On August 19 Samsung released its new flagship device – the Galaxy Note 7. Samsung’s latest smartphone is miles ahead of the current iPhone and, arguably, far ahead of what Apple ( AAPL) is even planning to launch this September.
Everything about it, in fact, emphasizes the growing gap between Apple and its rivals.
At a time when Apple’s iPhone sales are struggling, it’s delayed the next big iPhone upgrade by one full year and many are now questioning the company’s leadership and apparent innovation lag, how concerned should Apple’s investors be about Samsung’s upcoming launch?
The short answer: not at all.
While it’s true that Apple appears to be falling behind rivals like Samsung — not to mention Chinese powerhouses like Xiaomi and Huawei — in terms of new features and cutting-edge specs, it’s important to realize this isn’t some errant moment in the company’s history due to leadership failures or an unwillingness to take risks: it’s part of the company’s core strategy, ad always has been.
Apple’s strategy has long been to take a wait-and-see approach with new products and features. Touchscreens existed on smartphones before the iPhone in 2007. Apple perfected them by adding multi-touch. Apps existed long before the iPhone, but Apple perfected those, too, with the debut of the App Store in 2008. Mobile payment options existed, but Apple took them mainstream with Apple Pay. Samsung’s new features will provide Apple with a wait-and-see opportunity. Samsung spends the money and takes the risks, Apple waits and watches.
This is what investors should want Apple to do. Because Apple waits to see how a new feature tests in the market, it avoids wasting money on developing technology its customers ultimately don’t care about — and it avoids hurting the brand by rushing out products that feel “buggy.”
There are several areas where Samsung is testing the waters, much to Apple’s advantage.
Take, for example, Samsung’s Quad HD display. It’s a compelling feature for gadget-heads who love using the Gear VR (virtual reality) from time-to-time. However, pick out 10 people on the street and ask them why they’d want a Quad HD on their smartphone and you’d be lucky to have one or two who even know what a Quad HD display is. The same applies for an iris scanner. It’s cool, yes, but does the guy next to you in the elevator really want one? Probably not. “When will Apple add that to the iPhone?” he might ask. Without the demand for these sorts of things, why should Apple fear what Samsung is introducing to the market?
Apple may appear to be dragging its feet on new features, but this is by design. The company invented the consumer smartphone market by turning the much smaller enterprise-focused smartphone market – dominated by Windows Mobile, BlackBerry and Palm OS at the time – on its head. It wasn’t only late to the game, pundits thought it was so late that it was doomed to fail. The iPad created the consumer tablet market where others had tried and failed before.
A survey performed by Brand Keys suggested Apple has the best brand loyalty for smartphones, tablets and laptops. In other words, folks are coming back to buy more of its products.
That loyalty started long ago for many people, too. Investments in iTunes with iPod music purchases, for example, probably ushered many a consumer into Apple’s walled garden. They bought a few apps and, eventually, became rooted in Apple’s ecosystem.
iPhone owners, even if they might not upgrade to the new iPhone, will consider all of these investments before thinking about switching to another phone, like a product from Samsung. There’s a difference when you look at the Android ecosystem. It’s easier for someone invested in the Google Play Store, which also sells movies, music, books and apps, to switch from another Android smartphone to a Galaxy Note 7, or vice versa.
Finally, while Samsung’s new smartphone may look very appealing right now, the last Note doesn’t seem to have sparked much interest among consumers.
According to a report from Strategy Analytics published in August, Samsung shipped 38.1 million units of its top three smartphones during the first half of this year. By comparison, Apple shipped 125.9 million iPhones in its fiscal first and second quarters. Samsung’s Galaxy Note 5, the predecessor to the Galaxy Note 7 despite its name, clearly didn’t have a lasting affect on sales.
Apple does need to innovate, but only enough to keep its customers happy. While it may seem like Apple is lagging behind because of the huge technical strides Samsung and others are making, slow and steady wins the race.
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