Apple 2.0

Covering the business that Steve Jobs built

Did an Apple 2.0 story touch a nerve at Samsung HQ?

April 21, 2013: 2:57 PM ET

A piece about Samsung's agent provocateurs seems to have stirred up a hornets nest

Screen Shot 2013-04-21 at 2.38.14 PMFORTUNE -- A funny thing happened on this site Sunday afternoon, Korea Standard Time.

On Saturday, following Samsung Taiwan's admission that it had paid anonymous posters to trash a competitor's products on Taiwanese social media sites, I posted a story about the growing suspicion among Apple (AAPL) investors that Samsung was engaged in a similar campaign against Apple -- and that it might be affecting the company's share price.

The post drew more that the usual number of comments. Twenty six hours later, we're up to 343 messages and counting. Some readers supported the thesis. Some ridiculed it. Some attacked Apple. Some attacked me.

That kind of thing comes with the territory, although not usually in such numbers or with such vehemence. But what happened at about 2 a.m. EST -- Sunday afternoon in Seoul, South Korea -- was new.

In the space of a few hours, more than a thousand votes were cast on the DISQUS feedback system, voting down any comment remotely anti-Samsung and voting up anything -- no matter how inane, in-artful or wrong -- that disparaged Apple, the thesis, or me.

For example:

betheball11: "Philip Elmer-DeWitt how much apple stock do you own?" (27 up votes)
Philip Elmer-DeWitt: "None. But thanks for asking." (22 down votes)

One of the posts that stirred up the most negative reaction overnight was a particularly thoughtful dispatch from South Korea itself, written by an ex-pat who calls himself Jake_in_Seoul.

Just to show that voices like his can't be silenced, I'm reposting it in full:

Thanks, PED, for writing on this important and complicated topic that people here in Korea speculate on privately. Many of the comments have been excellent, but here are a few nuances and personal perspectives that may be germane.

1. Samsung is a huge conglomerate, comprising somewhere around 80 individual companies involving everything from engineering, shipbuilding (2nd largest in the world), to hotel management, etc. with an even more complicated network of subsidiaries and joint ventures around the world. They own a major advertising agency and various large financial institutions (credit cards, insurance, securities). If they do choose to go into corporate warfare they have a wide range of expertise and global connections at hand to do so.

2. The Western press has been shamefully reluctant to pay close attention to even the normal details of Samsung's finances and functioning, compared to say, Apple, Google, and Microsoft, much less the extraordinary ones. Where is, for example, any in-depth discussion of the remarkable fact that Samsung Electronics has 3 "co-CEOs" or a good analysis of the longer-term implications of losing their largest customer? Korean analysts are likely too cowed by the possible threat of career suicide ever to write negatively of the company, reporters from Reuters, the WSJ, and FT, etc. only write puff pieces that raise doubt as to whether the material was drafted by Samsung PR. And worst of all, every press outlet on the planet keeps using (and treating as genuine) dodgy estimates of Samsung's mobile unit sales because the company refuses to release official numbers. Why should the supposed world leader keep its sales data secret?

3. I think it's fair to say that Samsung is not generally well liked by the Korean people, who are outraged, for example, at the high prices the company charges in local markets for their products ("we are all Samsung "patsies" Korean:호구, goes the frequent online lament). As brands go, I suspect LG is far more favored emotionally. And, while it's easy as outsiders to make Samsung into a mirror of Korea, I would urge caution. Do Wall Street institutions such as Goldman Sachs and CNBC really represent, for example, the essence of U.S? Sadly, in some manner, yes, but in the most important ways, I believe, no. So, too, Samsung. As an outsider who speaks Korean living here, I am continue to be amazed at the good people, extraordinary culture, and vibrant energy toward building a better future that I see here daily.
 It's a great place, generally, and using Samsung is a sad way to judge it.

4. Do I personally think that many at Samsung believe they are in in a global battle with Apple to gain respect for Korea and demonstrate to the "arrogant Americans" the superiority of Korean technology and business practice? Absolutely. It has the overtones at times of a holy war, especially after the jury verdict last August. And would this sense of righteous moral struggle lead the company to launch PR and financial attacks in order to enhance the company's prestige and honor? Very, very likely, in my opinion.

Thanks, Jake.

