Apple has reported a record sales slump, while Samsung’s latest phones win market approval. How did it come to this? ARTHUR GOLDSTUCK tells the tale.
What’s wrong with this picture? Global smartphone sales down 3%, Samsung sales down 4%, Apple iPhone sales down 16%.
Or this one? Samsung revenue up 6% and profit up 12%, Apple revenue down 13% and profit down 23%.
For one thing, Samsung is tracking global trends in smartphone shipments, which is hardly wonderful news for a brand that wants to run ahead of the market. But, for another thing, Apple has lost the magic sauce.
One could be sympathetic and believe CEO Tim Cook when he blames a tough “macroeconomic environment”. But, during the worst financial slump in living memory, the big bad Global Financial Crisis of 2008-2009, Apple not only held its own; it kept growing, quarter after quarter.
The iPhone had been launched in 2007, and kept getting better, allowing the company to outperform not only the market, but also all forecasts. It kept breaking through every barrier, eventually helping Apple rack up 13 years of continual growth that had begun with the launch of the first iPod. That is 51 quarters, of which around 8 had seen the destruction of entire national economies across the globe.
Tough macroeconomic environment? Apple used to trample on tough macroeconomic environments. Rather, try tough competitive environment. In the growing Chinese market, iPhone sales slumped 26%. Meanwhile, Chinese brands like Huawei, Oppo, and Xiaomi hungrily took global markets from their respective positions as the world’s 3rd , 4th and 5th biggest smartphone brands.
Which brings us to the Samsung Galaxy S7. It marks four out of the last five Samsung devices flagship phones that have no longer been part of the catch-up game with Apple. Back in 2012, The S3 was the best that Android could offer at the time, but also for the first time showed that someone else also gets what a smartphone should be. Still, it was considered a Cinderella, a poor copy of the finery invented by Apple for the iPhone ball.
Apple stuck doggedly to its finery: a form factor premised on a mantra that the world was satisfied with a 4” display. At 4.8”, the S3 was already pulling away. However, the iPhone 4S, still enjoying the Steve Jobs halo effect, easily kept up.
In 2013, the Samsung Galaxy S4 truly disrupted the ball, offering a phone as close to perfect as the technology of the time allowed. It overreached with some features, like gesture control. But compared to its peer, the iPhone 5, it was a breath of fresh air, with a 5” display, 50% more power than the iPhone, and a camera that for the first time gave Apple a run for its money.
It gave Samsung undisputed leadership of the smartphone market. Along with the Note series, which introduced the phablet format and proved a voracious market appetite for even bigger displays, the S4 would prove to be a wake-up call at Apple’s Cupertino HQ.
However, Apple pushed the snooze button a couple of times. Instead of coming to the party with a larger iPhone, it delivered the 5S and a youth-oriented 5C, with the same 4” display, but in multiple colours. Crucially, it fell short of market expectations that it would be a phone targeting lower-income users and emerging markets.
Luckily for Apple, the 2014 contestant from Samsung, the S5, was a rare miss-step, offering almost no good reason for anyone to move on from the previous edition. In effect, Samsung did an Apple, offering only incremental improvements.
Both brands then upped their game phenomenally, with Apple’s alarm finally penetrating its snooze late in 2014, and a wide-awake look in the mirror resulting in the iPhone 6 and 6 Plus – respectively 4.7” and 5.5” phones, targeting both the regular Samsung flagships and the Note phablet. Apple reported record sales.
Then, in 2015, came the Samsung Galaxy S6, with its beautiful curved screen Edge as well as a flat-screen option, and an absurdly good camera on both. Apple responded in time-honoured fashion later in the year, with a 6S and 6S Plus, delivering – surprise, surprise – only incremental improvements.
At he beginning of 2016 it followed with the cunning trick of cramming iPhone 6-like power into an iPhone 5-type body with 4” display and calling it the SE. Because, you know, the world is still hungry for 4” displays.
In contrast, the new Samsung S7 Edge pushes the curved device’s display from 5.1” to 5.5”, while the regular S7 keeps to 5.1”. Both have less powerful cameras but more powerful processors and more RAM, along with substantially bigger batteries. The larger phone increases battery life by up to 50% over its predecessor.
Samsung added one other feature that probably made the biggest contribution to its sales holding pattern: it dropped the recommended price by more than 20%.
In a market where the latest features are often not enough to persuade someone to upgrade, and where a good phone remains a good phone for several years, the ever-rising pricetags on flagship phones from the leading brands was bound to result in a backlash. That was probably the main reason the S6 and S6 Edge were sales disappointments, despite arguably being the best smartphones in the world.
Which brings up one of the less publicised numbers from the latest Apple results: gross profit margin, which is the real secret sauce of Apple’s astounding profits and its unprecedented $233-billion cash pile.
Gross profit margin for the last quarter was an eye-wateringly joyful 39.4%. However, that was down 40.8% for the same period the year before and from it being routinely above 40% in years before. Apple has offered guidance for the next quarter that it will fall yet again.
