There are an estimated 1,000 smartphone manufacturers around the world. The playing field became overcrowded as the devices gained in popularity and became essential to people's lives. But only a small number of manufacturers make a profit.
When market researcher Canaccord Genuity analyzed the first-quarter earnings of eight major smartphone makers, it found that Apple reaps 92 percent of the total operating profit in the industry. Samsung came a distant second with 15 percent. The total is more than 100 because the remaining six posted operating losses.
In terms of volume, Samsung accounts for a whopping 21 percent of the global smartphone market, with Apple behind at 14 percent. But when it comes to profitability the picture is very different.
Apple makes its staggering profits by selling only premium phones. Samsung has made endless attempts to catch up with Apple, making its phones thinner and lighter, mounting them with high-resolution cameras, trying to curve the gadgets and coating their backs with leather, but all to no avail.
Staff of the Korean electronics giant often scratch their heads wondering what people see in the iPhones when Samsung smartphones have better functions and cost less. But this type of thinking completely misses the point. Apple's strength lies not in the iPhone itself but in the software and services linked to the device, as demonstrated by the explosive popularity of the App Store, iTunes and Siri voice-recognition software.
In contrast, it would be a real challenge to name any key service that is unique to Samsung's smartphones.
But there are signs of hope in the Samsung Pay service, which debuted in Korea with the launch of the Galaxy Note 5 in August. Samsung Pay is simple to use, since customers simply have to swipe their smartphones on any credit card machines in stores. Apple Pay transactions, by contrast, can be used only with near-field communication (NFC) devices.
A total of 600,000 people signed up to use Samsung Pay just a month after its release, making it by far Samsung’s most popular smartphone service. Some people buy Samsung phones simply to be able to use Samsung Pay.
A U.S. start-up called LoopPay developed the core technology, and Samsung bought the U.S. company in February for a rumored W250 billion (US$1=W1,147). Samsung faced a barrage of criticism at the time for spending so much money on a no-name start-up, but that criticism has been completely silenced. There is even speculation that Samsung broke even after considering marketing expenses.
As smartphone technology growth tapers, it is no longer possible to stay ahead of the pack based on hardware specs -- the only game changers would be phones that can be folded and unfolded like a handkerchief or batteries that last a week on a single charge.
Chinese smartphone makers are rolling out plenty of devices that have much the same specs as Samsung's but for half the price. If Samsung is to stay ahead of Chinese rivals and catch up with Apple, it needs to come up with more new services, never mind whether it develops them on its own or buys them from a company like LoopPay.
By Kim Hee-sup from the Chosun Ilbo's News Desk