New Samsung Galaxy S4? Meh.March 15, 2013: 5:00 AM ET
Samsung's latest Galaxy S phone may be a technical wonder, but it's increasingly the base software that really matters in mobile.
By Cyrus Sanati
FORTUNE -- Samsung's splashy launch party for its fourth-generation Galaxy S mobile device isn't going to have much of an impact in its war with Apple. That's because the battleground for dominance in the mobile space has shifted away from the hardware and physical design of phones and toward their software, specifically the operating system. The real battle for mobile dominance looks like this: Apple, with its iOS ecosystem, is in one corner, and Google, with its Android system, is in the other. Whichever wins over consumers will ultimately decide the victory.
The launch of the new Galaxy S4 in New York this week has the tech media churning out post after post examining how this new phone could impact the mobile phone space in the U.S. But all this digital ink isn't necessarily being spilled because the public is excited about the launch of yet another mobile phone. No, this is all about Apple (AAPL). Specifically, how this new phone will stack up to Apple's latest iteration of the iPhone, the iPhone 5.
But I don't expect to be wowed when the new device is finally in hand. That's because the new Galaxy doesn't have much we haven't seen before on a mobile device. It features a 5-inch, high-definition screen that can be used while wearing gloves. Thin and light, it packs 2GB RAM and will come with a 1.6GHz Exynos Octa-core chip or a 1.9GHz quad-core Qualcomm, depending on the region in which it is being sold. The phone can pull off a few neat software tricks -- like translating spoken language.
And yet, real innovation in smartphones seems to have hit a plateau. Take a phone's camera: The iPhone 5 has an eight-megapixel camera while the new Galaxy S4 has a 13-megapixel camera. To that I say: whoopee, big deal. Anything above five or six megapixels is basically wasted on the vast majority of people who are just interested in getting a clear enough picture of their dinner or their friends to post on Facebook (FB). If anything, the larger pixel size is a negative as the pictures will eat up a lot more space on the phone's memory, leaving less space to store music, apps, and the like.
The Galaxy S3 and other high-end phones like HTC's OneX+ or Sony's Xperia Z have already proven that they are as good as or even better than the iPhone. That isn't the issue. Samsung has clawed its way to the top of the high-end mobile market in the U.S., not by making a superior phone, but by spending buckets of money on advertising. The Korean giant spent a whopping $401 million in the U.S. alone advertising its cell phones in 2012, according to ad research and consulting firm Kantar Media. Apple spent $333 million. HTC, Sony (SNE) and Nokia (NKE) didn't spend much at all, reflecting their poor market share in the high-end mobile arena.
But there are diminishing returns when it comes to advertising. At some point, Samsung will have to be able to woo a new customer over to its side by simply having a better all-around product. (Some argue vociferously that this is already the case.) But Samsung has a major issue here in that it doesn't have control of the most important parts of a phone, the operating system and the accompanying online media store.
Samsung relies on Google (GOOG), and to a lesser extent, Microsoft (MSFT), to provide the operating system on nearly all of its phones. This has allowed Samsung to save a lot on research and development (Google gives Android away for free), but it has also tied its hands when it comes to eliminating a major revenue stream of the mobile market -- media sales. There is a relatively high switching cost when a person goes from Google to another operating system, such as Apple's iOS. The time that needs to be invested in simply learning a new operating system is enough to make even the most tech savvy nerd sick. Apps bought on one system, though they are by the same company and do the same thing, aren't compatible between systems, meaning you have to buy them all again, a costly measure for many people.
"Android has a global partnership of over 60 manufacturers; more than 750 million devices have been activated globally; and 25 billion apps have now been downloaded from Google Play," Larry Page, Google's chief executive, wrote in a blog post this week. "Pretty extraordinary progress for a decade's work."
At last count around 70% of smartphones run on Android. That's both a blessing and a curse for Samsung. On one hand, it is great, as the larger market share means that a lot of people are now familiar with how to use Android and have some sort of tie with the Google Play Store. But on the other hand, it also means that a customer could pick up a dozen phones by an array of manufacturers and basically walk away with the same experience as they would have with a Samsung device. (Naturally, Apple's closed system avoids this very problem.)
Samsung's lack of power designing the core software that runs on its flagship mobile device makes it tough to celebrate the launch of the S4 -- even if it can do a few new things. Copying hardware is not the game anymore; rather, it is more about who can build a long-standing, sticky relationship with customers after that initial sale is made. Apple and Google are basically the only two players in this new war -- one in which Samsung, for the time being, can't even participate.