Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Samsung's new Note 7 smartphone is packed full of cool features

The headline act is its iris-scanning technology that supposedly makes the device more secure. It also supports high-dynamic range video, the industry's latest attempt to make consumers excited about image quality. Then there's a stylus that lets people write on their phone underwater, just because.

Cool, right? But let's take a breath here.

How many people really want to write on their phone under water? How much more secure will an iris-scanner be for your phone? And what proportion of consumers actually know or care about some new-fandangled video technology after 3D and 4K both failed to elicit excitement?

So that's the dilemma Samsung is facing. The company spends more money on research and development than Apple so that it can sell phones with curved screens and brighter displays. It may sound unfair to compare Apple's $8 billion in R&D last year with Samsung's $13 billion since the latter also develops semiconductors and display panels, but the comparison is appropriate because the South Korean company then feeds that broad portfolio of expertise back into its end devices.

Rising Research
Samsung's R&D as a percentage of sales has been steadily rising as spends more and more to develop its stable of semiconductor, display and hardware technologies
Source: Bloomberg
Note: Figure includes R&D expense and capitalized R&D.

That's not to say that Samsung's latest device is aimed at taking on Apple. Both companies sell high-end smartphones, and that's about where the comparison ends. 

Few consumers buy Apple's iPhone for its leading-edge technology because more often than not that same technology has already been rolled out in an Android device. Instead they buy into Apple's ecosystem, which it fully owns and controls, and the simplicity and convenience of having one company dictate most of their choices. This uniformity coupled with a solid design ethos is what makes Apple command so much respect, market share and profit. It also makes users quite unlikely to abandon the iOS environment.

Samsung, on the other hand, is facing off against a crowded line up of Android phone makers such as Huawei, Xiaomi and Lenovo in what amounts to a level operating-system playing field where it has limited control over the ecosystem and no ability to stop consumers swapping to another device. And when you're a massive technology giant like Samsung, there's no reason to want a level playing field. 

Premium Value
Apple and Samsung continue to be able to charge a higher average price for their smartphones while still maintaining market-share dominance
Source: Bloomberg Intelligence, IDC
Market average includes iPhone and Android systems.

What Samsung can control, thanks to its massive chip and screen divisions, is the technology that goes into the hardware. It's no coincidence that the only other company that even comes close in hardware development is Huawei, which also manages to command a higher-than-average price among Android smartphones.

For Samsung, though, a lot of this technology is more gimmick than gimme. Iris-scanning sounds cool, but hardware-access security is less of a risk than online hacking or device-installed malware, and one wonders how well it will work with contact lenses or glasses anyway. 

Yet it does allow the company to stand out from a crowd where most smartphones look the same, and more importantly lets the company charge huge premiums over the dozens of devices that use the same lineup of chips, displays and software. It's also an acknowledgement by Samsung that its chief competitor isn't Apple but every Android maker on the planet.

That means the $13 billion Samsung spends annually on R&D is a vehicle for its highly visible marketing program, a fact that's highlighted by the Galaxy S7 Edge, Galaxy J2 and Galaxy S7 taking the top three spots in Strategy Analytics' first-half global market-share survey.

It also tells you that for Samsung, necessity is not the mother of invention; marketing is.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net