The Wall Street Journal: Samsung, Apple intensify battle for smartphone usersMarch 31, 2017 | By Fluent
Publication date 3/31/2017
It’s shaping up to be a big year in the smartphone wars.
Samsung Electronics Co. fired the first shot this week with the unveiling of its newest flagship phone, the Galaxy S8, which won strong initial reviews. That comes about six months ahead of Apple Inc.’s launch of a 10th-anniversary model of its iPhone, which analysts expect to be its most innovative handset in years.
The new devices are coming as the industry’s boom times have faded. Brands in recent years have struggled to develop impressive new features, and consumers are holding on to their devices longer. Global sales growth has fizzled and most phone buyers stick with the brands they know, meaning Apple, Samsung and others generally have been competing over a relatively small share of consumers whose loyalties are up for grabs.
“There are fewer new customers and you’re having to fight to get your customers to upgrade,” said Jan Dawson, an independent technology analyst with Jackdaw Research.
But in 2017, several factors are creating a rare chance to siphon away—or lose—consumers.
Samsung’s Galaxy S8 is an ambitious effort to recover from last year’s battery fiasco, which led to a $5 billion recall of three million Galaxy Note 7 phones and damaged consumer trust. “The Galaxy S8 is our testament to regaining consumers’ trust by redefining what’s possible in safety and marks a new milestone in Samsung’s smartphone legacy,” a company spokeswoman said.
Apple is recovering from a slump of its own—its stock price in February regained levels not seen in two years—and is aiming to overcome criticism that the iPhone 7, released last year, was merely a modest improvement over its predecessor. Wall Street expects the 10th-anniversary iPhone to deliver major new features, but also projects it could cost $1,000, an unusually high price that carries risks. Samsung’s Galaxy S8 will be sold for about $750, with a larger version going for $100 more.
Apple declined to comment on the iPhone speculation.
“This will likely be an unusually high year of switchers,” said Wayne Lam, a principal analyst at market-research firm IHS Markit, partly because of the Galaxy S8’s impressive design and the fact that the next iPhone won’t be released until the fall.
Meanwhile, smaller handset makers are gunning for those two giants, which together account for more than a third of global smartphone unit sales but vacuum up 95% of the industry’s profits, according to Strategy Analytics, a market-research firm. Huawei Technologies Co., the Chinese company that has said it aims to overtake Samsung and Apple in market share by 2021, unveiled its own new high-end phone in February. And Alphabet Inc.’s unit Google—which developed the Android operating system that Samsung, Huawei and almost all other non-Apple phone makers use—is now a bigger force in the market with the launch late last year of its Google-branded Pixel phone.
In the U.S., the intense competition is occurring in a market that has become, in some ways, more rigid. A decade into the smartphone era, people are more loyal to their smartphones than nearly any other consumer product or purchase, researchers say.
Other markets are more fluid, especially in China and India where price-sensitive consumers frequently jump brands. But the U.S. is the key battleground, because Americans, on average, fork over more for top-line gadgets.
Most U.S. consumers are settled either on the iPhone or on the Android system, where Samsung is the dominant player. Just 11% of people who had been Android users bought an iPhone in 2016, according to market researcher Consumer Intelligence Research Partners LLC. Among Apple users, only 15% made the opposite move.
Consumers remain entrenched even as barriers to switching fall. Music and movies once stashed on Apple’s iTunes are being supplanted by streaming services, such as Netflix Inc. and Spotify AB, and most phones feature similar hardware and exterior looks.
“It’s easier to switch, but there’s less motivation by consumers to do so,” said Michael R. Levin, co-founder of Consumer Intelligence Research.
Boxes of Apple’s iPhone 7 are scanned at a Best Buy store last September. Apple is expected to unveil a 10th anniversary model of its iPhone later this year.
Given that, the shift of even a few percentage points of market share is important, especially in a tech world fast moving toward connected cars, home appliances and other devices that people access with their phones. Apple’s share of U.S. smartphone shipments fell to 32.5% from 35.3% in 2016, while Samsung’s grew to 25.7% from 23.6%, according to Strategy Analytics.
Samsung is trying to at least hold its position with the Galaxy S8, which boasts a longer screen and a virtual assistant called Bixby to compete with Apple’s Siri.
While those features have won some plaudits, the backdrop for Samsung is daunting: Some 37% of Samsung users in the U.S. said they were less likely to buy another Samsung smartphone after last year’s recall of the Galaxy Note 7, according to a March survey conducted by Fluent LLC, a marketing technology company.
“It’s a huge opportunity for Apple,” said Jordan Cohen, chief marketing officer at Fluent.
But the expected high price of the new premier iPhone—which analysts say could include features such as a new display, wireless charging and facial-recognition capabilities—risks estranging some loyal customers, who could look for less expensive alternatives, said Rob Cihra, an analyst with Guggenheim Partners. Apple is expected to also continue offering less expensive models.
Competition has led each company to boost the services it offers with its devices. Apple has emphasized its streaming music service, Apple Music, cutting exclusive deals for new albums with popular artists such as Frank Ocean.
Meanwhile, Samsung invested heavily to develop Bixby, which relies on deep-learning software developed by two of Siri’s creators.
“It’s going to be about the experience beyond the brand,” said Lauren Guenveur, global consumer insight director for Kantar Worldpanel.