Now We Know Why Samsung Is Trying So Hard To Make Smartwatches A Success
The first watch, the Galaxy Gear, launched last October to disappointing reviews and what appeared to be equally disappointing sales. (Samsung never disclosed how many Galaxy Gears it sold, but analyst estimates weren't very good.)
Within a few months, Samsung replaced the original watch with a crop of new devices: The Gear 2, Gear 2 Neo, Gear Fit, and the Gear Live. None of those watches were particularly impressive either.
On Monday night we learned the source of Samsung's desperation to make smartwatches happen. It's in need of a new source of revenue after seeing its quarterly profit decline by 24% year over year. The company blamed increased competition from other smartphone makers for the dip in profits.
Specifically, companies like Lenovo and Chinese startups OnePlus and Xiaomi are making phones that have specs on par with Samsung's premium phones, but cost at least half as much. For example, Samsung's flagship Galaxy S5 phone costs about $600. But the OnePlus One, an excellent phone with a giant 5.5-inch screen and some of the latest and greatest internal hardware specs, costs just $300. Meanwhile, Xiaomi's growth has been skyrocketing. It sold 15 million smartphones last quarter.
And since all of these phones run Android, there's very little difference in the user experience. So, in consumers' eyes, why spend $600 on a device when you can get the same thing at a 50% discount?
It seems like the shrinking smartphone growth is coming from the low-end Samsung devices, not premium products like the Galaxy S5. In fact, Samsung has already said the Galaxy S5 is selling faster than last year's Galaxy S4. And the company expects upcoming premium phones to sell pretty well too.
But the low-end phones can't stack up to the devices Xiaomi, Lenovo, and others are already pumping out. Samsung's low-end phones may cost about the same, but they're not as powerful. And if the trend of cheap, powerful devices in emerging markets continues, Samsung is going to see its market share and profit growth dwindle even more.
That's why we're seeing such a big push in new product categories from Samsung. Beyond the smartwatches, the company introduced a new line of premium headphones this spring. Later this year, the company is expected to introduce a Google Glass-like computer for your face and a virtual reality gaming headset similar to the Oculus Rift.