Yes, Samsung Errored in its Fast-Follow Strategy

I promised not to bring up the patent case again, but today’s debates infuriate me. Farhad Manjoo, a staff writer at Slate, wrote about the Samsung/Apple patent verdict today. He argues that Samsung is ultimately the final victor in this fight in the greater context of the cell phone industry:

But if you study what’s happened in the mobile industry since 2007, a different moral emerges. It goes like this: Copying works.

Of the three paths open to tech companies in the wake of the iPhone—ignore Apple, out-innovate Apple, or copy Apple—Samsung’s decision has fared best. Yes, Samsung’s copying was amateurish and panicky, and now it will have to pay for its indiscretions. But the costs of patent infringement will fall far short of what Samsung gained by aping Apple. Over the last few years, thanks to its brilliant mimicry, Samsung became a global force in the smartphone business. This verdict will do little to roll back that success.

And for me, the real kicker:

Yes, it was clear that many of Samsung’s ideas weren’t original. But customers don’t care about originality—if they did, Windows wouldn’t have won the PC world, and we’d all be using Friendster instead of Facebook.

Manjoo often writes these contrarian, blog-bait pieces (I guess it works - I am even commenting on it). Robert Scoble, one of the most followed bloggers based in Silicon Valley, had similar thoughts:

I think this is actually a sizable win for Samsung

Why? It only cost $1 billion to become the #2 most profitable mobile company. Remember how much Microsoft paid for Skype? $8 billion. So, for 1/8th of a Skype Samsung took RIM’s place and kicked HTC’s behind.

Not too bad. Unless the judge rules Samsung can’t sell its products. Even then I bet Samsung arrives at a nice licensing deal with Apple.

I am going to take a strong negative on both of these reviews of the situation. Both of these bloggers argue that Samsung managed to survive the iPhone design crisis because it merely copied the new device. But here is the real point: why was it Apple and not Samsung that created the first “iPhone”? Why is Samsung the #2 profitable handset maker, and not #1? And the gap isn’t small: according Manjoo, the iPhone has made around $70 billion in profits, compared to the total Samsung profit of $25 billion for its handsets. That’s a difference of $45 billion, or about 5% of Korea’s yearly GDP.

What makes this question particularly striking is that many of the core parts of the iPhone are actually sourced to Samsung factories. Like that nice Retina screen? It came from the Korean peninsula. Throughout this saga, we have been constantly reminded that while Samsung and Apple are battling out in the courtroom over phone patents, they have been continuing their long-standing industrial relationship. It is just bizarre.

I realize that Samsung doesn’t have Steve Jobs. But the cost of copying isn’t seen by what Samsung gained in profit - but what it did not. It is the opportunity cost of their approach that must be analyzed. Today, Samsung’s phones are popular, but are by no means popular in consumer’s imaginations. Ultimately, the value of innovation is in the long-term, not just in attracting consumers, but in attracting the best talent and management in the world. Samsung may have “won” the battle, but they are likely to lose the war without serious change.