The problem with Samsung is that its smartphone business model could easily be replicated. For the most part, it’s just a shiny hardware maker but the heart and soul of its product is something it doesn’t create, in other words, it runs on the Android operating system which is controlled by Google. Samsung can put many new spins and add bells and whistles with its hardware to try to differentiate itself but the bottom line is the core of its product is still Android product. Why is this a problem? Well, since the Android operating system is free, the smartphone market can easily become a race to the bottom. As more and cheaper manufacturers flood the market with cheap Android hardware, there will be a tremendous amount of pressure on premium brands like Samsung to lower their price.
Samsung is in a tight spot. It can keep trying to come up with better bells and whistles on its hardware so it can differentiate itself from HTC and other competitors, of course like Apple, or it can go to a completely different path. Samsung is now working on its own 64-bit mobile chip. Why is this a big deal? If it goes in-house with its 64-bit mobile chip and this chip is optimized to Samsung’s hardware, Samsung’s smartphone will become a more compelling value proposition. At the end of the day, when people look at a smartphone device, they would say, “Why is this thing valued at $499 or $399?” You better come up with a very compelling answer. It is not a compelling answer when you say “Well, I just want Google Android with a nice screen”— that’s not going to cut it.
The further away you distance yourself from the competition which basically just uses generic hardware and weigh the Google Android’s slap on top of it, the better for your brand. This is what animates Samsung’s drive to come up with its own 64-bit mobile chip. This is a brilliant move because it would completely sunlight between Samsung and other Google Android competitors. There are three different levels of competition happening here which is obviously seen between Apple and Google Android. The truth of the matter is we all know where that is headed. Google Android already has eighty one percent of the market and it’s growing. It doesn’t take a genius to see that Apple iPhones will soon be the tiny minority of all the smartphones out there.
The real issue is Samsung and other brands. Other brands are trying to get into Samsung’s niche so Samsung needs to reinforce its position as the top premier smartphone maker. Finally, the other competition is price. Since Google Android is free and all these Android phones are flooding the market, people would start saying, “The Samsung Galaxy S Series are just Android phones.” Samsung’s move toward the 64-bit mobile chip says otherwise. It says, “No. We are not just like any other Android driven device.” This is a specific Android device and you can get a specific value. We completely applaud Samsung for this. It’s all about brand positioning and by putting a little bit more beef to its hardware to justify its price and market positioning, it’s getting a step in the right direction.