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Down, But Not Out: Samsung Slips Up As Micromax and Xiaomi Take the Lead

Down, But Not Out: Samsung Slips Up As Micromax and Xiaomi Take the Lead

By Gopal Sathe | Updated: 5 August 2014 17:56 IST

Over the last few years, Samsung has managed to establish itself as one of the biggest smartphone vendors in the whole world, but new developments could be troubling for the Korean giant. After reports that its profits were down, news broke on Monday that Samsung has been dethroned as the largest mobile phone vendor in India by Micromax.

We also reported that Xiaomi has now become the largest smartphone vendor in China ahead of Samsung. According to a comScore report Apple still retains the lead in smartphones sold in the United States, ahead of Samsung.

India, China and the United States are all highly significant mobile markets today, for different reasons. These changes could spell a lot of trouble for the company across all levels of the smartphone segment. It's not all doom yet though - an IDC report said that Samsung shipped more smartphones in Q1 2014 than the next four vendors - Apple, Huawei, Lenovo, and LG - combined.

Since then though, Xiaomi in particular has grown fast, and has taken the number five place on the list from LG.

At the global level, Samsung's scale is still impressive and nearly unrivalled - but this could well become a problem for the company, as it competes at all levels of the market. Since Samsung has "premium" handsets that are as expensive as Apple's iPhone, the brand's mid-range products can't effectively compete with the likes of Xiaomi or Micromax, who have both been releasing phones whose specifications give Samsung's upper-tier devices a run for their money, but are at the same price as Samsung's "mid-range" products.

And if Samsung starts to react to local developments like Micromax or Xiaomi, it ends up having a global effect - because of the huge number of products that Samsung has in such a large number of markets. Samsung can't really do anything about the number of markets that the brand is active in, but it does have the option of trimming its product line-up, to enable it to respond more actively to local changes.

This is something that is only going to become more important as time passes, because what we are seeing today is that the pace of development in the smartphone market is slowing down. Some months ago, expecting the performance of phones to seemingly double with each new generation wasn't unrealistic. While gains are still being made, they are not at the same breakneck speed, and that means that the way people buy phones is also changing.

(Also see: 2014: The Year of the Great Smartphone Price Wars)

Smaller brands like Xiaomi don't have to worry about many of the same concerns. The Xiaomi Mi 3 launched in India barely before the Mi 4 was launched in China, but since then, it has still seen huge demand - so much so in fact that the company managed to anger enthusiastic (potential) buyers because of the limited stocks available.

(Also see: Flipkart and Xiaomi Could Have Avoided the Backlash With OnePlus One-Like Invites)

That's because Xiaomi is in a position to price a handset that has top-end specifications at a fraction what Samsung's flagship, the Samsung Galaxy S5 costs the end user. Xiaomi has even been able to turn Samsung's larger physical presence against the Korean company; as a smaller entity, Xiaomi is able to try new strategies to go to the market, and has brought its online flash sale model to India as well.

(Also see: Why Are Mobile Brands Ditching Online Sales)

Making matters worse for Samsung is that there is still a perception of the brand as a "follower" and not a thought-leader. Samsung's early Android phones were clearly strongly "inspired" by the iPhone and the perception of Samsung as lacking design and vision of its own were further hurt by court cases alleging patent violations by Samsung, a bitter legal battle that is still going on in some regions. Since then, Samsung has built its own identity, but it doesn't have the same kind of passionate supporters as some other brands, and even its last flagship was met by 'boring old design' reactions, like almost everything that the company has launched in recent months.

Add to this the fact that many of Samsung's pioneering products have not exactly set the market on fire, and it's easy to believe that the company might be facing real trouble. Samsung was among the first mobile vendors to launch a smartwatch with the Galaxy Gear, but it faced disappointing sales and the newer iterations haven't fared much better.

Its latest smartwatch, the Samsung Gear Live, launched as part of Google's Android Wear initiative, but it has only become available recently, and it's too early to say whether it can be seen as a success or not. Most of the positive conversation around smartwatches has centred around another Android Wear device - the Moto 360, from Motorola.

Meanwhile, there are rumours of a partnership between Samsung and the virtual reality headset maker Oculus, to make a mobile VR headset. This is an exciting development, and a teardown from iFixit revealed that Oculus is already using displays from the Samsung Galaxy Note 3 inside the latest Rift prototypes which have been released to developers.

Given that it has the most experience in smartwatches right now, one hope for Samsung could be that the next generation of wearables from the company finally gets all the details right. VR is another area where Samsung has the potential to capture significant amounts of interest, and help establish the company as a thought-leader.

One decision, which could be beneficial, would be to reduce the number of handsets Samsung releases - at present, it is one of the most prolific brands, and cutting down the numbers could help in many ways.

This could help the company in many ways. For one thing, it would make communication easier for the brand. Right now, there are several variants of just about every handset - you'll find four variants of the flagship Galaxy S5 alone, and that's not taking into account two more LTE models. Each of them has different features and price points, and today when you look at Samsung's product range, it's hard for customers to make sense of what is on offer, and what phone to buy.

With fewer products to juggle between, Samsung would also have more flexibility to set prices as per the needs of the market, without having to worry about a giant pyramid of products. Today, if Samsung adjusts the pricing of one product, it kills the positioning of three others. This is a real problem, and one the company needs to address, regardless of the tactics it decides to adopt to deal with the changes in the market.

It is still far too early to write off Samsung as a force in the market - being the second most popular brand in three of the biggest markets is not exactly a disaster, and it is still the biggest brand globally. However, one way or another, Samsung does need to react to a changing global scenario, and it needs to start moving quickly again, instead of getting trapped in plans and product lines which were formulated before many of the brands which are disrupting its business even existed.

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