And the Winner Will Be?

Can anyone dethrone Apple?

Las Vegas, Nevada—-On a walkabout at CES’ many press conferences and demos by the familiar tech giants I wondered which one would one day pose a real threat to the elephant in the room, Apple.

I glided to the Samsung presentation and, beyond their abysmal planning in terms of space which left so many stranded and attending the event on their laptops and tablets in the hallways instead of the venue itself, I found their presentation mesmerizing.

My first close up brush with Samsung came in 1991 when I went to Korea when working for a European hard disk repair and distribution firm –yes, we did repair disks when they were as big as a toaster oven and had only 6 megabytes of unformatted capacity! At the time, the market leading form factor was Conner’s 3.5” new wonders that made the laptop revolution possible. When I met with one firm that had invited us to Korea, they were unwilling to sell us the product we wanted. Unable to call the trip a failure, I went to see Samsung and other Chaebols (as Korea’s national industrial conglomerates were known). In fact, Samsung gave me a 3.5” disk drive to take back to Brussels so we could market it in Western Europe. Quietly, but doggedly, they had negotiated the turn in this and many other technology fields.

Still, Samsung lacked the marketing savvy and polish to maximize its market access in the West. Already, I marveled at what the group could do if it solved this access issue.

In my humble opinion, CES 2012 showed that Samsung has in fact arrived as a top marketer of its wares and innovation generally. Their presentation, still occasionally flavored by the cross national, cross cultural expression of its executives, managed to deliver something I saw nowhere else among the other top tier players at the show. They focused on the customer’s use of the products, not on specifications, which, as they should, only came up as occasional reinforcement when they already had their audience wowed.

Contrast this with Intel, the US-based behemoth could and should by all measure be expected to have delivered a powerful presentation and properly negotiated the high speed turn from spec-based sales pitches to a ‘user experience’ focused presentation. After all, they have no excuse in terms of a cultural difference with Apple be it on language, (Intel is still a very US-centric firm) nor, in fact, in terms of product focus; if you bought an Apple computer in the last few years, you bought an Intel box! Yet, Intel managed to find executives who while they clearly read the user experience memo (and told their audience repeatedly they would focus on it) could not help themselves over and over and over from focusing on specifications and, oh, telling you these maximize user experience. Well, as even a fifth grade English teacher knows: show, don’t tell.

Intel told us and told us and told us and in the end put all their eggs in the basket of the Ultra book, a thinner, lighter laptop. Evolutionary, maybe. Revolutionary? We don’t think so.

Sony, we keep reminding ourselves, invented the Walkman and look stood for innovation. I mean their slogan was “I dreamt it, Sony did it”. Can you get more aspirational? Well, after years of frequenting the US corporate world through its North American entities, Sony seems to have lost all of the luster of its founder’s creative genius. Their presentation felt like a Rover cars presentation with low light and a lot of special effects..

We saw Panasonic, a company whose products seemed leading edge from beginning to end and whose message was full of near misses and Ultra tough books.

So, in our search for the true contender to take on Apple, we saw Samsung again. The company had all the products that Panasonic offered and a few more but with a real message and, inexplicably, the DNA to market its aspirational offering without boring us first.

Then, we learned from allthingsd.com that the source of the marketing DNA was indeed rooted in its people. (see: http://allthingsd.com/20120130/samsungs-marketing-chief-aims-to-stir-passion-for-koreas-electronics-giant/?reflink=ATD_yahoo_ticker)

After all, Samsung, if it brings together its R&D mojo and the talented quill of its marketing leadership could continue to wow consumers.

Would this be enough to dethrone Apple? What makes the Cupertino giant, now the largest public company in the world by market value a formidable competitor? We’ve heard it was Steve Jobs. That must be partially true but, for Apple’s sake, cannot be most of the story. Is it as one experienced observer told us this week fundamentally a production cost issue that is set to unravel in the context of the Foxconn news this week? Well, nearly all the players we named have access to Chinese manufacturing plants and it is hardly the marginal cent of labor that can be made to account for Apple’s sales success (with a double since last year) and astounding 42% margins!

Rather, Apple seems to have decided some time ago that it would package products that solve issues for customers but that innovate in one or the other dimension and deliver workable but not necessarily leading edge specs in the others. After all, there are still no 4G phones from Apple and their tablets are not the fastest or the best screens (try to read them in any sunlight). But they are enough to meet and exceed the expectations of users.

Apple’s service is truly flawless and their retail operation would be a market leader in its own right. But how does any of this make them so profitable?
We believe the secret, if there is just one, is the way Apple does research. More accurately, it’s how Apple does NOT do research. Apple spends only 1.6% of its sales on R&D. That is an astoundingly low number for a company so large whose whole position is purportedly based on innovation.

Apple has essentially outsourced R&D to its vendors. Its size allows it to demand first dibs and its cash pile, which so many talking heads on Wall Street jeer at as cash management ineptitude, allows it to fund factories for vendors, profiting on its own purchases at the same time. Apple is a house fighting a guerrilla war with the resources of a superpower.

Samsung, we believe, has decided to match Apple on marketing, while consolidating its leading technology development but can its margins ever catch up?

We will see in 2012 if Apple can continue to lead by purchasing innovation at a bargain or if Samsung can eat into the leader’s growth and bring it off its pedestal.

Either way, 2012 is shaping up to be a thriller.