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Archive for December, 2011

Apple is facing this year its first major challenge of the post-Jobs era — Can it sustain its status as a technological innovation and marketing leader? Many players in the market of computer-based products, and especially mobile devices, surely aim to put to test the strength and ingenuity of Apple now that Jobs is no longer with us. Given the types of products (some may say gadgets) that Apple has flourished upon in recent years (iPad, iPhone, & iPod brands), its corporate and brand favourability among consumers are mainly at stake. And in their sake Apple has gone to war.

Apple actually has to fight battles on two fronts. On the front of equipment, specifically smartphones and tablets, its war is centered on Samsung and its Galaxy brand; on the front of operating systems (software) it confronts primarily Android by Google. While battles on both fronts appear to be bitter and are inter-related,  the war waged against Samsung in the legal battleground to protect Apple’s intellectual property makes it furthermore intriguing:

  • The company extends its effort to maintain its proclaimed competitive advantage beyond the immediate arenas of technology, product development and marketing to enforce a ban on the products of its rival by legal means and to keep them out of the market;
  • The strategy is not uncommon but its intensity and broad scope, fought over 20 cases in 10 countries across continents (North America, Asia, and Europe), are impressive;
  • The legal process consumes a lot of time and money, is often complex and twisted by technical legal innuendoes, forcing managers to leave this battle to lawyers, and consequently is very difficult to predict its outcome (i.e., a risky venture);
  • The effect of such battles on consumer perceptions and attitudes is ambiguous, raising doubts that even winning a battle will be accepted well by consumers in the long run.

By collating details from news stories in several media sources, the following picture emerges. Apple claims that Samsung infringed on its touch screen technology for smartphones and tablets (“lavishly copies” its technology). In addition, it claims that the Galaxy tablet 10.1 looks suspiciously similar in its design to that of iPad 2. Samsung charges in return that Apple is the one that copied their display technology and that the latter did not properly protect its 3G wireless technology or that in fact may have violated the patents of Samsung in this area. According to Bloomberg there are at least 30 lawsuits in total going on at present between the two companies in courts.

Earlier this month the war of Apple suffered two setbacks in the US and in Australia. In the United States a District Judge ruled against a preliminary injunction of Apple to ban the sales of Samsung’s Galaxy products in the US. And in a blow to the company’s appeal in Australia, the High Court ruled last week that Samsung may start selling its Galaxy Tab 10.1 in the country before Christmas. It is assessed that this may not contribute too much to the sales of Samsung in this quarter but it can be seen as a boost to its image versus Apple. This is a painful bump on the road for Apple but it is still not the end of their case concerning patents’ violation by Samsung in Australia, scheduled to resume in March 2012. As this post is written, Apple is awaiting a ruling in France. Meanwhile in Germany, Samsung was forced in September to make some changes to the design of its tablet 10.1 before being allowed to start selling it in the country; the product is available in stores at least since late November. Whether the modifications Samsung has made in shape and some features of display of its tablet would satisfy Apple seems questionable at this point. The war goes on.

One may observe that Apple has put itself in a difficult spot against Samsung because of its dual relations with the South-Korean company and that introduces a weakness in its whole campaign. Samsung appears to be the second-largest component supplier for Apple; it is estimated by Bloomberg that Samsung receives 7.6% of its total revenue from selling memory chips, displays and other components to Apple to be installed in iPhone and iPad. As a consumer who is not very knowledgeable about the technological stuff, and is certainly not involved in whatever is happening in the backrooms, how can I tell that it is Samsung that has stolen concepts and methods from Apple and not vice versa? Here are some additional facts that can increase the confusion from a consumer point of view: Fortune magazine (July 25) tells us that Samsung Electronics has gone under major transformation in 2010 including a boost of 98% to its R&D and operations investment, authorised by the chairman of the parent company Samsung Group, and an overhaul in top management. These moves likely contributed to record revenues ($136bn) and to a considerable increase in profits (58%) that year. It should also be noted that the company is a leading developer and maker of  TV sets and LCD screens, a neighbouring field of technology, as well as memory chips.

The motivation of Apple to fight over its patents and other forms of intellectual property can be well understood. Aside from continuing to invest in further technological advances, the company wishes to defend its competitive assets in which it has already invested huge amounts of money. First, it is an important means of deterrence to competitors against future attempts to steal knowledge, capabilities and technologies. Second, Apple may gain substantial sums of money in compensation for damages, financial and moral, that it allegedly incurred. Third, it can gain precious time in a highly competitive and rapidly changing market by holding back a key competitor like Samsung; even if it does not win the case eventually, Apple can by that time solidify its hold in the market and make obsolete the competitor’s product (on this ground Chief Justice French of the High Court in Australia argued in rejection of the appeal of Apple to ban Galaxy Tab 10.1 in the country).

The problem nonetheless with these justifications for the legal action of Apple is that they reflect inward thinking. Notwithstanding the merits of this defensive strategy (or rather offensive) to the company, it is not what really matters to consumers in the marketplace. Consumers want to compare alternative products and choose the one that best suits their needs, tastes in design, and their lifestyles. They want to judge for themselves which is the better product for them, not having Apple or any other company decide for them. Indeed there may be a symbolic gain and possibly prestige in receiving legal support for their patent, but it is usually short-lived. People tend to lose patience with long and tedious battles in courts and the insistence of companies to keep them up does not necessarily improve attitudes towards them in the public eye. So if suggestions are true that the two parties are close to a settlement, they should pursue it not only because of legal costs and energy spent but also to protect their images in the minds of their customers.