UPDATE: At the suggestion of several readers, I'd like to draw your attention to another worthy essay that was been hit with a lot of negative votes (165 and counting). It was submitted as a comment here by a Korean-American who posts under the tag alexkhan2000. As he explains, his handle is a portmanteau of two of his heroes: Alexander the Great and Genghis Khan.  Enjoy.

As a Korean-American who has posted numerous times here regarding the Apple-Samsung war, I feel obliged to post again after reading seeing these articles and blogs. I was born in Korea and lived most of my youth there in the 60's and 70's but have lived the past 32 years in the US. I still visit Korea (as well as China) every few months for business and would prefer to live there if I can. Overall, I have a love-hate relationship with both the US and Korea. For me, the best way forward is trying to assimilate the best of both and discarding the worst of both.

I am not at all surprised that Samsung would resort to hiring people to post crap about other companies or instructing their own employees to do so. In fact, I'm quite certain they're doing it and I don't need proof for it. I just expect Samsung to do something like that on a systematic basis. Samsung is a company that has never been driven by ideals - just a mandate to make as much money as possible and destroy all competition in its path. Sure, many companies operate on such cutthroat principles but Samsung has been the best at it for many years now and it is leveraging its size and clout to maximum effect as well.

Outside of Korea, very few people really know or care about Samsung's history. It really isn't that interesting compared to the colorful histories of companies like Apple, Microsoft or even Sony. In a way, Samsung's history is somewhat morbid. Samsung (along with most other chaebols in Korea) got to where it is today through a business model that was subsidized by a dictatorship government that was hell-bent on exporting as many cheap goods as possible during the 60's and 70's. Meanwhile, imports were curbed so that the chaebols could charge more in the domestic markets to offset the low margins or losses incurred for exporting super cheap products.

By the 80's, the chaebols had amassed enough profits to pay back the very favorable government loans and essentially told the government: "We don't need you anymore. We'll do as we please from now on in the global markets. Stay out of our way." At first, the chaebols continued to flood the market with cheap shoddy stuff. Remember the first Samsung products and Hyundai vehicles in the late-80's and early-90's. They epitomized *JUNK* in the American consumer's eyes. But you have to hand it to those wily chaebols. After all, they're not stupid. They were persistent and finally realized that quality matters.

In the early-90's, Samsung Group CEO and Chairman (youngest son of the founder) famously told the company: "Change everything but your wife and children." If Samsung was to catch up and surpass the dominant Japanese consumer electronics giants like Sony, Matsushita (now Panasonic), Toshiba, Hitachi, Sharp, etc., Samsung had to change its ways and do it fast - *real* fast. Samsung then forged partnerships with the Japanese giants to learn (or steal) as much as it can and when Samsung finally started to forge ahead with better quality display and semiconductor technologies, it told the Japanese to take a hike. So Samsung had its revenge.

Then, in the first half of the last decade (2000~2005), Samsung's sights were set on Nokia to become the largest cellphone manufacturer in the world. Samsung saw the war with Nokia (and BlackBerry) as a long-term objective that may take many years. It would be a war of attrition - copy what they're doing but do it more efficiently with lots of splashy marketing and undercut their prices. Samsung continued to gain ground even though Nokia and RIM held onto their dominant positions. Then, out of the blue, Apple came out with the iPhone in 2007. Initially, just like Nokia and RIM, Samsung just blew it off and didn't think much of it except selling Apple the components.

Well, I think most of America only knows about Samsung *after* all this has transpired, i.e., the release of Galaxy smartphones. I knew that Steve Jobs and others at Apple were "shocked" when they first saw these copycat phones but I remember just shrugging and thinking, "But, of course. This is exactly what I would have expected from Samsung. It's what they've been doing for so many decades. It's in their DNA. They wouldn't have a clue about inventing something of their own. What else could they have possibly done?" I actually wondered how Apple couldn't have seen this coming. Perhaps Steve Jobs was just too trustful? Perhaps that was his main failing in his career? First with Microsoft in the early-80's and then with Google and Samsung?

I'm a history buff with an oversized interest in ancient Greece, Rome, and the era of the Mongol Empire in Asia. My moniker comes from Alexander the Great and Genghis Khan, the two most stupendous conquerors in history. I love to read about the strategies, the military campaigns, and the governance of these legendary leaders and then try to juxtapose what and how they did with what's going on in global current affairs and in big business - mainly in the tech area. I actually spend more time poring over the history books and historical novels than I do reading tech industry articles and blogs such as this site.

