Blue Ocean vs. Red Ocean: Is Samsung Buying Smartphone Market Share?

Who will be the Smartphone King for 2011? an equally important question is: what are each of the smartphone companies doing to capture market share? one way of looking at the tectonic shift is to review each manufacturer’s profit per smartphone from 2010 to 2011. By selecting Gartner smartphone unit market share and Asymco smartphone profit market share, I have used data that is consistent from 2Q 2010 to 2Q 2011 so we can see if there’s a level playing field or if some smartphone makers are trading off price for market share.

Samsung is pushing the envelope of smartphone price elasticity, for the data shows that Samsung is sacrificing profit (price) for market share growth. From 2010 to 2011, Samsung achieved an astounding 3X growth in units sold. Although Apple has grown less than half as fast as Samsung, it is capturing nearly 6X the amount of profit that Samsung is capturing per smartphone. Apple is focused on other objectives: customer delight, profit growth and maximizing shareholder value. so which stock would you rather own?

Nevertheless, consumers are voting with their pocketbooks for which smartphone they want to own. Choosing a smartphone is easy when so many Android options are free. Now that the iPhone 3GS is free, the market share wars will accelerate. unless a consumer walks into the Apple Retail Store, shopping for a smartphone will be more like the television game show – “Let’s Make a Deal.”

Apple continues to be successful without competing on price – its Blue Ocean Strategy. Apple maintains a one-product, one-price strategy. The only prices you will find for iPhones are those presented at its launch: Apple iPhone 4S @ $199.99 for 16GB (with 32GB @ $299.99 and 64GB @ $399.99), iPhone 4 @ $99.99 for 8GB and iPhone 3GS for free with a 2-year contract). Conversely, Samsung is swimming with the sharks in the Red Ocean of Android phones. A quick glance at AT&T’s online store shows 16 Android models from 8 different brands with 5 being free and all but one priced less than $100. More Android sharks are on their way at AT&T, Verizon, Sprint and T-Mobile.

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