The more appropriate way to “fight” the competition is by channelling their effort to enhance their advantages to the consumers, persuading them which of them is better at what it is doing. It is not even necessarily who has the more powerful or superior technology, but what company offers the best solutions to users of smartphones and tablets. And reportedly Apple and Samsung have not stopped doing that — they now are in a race for the next enhanced level of display quality. Apple aims to adapt its ‘retina display’ dense resolution from its iPhone 4 to its next tablet iPad3 (326 pixels per inch). Samsung is working to create a new tablet with an 11.6 inch screen that will offer resolution of 2560*1600 pixels (i.e., at least 264 PPI — reports fails to give a straightforward comparison). There is already a debate whether consumers can detect differences in image quality at these levels of resolution on tablets, and if display manufacturers like LG and Samsung can create the kind of display Apple aims for (not to forget that Apple relies on suppliers of their essential components while being in a technological race with them, suggesting that Apple may again be heading for trouble).

  • According to data published by Fortune, Samsung sold 69 million units of mobile devices in Q1 of 2011 compared with 108m of Nokia, 24m of LG and 17m of Apple. However, Nokia and Samsung keep selling older feature (“dumb”) models of mobile phones while Apple offers only smartphones. Consistent and easily comparable reports and estimates of market shares are not easy to come by. Interested readers may find counsel in a review on “smartphone and tablet stats” published in The Guardian Apps Blog. For instance, it is worth noting that according to Gartner, sales of Android smartphones (incl. Samsung’s Galaxy) are expected to rise from 180m units this year to 310m in 2012, implying an increase in market share from 38% to 49%, whereas iOS smartphones (iPhone only) are predicted to increase in sales from 90m to 118m units but market share will remain at about 19% and may even slightly drop. As for tablets, Fortune cites IDC data that iPad’s market share dropped from 93% to 73% since Galaxy Tab entered with the latter capturing 17%.

Many consumers are probably aware that in a relatively short period smartphones of different makes adopted the display concept of an array of app icons that can be scrolled and moved around by the touch of a finger, enabled by touch screens. Apple proved excellent in its ability to convince consumers that they offer displays for smartphones and tablets that are the most cool, easy and fun to play and work with. Possibly even greater than achievements in technological innovation, Jobs had a remarkable talent in marketing Apple’s products more enthusiastically and persuasively than most competitors, drawing crowds of consumers after him. Can the new leadership of Apple maintain this key competitive advantage? The jury is still out.

Ron Ventura, Ph.D. (Marketing)

Sources:

“Samsung wins approval for Galaxy Tablet sales in Australia as Apple Loses”, Bloomberg, 9 Dec. 2011 http://www.bloomberg.com/news/2011-12-09/apple-loses-bid-to-extend-samsung-electronics-galaxy-tab-ban-in-australia.html

“Apple loses in court: Samsung cleared to sell Galaxy Tabs”, NZHerald.co.nz (New-Zealand), 12 Dec. 2011 (relates to Australia)  http://www.nzherald.co.nz/technology/news/article.cfm?c_id=5&objectid=10772709

“Apple fails to block Samsung tablet and smartphone sales in the US”, Yahoo! News (Digital Trends), 4 Dec. 2011 http://news.yahoo.com/apple-fails-block-samsung-tablet-smartphone-sales-u-150324504.html

“Samsung redesigns Galaxy Tab after Apple’s sales ban, BBC News (Technology), 17 Nov. 2011 http://www.bbc.co.uk/news/technology-15773944

“How Samsung turned up the sizzle”, Fortune Magazine (Europe Edition), 25 July 2011, Vol. 164, No, 2, p. 22. (Samsung Electronics climbed 10 places up from 32nd place in 2009 to 22nd place in 2010 in Fortune Global 500 ranking list of companies.)

“Samsung, Apple tablet tit for tat to extend to displays”, CNET.com, 8 Dec. 2011 http://news.cnet.com/8301-13924_3-57339897-64/samsung-apple-tablet-tit-for-tat-to-extend-to-displays/  —

 “iPad3’s dense display a challenge for manufacturers”, CNET.com, 26 Oct. 2011 http://news.cnet.com/8301-13924_3-20125504-64/ipad-3s-dense-display-a-challenge-for-manufacturers/   (Retina Display dense resolution)

 “Samsung to challenge Apple’s ‘Retina Display'”, The Telegraph, Matt Warman, 9 Dec. 2011 http://www.telegraph.co.uk/technology/samsung/8946389/Samsung-tablet-to-challenge-Apples-retina-display.html

“Smartphone and tablet stats: What’s really going on in the mobile market?”, The Guardian Apps Blog, 1 Aug. 2011 (Viewed 12 Dec. 2011) http://www.guardian.co.uk/technology/appsblog/2011/aug/01/smartphone-stats-2011

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