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6 Reasons Samsung Should Fear the iPhone 6

By Peter Burrows
September 03, 2014 12:03 AM EDT 546 Comments
The new Samsung Electronics Co. Galaxy Note Edge smartphone is displayed for the media in New York, U.S.
Photographer: Victor J. Blue/Bloomberg
The new Samsung Electronics Co. Galaxy Note Edge smartphone is displayed for the media in New York, U.S.

The last few years will likely go down as a golden age for Samsung Electronics. While Apple defined the modern smart phone with its iPhone in 2007, Samsung has been growing far more rapidly.

Since 2010, Samsung's share of the smartphone market has quadrupled to 31 percent, according to research firm IDC. Apple's share has barely budged in that same period, ending 2013 at about 15 percent.

But Apple may finally have the right ingredients to reverse Samsung's fortunes. On Sept. 9, Apple is set to unveil not only a new phone, which some pundits are calling the iPhone 6, but also details of a long-awaited smartwatch that will work in concert with the new phone. Bloomberg News has reported several of the features expected to be packed into the next iPhone, including larger screen sizes and a payments system allowing customers to use the device to make purchases in stores. Put all of these pieces together, and you get some potentially profound changes that could sap the advantages of Samsung’s hot-selling Galaxy line of products.

We don't know everything about the new iPhone, but we know this: It won’t be a good day for Samsung. Here’s why:

More Competition in Large Phones

Since the launch of the iPhone seven years ago, the device's screen size has only increased by half an inch. Meanwhile, the global appetite for large phones has been insatiable, and Samsung has been the main beneficiary. Devices with screens larger than 4.5 inches made up a third of the worldwide market last year, and IDC expects them to grow to 44 percent this year.

Now, Apple is finally getting in on the action. The company plans to unveil models with 4.7-inch and 5.5-inch screens, according to people familiar with Apple’s plans.

“Samsung has had a few years with no real competition on larger form-factor phones, and that’s where they’ve been able to run the table on Apple,” says Gene Munster, an analyst at Piper Jaffray. “Now that competitive advantage is going to simply disappear.”

Teresa Brewer, an Apple spokeswoman, declined to comment on possible new products.

Mobile Payment Lock-In

After years of experiments, Apple will announce a payments platform so that iPhone owners will be able to buy goods at brick-and-mortar stores with a quick flick of their iPhones. The company has inked deals with Visa, MasterCard and American Express for the iPhone 6, which contains a wireless chip that transmits data securely to an in-store reader.

Even in the rosiest scenario, you’ll still want to keep your wallet with you. It will take many years for the majority of retailers to make the investments necessary to support digital payments, says Richard Crone, a payments-industry consultant.

Still, Apple has a better chance to change consumers’ behavior than Google, which has struggled to convince hardware makers, mobile carriers and stores of Google Wallet's worthiness. Apple has 800 million credit and debit cards on file with customers who have purchased items through iTunes. Apple may have to do some convincing after security concerns over hacked celebrity accounts. If Apple executes well, it will be far more difficult for Samsung to wrest iPhone customers away.

An iWallet “would be the ultimate in stickiness,” says Crone. “It would create a tremendous barrier to exit for Apple customers and more importantly, a tremendous barrier to entry for competitors.”

Watch and Learn

Samsung has been making smartwatches for at least a year. In May, the company held a splashy event hoping to establish itself as the center of the nascent wearables segment. It introduced Sami and Simband, a set of software and hardware standards that any company could use to create their own devices and apps, and released yet another watch of its own on Aug. 28.

So far, there are few signs of traction, says Tavis McCourt, an analyst at Raymond James. “I would say Samsung has not moved the category forward,” he says.

Tom Beermann, a spokesman for Samsung, declined to provide an update on the number of companies using Sami or Simband, or to provide data on the number of watches sold.

Apple’s wearable device, often referred to as the iWatch, may not come out until next year, according to a report from Recode. No matter, says Munster. With only small companies such as Fitbit and Jawbone making progress in niches like fitness, there will be plenty of pent-up demand by the time the products arrive in Apple’s stores, he says. If the iWatch goes mainstream, it could shut Samsung out.

Corporate Ambitions

Apple has become the dominant provider of smart phones and tablets to corporations, seemingly without breaking much of a sweat. Apple’s focus on simplicity has encouraged information-technology departments to accommodate employees’ desire to use their iPhones and iPads at work. That’s been good enough to get these devices into more than 90 percent of the world’s largest companies, Apple CEO Tim Cook said earlier this year.

Samsung has had to work harder to win over companies. Part of the problem is the gadget maker's reliance on Google's Android operating system. Only a fifth of Android users run the latest version of the software, forcing companies to create different versions of their applications and leaving them vulnerable to newer kinds of attacks, according to OpenSignal, an app maker that conducted a study of its users.

To overcome this fragmentation, Samsung has made a push in recent years to fix Android's work-related issues. It created programs for IT to manage employees' mobile devices called Safe and security software called Knox. So far, the effort has failed to establish Samsung as a major player in the workplace, says McCourt. “If the point was to increase Android’s market share to be more like Apple’s, then it has failed,” he says.

Now, Apple is getting more serious about the corporate market. In July, the company said it would a team up with an old rival, International Business Machines. "By partnering with IBM, Apple is being proactive about seeking and defending the enterprise market," Frank Gillett, Forrester Research analyst, wrote in an e-mail. Expect to hear more next week about what makes the iPhone 6 the perfect workhorse.

Apple May Be Finding Its Voice Again

When Steve Jobs died in 2011, Apple lost not only its CEO and technology visionary, but the pitchman who championed iconic ad campaigns such as “Think Different,” “There’s an App for That” and “I’m a Mac.” Since then, Apple has churned out a stream of ads that were forgettable at best.

In the meantime, Samsung’s ad agency, 72andsunny, pulled off a brilliant bit of marketing jiu jitsu by going for Apple's jugular. The ads mocked what is perhaps Apple's greatest asset: the frenzied fans who turn up every year to wait in line for the newest iPhone.

A new series of Apple ads shows how its products enrich people’s lives, whether they are composers or parents. The campaign is going well, and the recent commercials are outperforming Samsung's on average, according to ad industry researcher Ace Metrix. Apple is finally beginning to find its post-Jobs voice, says Edward Boches, an advertising professor at Boston University.

For longtime Apple watchers, the Sept. 9 event will bring a tinge of Jobsian nostalgia: It will take place at a college near Apple's campus in Cupertino, California, where the founder introduced the Macintosh in 1984 and the iMac in 1998. Apple's news conferences may have lost some luster since then, but they still do the trick. The same can't be said for some of Samsung's live performances.

Developers Love Apple

Samsung’s incredible run in recent years has come at a time of relative stasis for Apple. The Cupertino company has not introduced a major new product category since the iPad in 2010.

On the flip side, that's given developers plenty of time to get familiar with Apple's mobile devices. They've created more than 1.2 million apps and earned more than $20 billion, far exceeding Android. Developers are clamoring for new Apple products to code for, and they're finally going to get them.

“If Apple puts the hammer down with great, unique new products, it’s really going to put Samsung back on its heels,” says Piper Jaffray’s Munster.

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