Forget Apple vs. Samsung. There's no stopping China in the smartphone war

The problem comes down to industry commoditization.


Alien vs. Predator. Superman vs. Batman. Star Trek vs. Star Wars. Apple iPhone vs. Samsung Galaxy.

Battles of fiction that we like to argue endlessly about. Which are pointless. Utterly meaningless.

Admittedly, there is a certain allure to watching gigantic companies continue to escalate an arms race of smartphone feature creep.

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And at least for tech bloggers with self-proclaimed expertise, it's everyone's favorite spectator sport.

For a period of about five years it was all about the war of patents. While it is still in litigation. Apple and Samsung have now largely de-escalated it after making lots of attorneys extremely wealthy.

Then it was the war of whose OS and apps and services were more capable. This is pretty much now a stalemate, it could be easily argued that iOS and Android are at feature parity and the handset apps, for the most part, are functionally equivalent.

It could also be argued that iOS and Android smartphones, looked at holistically have reached a level of maturity where the handset hardware has far outstripped the capability of the balance of applications which run on those platforms.

I mean really, is an iPhone 6s that much more capable than an iPhone device two or three generations earlier, if you're running the same version of iOS and the same dozen core applications everyone uses? Like with an iPhone 5s?

And by the same token, if you go by the apps that everyone uses every day, is the yet to be announced Samsung Galaxy S7 that much more capable than an S5? Or even an S4?

No, of course not.

Apple and Samsung are both now at parity because they are both using virtually identical components. Yes, there are some architectural differences between the SoCs, and there are some differences between the cameras and sensors.

But they are not huge ones, not enough to really change day to day experiences. Candy Crush, Snapchat, WhatsApp, Twitter, Instagram and Facebook are not going work any better on a Galaxy S7 or or an iPhone 7 than they run on Galaxy S5 and iPhone 5s devices.

That is the actual reality of the situation.

So the notion of armchair quarterbacking what Samsung is going to do to in order to make customers switch over from Apple is nuts. And vice versa.

No consumer who has made an investment in apps and content in one particular ecosystem is going to have an easy incentive to switch because they would have to re-buy that content all over again, unless we are talking about 3rd-party streaming services like Netflix and Spotify -- in which case, there's no content ownership at all.

Everyone knows the apps function basically the same on each platform. Only mobile industry bloggers with too much money to spend and too much content to write -- think and talk about jumping between smartphone platforms every year as if it's something normal people actually do.

Everyone else has bills to pay.

Who is going to win this war? It ain't Apple and it ain't Samsung. And neither of these companies are going anywhere. There's no victory scenario, not in the traditional sense.

I think we need to establish if there is even a concept of winning. Or what winning actually means to each of these companies.

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I believe Apple is rapidly approaching a future where they will always be considered a luxury goods company with a respectable and highly profitable but not dominant market share. They will never do down market, and that's important as we understand what this war really amounts to.

Apple is a company that is valued at around $540B and is sitting on $200B of cash assets. All the company has to do is keep doing refreshes on iPhone and retain those luxury goods customers, which they seem to have no problem doing.

They don't actually need to capture additional market share, and based on their current growth, it's likely that it isn't going to get much bigger than it currently is.

It doesn't really matter how big iPhone's market share is as long as it is a profitable business for the company.

Their giant mountain of cash will be used to finance other luxury product lines in segments that have not yet matured, such as wearables and IoT/home automation devices. And some of that money may also go towards development of content for those devices as well.

There are many acquisitions that can be made by Apple, and iPhone at the end of the day might end up being the least important business for the company going forward.

For the time being, Samsung has the lead in Android and in worldwide smartphone marketshare overall, but that dynamic is likely to change.

Samsung is currently the largest component manufacturer in the world, not counting the stuff that ends up being used for its own smartphone business. Going forward they will be the exclusive manufacturer of Qualcomm's high-end Snapdragon 820 series smartphone SoCs, in addition to their own Exynos smartphone chips.

They also own and control a lot of the supply chain for RAM, flash memory, batteries and display, a lot of which also ends up at Apple.

So Samsung is going to stay healthy for a long time. There's no annihilation coming for either side, as much as people want to fantasize about it.

However both Apple and Samsung are going to become victims of the industry they both made wildly successful. They will not be the dominant smartphone players three to five years from now.

I think we are missing a big picture here by focusing on a feature and share battle between Apple and Samsung. It's like comparing the nuances of Mercedes and BMW when Toyota and Hyundai are kicking both their asses in overall auto industry market share.

The problem comes down to industry commoditization. Smartphone SoCs, even relatively low-end ones, have become so powerful that they will be more than good enough to run those same dozen apps everyone uses.

The same can be said for the display technology, batteries, flash and RAM. One only has to look at what has happened in consumer televisions in the last five years to see what the mobile market is going to look like as well -- the same economies of scale apply.

It used to be that Japanese TVs were the best on the market. Then it was the Korean ones. But other brands, such as VIZIO -- which is an American company that makes heavy use of Chinese ODMs you've mostly never heard of -- have closed the gap significantly, at much lower prices.

Chinese companies are making huge manufacturing investments, and they have far cheaper labor than anything that can come out of Japan or Korea.

Giant ODMs like Hon Hai (Foxconn) are also looking into ways they can massively automate or roboticise their production and further drive down manufacturing costs. They also aren't under the same constraints as to how workers have to be treated in Korea and Japan.

Korean and Japanese firms will still be premium brands for some time to come, but not everyone wants to pay twice as much for something that is maybe 30 percent better. I'd say most people don't.

Samsung will eventually end up in Apple's role as a premium device manufacturer because of inroads being made by Chinese companies like Lenovo, Xiaomi, Huawei, ZTE and OnePlus, which have a huge domestic market from which to build upon.

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These phones will become more and more popular, particularly in the US, because wireless carriers have effectively ended device subsidization as a common practice. You are now paying for every cent of that device, whether it is up front or amortized over the course of your monthly bill.

There is also the issue of software licensing. A decent amount of the cost of manufacturing an Android smartphone comes from licensing Google's apps and services. As Chinese companies look to drive down the price of handsets, that's one of the first things they will look to eliminate.

So we're likely to see 3rd-party Android distributions like CyanogenMOD with their own unique app stores become more popular on phones -- or perhaps utilize other app stores, like Amazon's. Samsung is also likely to go down this route on some of its models, with its homespun Tizen OS.

So the ultimate winner of the smartphone wars is not Apple or Samsung. It will be China and its mega-ODMs.

Seems kind of futile to be fantasizing about which smartphone is going to win market share, doesn't it? Talk Back and Let Me Know.


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