Why is Samsung the only Android success story?
Google is not terribly open with their finances, particularly when it comes to all things mobile. However, we do know they spent a meager $50 million to acquire Android. How much it cost to transform Android into a iPhone clone rather than a Blackberry clone we cannot say.
Google also spent a whopping $12.5 billion to acquire Motorola Mobility. We know that additional charges for “right sizing” Motorola will add at least several hundred million dollars to the cost side of their books.
How much have they spent developing Android, building Google Play – and licensing content – creating apps and services for Android, managing the “Open Handset Alliance”, marketing Android (and Nexus) and sharing revenues with carriers around the world? Nobody outside Google knows and Google won’t say. Costs are not broken out.
Nor is Google open about Android-related revenues. We do know they are meager. Whatever your view of Android the operating system or of various Android handsets, it is safe to assume that Android has a net cost of about $15 billion (with a b) to Google. There are very few companies in the world that could swallow a $15 billion cost on the hopes of future gains. Kudos to Google for their high-margin, high-profit near-monopoly search business that allows them to take such a massive gamble. Given the potential of mobile search and local-mobile advertising, it is at least theoretically possible that Google can make back its money.
But what of all the others involved in Android?
Why has Android been such a money loser for so many?
Android has a global smartphone install base of just over 50%, with iOS and Symbian well behind. What’s more, at least while Windows Phone remains on the sidelines and Blackberry 10 remains in the labs, nearly 2 of every 3 new smartphones sold are with the Android operating system.
The numbers are there. However, for everyone but Samsung, Android’s been a losing proposition.
Motorola Mobility has lost money on Android for at least the past 3 years. Sony Ericsson lost hundreds of millions of dollars over the past few years and earlier this year, Sony took full control of the unit. They are not out of the woods yet.
LG, which recently received the Google anointing and will offer the Android premium “Nexus” smartphone this quarter, has failed to generate actual net revenues from the platform. Their meager profits are more from appliances than smartphones, which again achieved a loss the last reported quarter. The expectation is that next year, LG’s Android smartphones will stop losing money!
Giant HTC, maker of the popular One X Android line has managed to eke out a profit. However, their revenues and profits continue to decline and the company has warned that these declines are likely to continue. Even with the popular Kindle “&droid” fork, mighty Amazon appears to be losing money on Android devices, instead making a tiny profit on the sales of eBooks and content.
Everyone, it seems, is struggling to eke out a profit on Android. Despite huge market share numbers, profits remain elusive.
Everyone, except for Samsung. Why?
Far be it from me to cast a suspicious eye at how a South Korean chaebol breaks out its revenues. It does appear, however, that only Samsung is making any decent money – actual profits – from Android. Samsung just reported a record quarterly profit (ending July 2012) of $7.3 billion. The mobile division’s profits are estimated at approximately $4 billion. Better still for Samsung, they raised guidance for the following quarter!
How is this possible given the ‘money pit’ that Android has been for so many?
We know, following the Apple lawsuit, that Galaxy Tabs have not been a big seller. That’s not it. The company makes the well-liked albeit pricey Galaxy Note line, which has no real competition. However, analysts are predicting sales of about 10 million such devices this year. Obviously, those billions in profits aren’t coming from “phablets”. Samsung has its own Bada smartphone platform, sold in Asia. While sales are better than the feeble Windows Phone platform, they are still not enough to explain Samsung’s massive profits in mobile. Those, unlike everyone else, come from Android.
The question remains…why? Or perhaps, how?
Pundits typically argue that Apple’s massive iPhone profits come from Apple being able to charge a premium given the tight integration of hardware – software – ecosystem. Samsung does not have that luxury. They make the hardware, yes, but like everyone else in the Android world, it’s Google’s platform, Google’s services, Google’s ecosystem.
Are Samsung’s costs significantly lower? This is possible, though given the global availability of components and manufacturing outsourcing it seems unlikely. Companies like HTC and LG, Sony and even Amazon, for example, all know how to manage and source a eager global supply chain for all things mobile.
Of course, Samsung is a lead manufacturer of smartphone components, including memory chips and screens. Even Apple, despite a successful lawsuit against Samsung for “slavish copying” purchases from Samsung.
Is that where the company’s mobile unit profits are coming from? A review of their Q2 earnings report suggests that components are not the answer, rather it’s the sale of Android devices.
This seems odd to me. I have tested a number of Android devices. I love the design of the Sony Xperia line, for example. I would happily choose a HTC One X over a Samsung Galaxy. In the US, at least, where I am located, I have far more options from Motorola than Samsung. Not that I am necessarily a ‘typical’ customer but it seems to me there are plenty of alternatives to Samsung. That should be putting a limit on their profits, only it is not. They continue to soar while other Android makers falter.
Is it because Samsung, per courts of law, copied from Apple/iPhone? Is it because Samsung now spends millions of dollars advertising itself as a sort of anti-iPhone? Do people just so easily fall for that kind of marketing?
I confess that I am unable to answer my own question: why is Samsung the only Android success story? What are they doing right that everyone else is doing wrong? I would love to hear your thoughts.