s and early 1990s this was true in the PC world. In the late 2000s and early 2010s, this was true in the smartphone world.

In the expansion phase, most companies seem to make the choice that eventually puts them in a commodity business. In the short term these choices are the fastest path to market and profit. Buy your CPU, operating system, and components off the shelf; assemble into a product; market; sell; and enjoy the profits.

But it's a trap.

Once growth slows, if you aren't the low cost provider or have something unique to offer, you are screwed. And if you are in a commodity business (selling PCs with Windows or handsets with Android), the only choice is to be the low cost provider.

Samsung offers very little innovation that customers want to pay for, and with Google placing greater restrictions on changes to Android, Samsung can't even make many of those changes anymore.

The early expansion phase of smartphones is ending. If a company has nothing unique to offer, it is in a commodity business where, at best, margins are going to be very thin.