The Causes of Samsung’s Meteoric Rise

When Apple rebranded itself under the second reign of Steve Jobs, one of the pillars of company was the production of tightly integrated products. Famously, the first iteration of the iTunes phone, the Motorola Rokr, was despised by Jobs, forcing the company to vertical integrate into handset production.

As these things tend to happen, Samsung learned from Apple’s successes, built on them, and now the Korean company leads the mobile phone industry, though Apple is not far behind.

samsung_market_share_graph

In an article for Fortune’s February’s magazine, the full extent of Samsung’s rise into the industry is cataloged, but here are the crib notes:

  • Branding – In 2010, the company began to take an active role in branding their products. Though they were known for quality electronics, many lacked brand recognition for their mobile offerings, because the products were relatively undifferentiated. Apple flipped this bargaining arrangement by creating a product that was desired by the public for more than just making calls. Samsung has exploited this new power, going so far as to even abandon exclusive deals with the Galaxy S III.
  • Marketing – Working with 72andSunny, an ad agency, Samsung was able to create a series of famous ad spots poking fun of Apple fan boys, tapping into a cultural undercurrent that had been building.
  • Research – Samsung spent $8.7 billion on R&D in 2011. Moreover, one in four of the company’s 220,000 employees works in research and development.
  • Vertical integration – Samsung produces most of the building blocks of their phones from screens to memory, allowing them to ramp up supplies quickly. They also supply the rest of the industry, including Apple, with many of the source parts. Issues of supply chain management were streamlined and the double marginalization problem was minimized. 
  • Outsourced OS – Instead of making their own firmware like Nokia and BlackBerry, Samsung embraced Android, accelerating adoption of the hardware. There are advantages to owning an operating system that can work seamlessly between devices, and even though gadget makers and Internet gurus have been talking up convergence since the early 1990s, most analysts aren’t convinced. In the near term, it doesn’t seem as though Samsung will develop their own OS, but this might change depending on the Google/Motorola partnership.