A Samsung Week - Patent Penalties, Nickels to Apple, and Ambiguous Gear Sales

By Tony Rizzo November 22, 2013

Well, Samsung has certainly had an interesting week. Seven days or so ago we took note that Apple and Samsung were heading back to court to settle the patent infringement penalties that Samsung would have to pay Apple for copying its original iPhone 3 designs - something Samsung no longer denies doing. Apple was seeking $379 million; Samsung was thinking along the lines of $28,000 (yes, thousand). Samsung further wants the world to believe it earned only $52 million on those copied devices rather than the $3.5 billion Apple claims.

Well, the jury has just come back with the penalty verdict and it comes in at four orders of magnitude higher than what Samsung believed - $290 million. That is $89 million less than Apple wanted, but Apple should be happy with it at this point. The amount is nothing more than a rounding error for either company, and it's simply time to move on.

For Apple, it does come on top of an additional $598.9 million that was awarded to the company in the original trial. That brings the total up to $888.9 million. OK, perhaps that is just a bit more than a rounding error, but in the end it is ultimately a slap on the wrist for Samsung. Again, it is time to move on.

A Billion Dollars in Nickels?

Did Samsung pay Apple nearly a billion dollars in nickels? This story caught a lot of people’s attention over the last couple of days, and it certainly seems like a great idea (perhaps, and only from Samsung's perspective) for Samsung to pay off what it now owes Apple (the aforementioned $888.9 million) in nickels. But what can we say, the story is, of course, entirely fake. So, end of story.

800,000 or 50,000 Galaxy Gear Smartwatches Sold?

Now here is a story that Samsung wishes was entirely fake, but it isn't. Several days ago, it was reported by BusinessKorea that, to date, Samsung has managed to sell roughly 50,000 Galaxy Gear smartwatches. BusinessKorea further reported that its sources say that daily sales are under 800-900 units.

It has also become public knowledge, by way of a leaked internal memo, that Best Buy is reporting a very high return rate for those Galaxy gears it does sell, hovering at 30 percent ­– a very high number indeed.

Samsung, of course, needed to spring into action, and did so by underscoring that there were now 800,000 Galaxy Gears out the doors. What does that ambiguous statement mean? It means, as Samsung later had to admit, that the company has “shipped” 800,000 Galaxy Gear devices to partners, retailers, and carriers. In no way does the number reflect actual Galaxy Gear smartwatches sold.

The first version of the Galaxy Gear is nothing more than a work in progress. It was rushed out the door for the sole purpose of allowing Samsung to say it had a smartwatch out in the field before Apple did. The timing of the release was such that Samsung clearly had Apple’s new iPhone and iPad announcements in mind. The rushed first Gear device is an insurance policy that allows Samsung to claim first mover status over Apple on smartwatches. This matters to Samsung a great deal, as the company is clearly perceived as a follower and not a leader (which the patent issues noted above and the ongoing patent war underscore). We certainly place it in this camp, and have seen no reason to date to believe otherwise.

Samsung has further tried to paint itself as an innovator by larding its devices with excessive software “gimmicks” – as we’ve called them. Samsung lacks a cohesive and integrated strategy and ecosystem for pulling its devices together into a holistic whole, and this will continue to leave Samsung struggling for that “innovation respect” it so clearly wants – in large part to offset the “copycat” reputation it made for itself with the original phones it no longer denies copying from Apple.

So yes, perhaps Samsung cheated and got caught.  It ultimately still went on to sell hundreds of millions of devices. But, the “ask for forgiveness after the fact” approach does indeed have a huge price attached to it from a company perception perspective that goes well beyond the $888.9 million in patent infringement costs. We doubt there is much Samsung can do to change this.

It is very interesting to us that Samsung hasn’t yet found a cohesive way to tackle the living room through its excellent smart TVs. Samsung makes, arguably, the best 21st century TVs now available and the company needs to focus its attention much more directly on developing a home-based ecosystem that ties together its mobile devices and the living room. Through the emerging Internet of Things, of course, that living room should then extend to the entire home. We certainly believe that this is where Apple is headed. Apple’s smartwatch won’t be just another mobile device that ties into your smartphone; it will be much, much more than that.

Finally, at $299, Samsung hasn’t exactly made its first generation smartwatch affordable. It is positioned as a higher-end device that attaches to a very select number of Samsung’s higher-end mobile devices. It is the wrong strategy at the wrong time for Samsung.

It is worth repeating that great marketing will sell gadgets. In 2013, Samsung’s marketing efforts were exemplary – they sold a lot of hardware for the company. Samsung has certainly not shied away from spending TV ad dollars on the Samsung Gear, but the ads have not been nearly as good as the Galaxy S4 ads and thus have not helped to move the needle on sales.

Will the company ever understand that it is the holistic mobile and wireless ecosystem that defines innovation and not the gadgets themselves? Not any time soon. We certainly expect Samsung – either at the upcoming 2014 Consumer Electronics Show in January or at the 2014 Mobile World Congress in February – to deliver yet another flurry of gadget-centric product introductions. These will include a next version of the Samsung Gear and yet more versions of curved screen devices. The ultimate question, however, is how will they fit into Samsung’s ecosystem and drive real innovation?

Well, Samsung doesn't have an ecosystem. There’s your answer.




Edited by Blaise McNamee

TechZone360 Senior Editor

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