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Galaxy 5 Shows Innovation Slowing

The Galaxy S5 is indicative of a broader trend in the smartphone: evolution over revolution. We have been spoiled with revolutionary new features and game-changing performance increases. However, the hardware innovation appears to be slowing down.

The Galaxy 5 is an evolutionary product. It improves on a few areas, but ultimately there is not enough to make people upgrade from the Galaxy 4. We are going to see sustaining improvements as the smartphone 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, software, and service improvements, 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 the smartphone enables. Services such as ordering taxis, mobile payments, and location-based services will add value on top of the smartphone platform.

Samsung's main challenge is that the bulk of its profits come from the premium segment, where its core 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 Apple continues to dominate in this segment and competitors such as HTC, Huawei, and ZTE catch up quickly on design, brand differentiation is critical. Samsung's success with the premium line comes down to a huge marketing budget. According to Benedict Evans, this could reach $13 billion in 2014. It is unclear how long the company can maintain this level of spending.

Samsung is now completely unable to differentiate on the software side with Google driving Android consistency. A quarter of all 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.

At the low end of the market, margins are coming under continuing pressure, and price leadership has been difficult to maintain in emerging markets with OPPO, Wiko, and 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 middle and low end. This is where Samsung is losing share as cheaper manufacturers build capacity and experience and can use lower labor costs.

The bulk of growth in the market will come at price points of $200 and less, and these segments are simply less profitable than the high end. For Samsung, this means increasing pressure on margins.

In the long term, 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 of 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.

This article was originally published on EBN's sister publication EE Times.

16 comments on “Galaxy 5 Shows Innovation Slowing

  1. _hm
    April 18, 2014

    Since when Smasung was innovator in smart phone market? Do not people look eagerly at Apple for innovations in smart phone? 

  2. Hailey Lynne McKeefry
    April 18, 2014

    _HM, it's fair to question how how innovative Samsung is in terms of smart phones, perhaps, since the organization has more proved itself by tweaking products to lure customers. However, the company does do more than just smart phones: screen technology, TVs, batteries, and chip design. In these areas, i think the company shows more creativity.

  3. Hailey Lynne McKeefry
    April 18, 2014

    THe company has gone on record as making innovation a goal: Samsung decides it wants to innovate – BGR.com

  4. _hm
    April 19, 2014

    @Hailey: Yes, I agree. But another aspect is brand image. To create this unique respect among community, they need to do much more.

  5. Wale Bakare
    April 20, 2014

    I am not sure i get your question.

    “Services such as ordering taxis, mobile payments, and location-based services will add value on top of the smartphone platform”

    All those are neither from Samsung nor Apple but Google. Google's been an arrowhead in the space of innovation, so it would continue to be. While the likes of Samsung and Apple are focusing on hardware and device's features.

  6. Wale Bakare
    April 20, 2014

    The brands also needs to effectively understand and work on the side of more resources for the smartphones.

  7. Wale Bakare
    April 21, 2014

    Smartphone with small screen and tiny touchcreen keypads might not serve consumers better than the bigger ones. Also, storage capacity and battery life are important resources now than before.

  8. Himanshugupta
    April 22, 2014

    @Wale, consumers have found better ways (or little bit expensive but managable) to work around the battery issue. Some of the consumers now carry extra battery but most of them carry portable charged battery which can refill the smartphone battery upto 6 times so the battery life is a little problem for most.

  9. Himanshugupta
    April 22, 2014

    Yeah, all the comments in Italic are confusing. It is difficult to separate the quotes from comments.

  10. Nemos
    April 22, 2014

    “Samsung is now completely unable to differentiate on the software side with Google driving Android consistency”

    To be honest, I doubt if this would be a good or a great move, why Samsung should do that move? From my point of view if this even happens will indicate the END. Also, when we are referring to Android is not equal to Google, Google is the leading company.

  11. Nemos
    April 22, 2014
    • Perhaps until then should be a beneficial idea to use bold for the attached comments.
  12. Adeniji Kayode
    April 22, 2014

    @_hm, Has Samsung not proven itself with many smart mobile and domestic gadgets?

  13. Adeniji Kayode
    April 22, 2014

    @Hailey, I agree with you on that. Moreover, Samsung seems to have more products it manufacture.

  14. Adeniji Kayode
    April 22, 2014

    @Himanshugupta, You are right on that, I noticed recently that many power- conscious consumers go about with that power bank stuff.

  15. Hailey Lynne McKeefry
    April 22, 2014

    OK, EBNers, the italics issue has been fixed.

  16. Hailey Lynne McKeefry
    April 23, 2014

    @Rich, you were right. If you notice other issues, feel free to email me privately.

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