In the fall of 2008, just a year after it released the iPhone, Apple became the most profitable phone maker in the world. The milestone wasn’t much remarked upon by the press. At the time, Apple was still selling only a tiny number of phones compared to its rivals, and it wasn’t clear that it could ever become a global juggernaut in the phone business.
Still, because rivals couldn’t match Apple’s average sales price and profit margins, they were falling behind. In the fourth quarter of 2008, Nokia, which had long been the phone industry’s profit leader, sold 113 million devices worldwide, about 15 million of them smartphones. It made about $1.2 billion in profit on all those phones. That same quarter, Apple sold just 4 million iPhones. But that single device earned Apple a profit of $1.3 billion.
These numbers—which Asymco’s Horace Dediu has helpfully archived here—provide the backstory to an industry in panic. If you were a phone maker watching the iPhone’s sudden rise in 2008, you had to make a quick decision. A storm was blasting through your business and your survival depended on how you reacted.
One option was to do nothing. A lot of firms opted for this path—Nokia and RIM, for instance, seem to have decided that the iPhone was a blip, a cultish device that would never reach mass appeal, so why bother taking it on?
Another option was to try to leapfrog Apple. You could spend many months, maybe even years, working on devices that aimed not just to match the iPhone’s innovations, but to beat them. This was Palm’s idea. Belatedly, it’s what Microsoft began to do, too.
Then there was a third choice. You could just copy Apple. You could borrow the iPhone’s key ideas, make a half-hearted attempt to dress them up in your own brand, and bake them all into your product line-up.
On Friday, a federal jury decided that Samsung was guilty of doing just that. But you don’t need this decision, nor any of the damning internal documents uncovered during the patent case, to realize this. Just look at the devices Samsung released in response to the iPhone—for instance, the 2010 Galaxy S, pictured above. If that’s not copying, the term has no meaning.
It’s tempting, after such a sweeping verdict in Apple’s favor, to conclude that Samsung’s decision to mimic the iPhone was a terrible mistake. The firm will now be on the hook for at least $1 billion in damages, and the judge could triple that amount. Samsung will likely face sales injunctions on many of its products, and will be forced to quickly design around Apple’s patents in its current and upcoming devices, if not to pay a steep licensing fee. Other companies that took inspiration from Apple—including Motorola, HTC and, at the top of the chain, Google—will also be stung by this decision.
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.
The other two strategies, meanwhile, haven’t panned out. Ignoring Apple ended in disaster for RIM and Nokia. Nobly attempting to beat Apple also didn’t work. Palm spent so much money and time coming up with an answer to the iPhone that, by the time it released the Pre in the summer of 2009, it needed the thing to be a mega-blockbuster. When that didn’t happen, it was curtains for Palm.
Now Microsoft is facing a similar problem with its completely different and really amazing Windows Phone. Why is Redmond having a hard time getting folks to look at its wonderful OS? I suspect it’s because while tech pundits like novelty, most consumers appreciate familiarity. When people around the world close their eyes and picture a “smartphone,” the iPhone is what springs to mind. The iPhone’s interface and design have become embedded in the culture, as familiar, now, as the mouse pointer or the steering wheel. Departing from the iPhone’s template, even for something better, isn’t something many people want to do.
Perhaps that’s why, since 2007, only two handset makers have consistently booked strong, growing profits: Apple and its doppelganger Samsung. Apple’s profits have, of course, been historic—since the release of the iPhone, it has made at least $70 billion from that device alone. But Samsung’s numbers aren’t anything to scoff at. Over the same period, Samsung has collected about $25 billion in handset profits. If the patent trial ends up costing the company $3 billion of that, it would certainly be a hit. But it wouldn’t be catastrophic compared to the money Samsung did make from copying.
And copying Apple didn’t just result in monster profits. It also helped Samsung earn a reputation, among consumers and tech reviewers, as a company that can make compelling devices. 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.
While Samsung’s ideas weren’t novel, its phones did work well enough for many people, and unlike some of its other competitors, Samsung was able to offer the kinds of technical upgrades—better screens; lighter, thinner devices; better batteries—that customers demanded every year. It also got the basics of phone production and distribution. It produced the best alternatives to the iPhone at the lowest cost, and sold them in more markets, at better prices, than any other rivals. Now, this verdict notwithstanding, Samsung remains better positioned than any other company to make gains on Apple.
Samsung’s decision to copy Apple has also been inarguably good for consumers. If it weren’t for Samsung and Google, Apple would have faced no meaningful competition in smartphones—which would have been great for Apple shareholders but terrible for everyone else, including for Apple’s customers. After all, if it weren’t for fierce competition from Samsung, would Apple have decided, for instance, to make its year-old model available for $100 off every year? Would it have added the costly Retina display without increasing the price of its phone? If it didn’t see competition from Android, would it have turned MobileMe into iCloud? We can’t know for sure, but the fact that Samsung and other Android makers were moving so fast had to have factored into Steve Jobs’ and Tim Cook’s decisions.
Now, to its credit, Samsung is moving away from straight mimicry. Its latest devices don’t look like rip-offs, and the company seems genuinely interested in building legitimately innovative things. With the world’s patent authorities watching, of course, Samsung has no choice but to do so—and in the long run, innovation, rather than Xeroxing, will pay off for the firm.
But you can’t get to the long run without paying attention to the short run. Samsung’s decision to ape Apple wasn’t the most graceful strategy in tech history. But faced with an emergency—a “crisis of design”—copying was the best Samsung could do. And it paid off handsomely.