To me, Apple reminds me a lot of ancient Greece when new ideas flowed out effortlessly and in great abundance. Then Alexander, the great young intellectual warrior who was educated by Aristotle, decided to invade the huge but declining Persian Empire and spread the Greek ideals, knowledge, technology, literature, etc. into every corner of the world and assimilate what is best of Asia into Western culture. But his ideals were just too far ahead of his time and the reality of the world simply worked against such naive dreams and goals.

Samsung reminds me more of the Mongol horde in this context but that would be an insult to Genghis Khan and his offspring successors like Kublai Khan. Where I see the similarity is that it's a family dynasty. All chaebols are son-to-son dynasties. It doesn't matter that much smarter and more capable executives are coming up through the ranks; the group CEO/chairman position will be handed off to the most capable son. In the case of the Mongols, things got rather messy after Genghis died and his sons jockeyed for power. Then, the grandsons actually went onto fight a civil war to control the empire. Eventually, the massive empire (covering over 9 million square miles and the largest contiguous land empire in history) split up into several sub-empires.

Moving on, Samsung is very much like certain Mongol hordes that only cared about ransacking cities and stealing their gold. With the Mongols, it ultimately came down to the loot and then protecting the perimeters of what they had conquered and gained by continuously enlarging their empire. Business executives at the highest levels of these huge multinational corporations study the political and military histories of great kings, conquerors, nations, generals, etc. all the time because, essentially, they're all doing the same thing: horde money and then guard it with everything you have.

As for Apple, it also has no choice but to fight with the best they've got because that's just the nature of business: ruthless competition. Apple needs to be just as ruthless as anyone else because everyone else is ruthless. And this war between Apple and Samsung (as well as Google and all the Android manufacturers) is certainly one for the ages. It's kind of like imagining Alexander and his Macedonian army taking on Genghis Khan and the Mongol army (in the same time period instead of being 1500 years apart, of course). Their backgrounds are so different. But what's past is past and all that matters is now and the future.

Eventually, even the Mongol empire got swallowed up by China. Even the Mongol armies at their peak had a very rough time with the Chinese because the various states of China just sent waves and waves of large armies at the always-outnumbered Mongols. So Samsung will have to evolve just as Apple will need to evolve and adapt as the Romans did after the Greek empire. Samsung won't be able to stem the Chinese tide in the future and they know it. It's the main reason Samsung is rushing to distance itself from Google and Android because all the Chinese companies will be using Android against it.

Apple took a good beating over the past year or so but it will have learned a lot through this experience. It's a time of consolidating its position and that of transition after the death of Jobs. The way I see it, Tim Cook, as brilliant as he is, is a transitionary figure who keeps things stable. He's a top "general" but not a "king". All great empires of history had these kinds of periods when the titantic charismatic leader died. That went for Alexander and the Greeks, Julius Caesar and the Romans, and with Genghis Khan and the Mongols. Large corporations behave like ancient empires. It's not democracy.

Apple will need another creative burst in the future and I believe the "king" in waiting and being groomed to eventually take over is Jony Ive. I don't think Tim Cook has done a bad job although he sat over the collapse of the AAPL stock price. He's an amazing logistician and operations chief but simply doesn't have the flair, charisma and the vision that Jobs had. But that's not exactly what Apple needs at this point in time. Apple needs to keep executing in a rather ho-hum unexciting manner of getting upgraded products out the door while Ive designs the new products and the next big things. And that's going to take time.

As for Samsung, I can see it's reaching its zenith right now and that may last another few years, but the rising Chinese electronics giants have their bullseye target firmly on Samsung and they're just chomping at the bits to tear Samsung down. And, of course, Samsung is very, very well aware of this because that's how things have *always* gone if one studies thousands years of Asian and Chinese history. Samsung knows it can't win head-on with sheer numbers in the future. The Chinese will be like rabid ants attacking a hapless victim from all directions.

Samsung will need to move to higher ground as it beats down on the insurgents crawling up below and time is running out. Ironically, that means that Samsung will need to copy Apple more than ever before: establish their own OS and ecosystem, their own retail stores (like their stores within Best Buy), hardware/software integration, work with the media companies, raise brand loyalty (yes, develop the Samsung sheep), develop an aura, etc.

Can Samsung do it? Maybe... it's 50/50 at best. Samsung will actually have to do something it has never done before to succeed: develop an identity of its own and be original. Well, I wish them luck because they'll certainly need it.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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