In the “macroeconomic environment” of increasingly thrifty customers, ferocious competitors and Samsung’s cutting edge devices, don’t expect it to begin rising again any time soon.
VoD cuts the cord in SA
Some 20% of South Africans who sign up for a subscription video on demand (SVOD) service such as Netflix or Showmax do so with the intention of cancelling their pay television subscription.
That’s according to GfK’s international ViewScape survey*, which this year covers Africa (South Africa, Kenya and Nigeria) for the first time.
The study—which surveyed 1,250 people representative of urban South African adults with Internet access—shows that 90% of the country’s online adults today use at least one online video service and that just over half are paying to view digital online content. The average user spends around 7 hours and two minutes a day consuming video content, with broadcast television accounting for just 42% of the time South Africans spend in front of a screen.
Consumers in South Africa spend nearly as much of their daily viewing time – 39% of the total – watching free digital video sources such as YouTube and Facebook as they do on linear television. People aged 18 to 24 years spend more than eight hours a day watching video content as they tend to spend more time with free digital video than people above their age.
Says Benjamin Ballensiefen, managing director for Sub Sahara Africa at GfK: “The media industry is experiencing a revolution as digital platforms transform viewers’ video consumption behaviour. The GfK ViewScape study is one of the first to not only examine broadcast television consumption in Kenya, Nigeria and South Africa, but also to quantify how linear and online forms of content distribution fit together in the dynamic world of video consumption.”
The study finds that just over a third of South African adults are using streaming video on demand (SVOD) services, with only 16% of SVOD users subscribing to multiple services. Around 23% use per-pay-view platforms such as DSTV Box Office, while about 10% download pirated content from the Internet. Around 82% still sometimes watch content on disc-based media.
“Linear and non-linear television both play significant roles in South Africa’s video landscape, though disruption from digital players poses a growing threat to the incumbents,” says Molemo Moahloli, general manager for media research & regional business development at GfK Sub Sahara Africa. “Among most demographics, usage of paid online content is incremental to consumption of linear television, but there are signs that younger consumers are beginning to substitute SVOD for pay-television subscriptions.”
New data rules raise business trust challenges
When the General Data Protection Regulation comes into effect on May 25th, financial services firms will face a new potential threat to their on-going challenges with building strong customer relationships, writes DARREL ORSMOND, Financial Services Industry Head at SAP Africa.
The regulation – dubbed GDPR for short – is aimed at giving European citizens control back over their personal data. Any firm that creates, stores, manages or transfers personal information of an EU citizen can be held liable under the new regulation. Non-compliance is not an option: the fines are steep, with a maximum penalty of €20-million – or nearly R300-million – for transgressors.
GDPR marks a step toward improved individual rights over large corporates and states that prevents the latter from using and abusing personal information at their discretion. Considering the prevailing trust deficit – one global EY survey found that 60% of global consumers worry about hacking of bank accounts or bank cards, and 58% worry about the amount of personal and private data organisations have about them – the new regulation comes at an opportune time. But it is almost certain to cause disruption to normal business practices when implemented, and therein lies both a threat and an opportunity.
The fundamentals of trust
GDPR is set to tamper with two fundamental factors that can have a detrimental effect on the implicit trust between financial services providers and their customers: firstly, customers will suddenly be challenged to validate that what they thought companies were already doing – storing and managing their personal data in a manner that is respectful of their privacy – is actually happening. Secondly, the outbreak of stories relating to companies mistreating customer data or exposing customers due to security breaches will increase the chances that customers now seek tangible reassurance from their providers that their data is stored correctly.
The recent news of Facebook’s indiscriminate sharing of 50 million of its members’ personal data to an outside firm has not only led to public outcry but could cost the company $2-trillion in fines should the Federal Trade Commission choose to pursue the matter to its fullest extent. The matter of trust also extends beyond personal data: in EY’s 2016 Global Consumer Banking Survey, less than a third of respondents had complete trust that their banks were being transparent about fees and charges.
This is forcing companies to reconsider their role in building and maintaining trust with its customers. In any customer relationship, much is done based on implicit trust. A personal banking customer will enjoy a measure of familiarity that often provides them with some latitude – for example when applying for access to a new service or an overdraft facility – that can save them a lot of time and energy. Under GDPR and South Africa’s POPI act, this process is drastically complicated: banks may now be obliged to obtain permission to share customer data between different business units (for example because they are part of different legal entities and have not expressly received permission). A customer may now allow banks to use their personal data in risk scoring models, but prevent them from determining whether they qualify for private banking services.
What used to happen naturally within standard banking processes may be suddenly constrained by regulation, directly affecting the bank’s relationship with its customers, as well as its ability to upsell to existing customers.
The risk of compliance
Are we moving to an overly bureaucratic world where even the simplest action is subject to a string of onerous processes? Compliance officers are already embedded within every function in a typical financial services institution, as well as at management level. Often the reporting of risk processes sits outside formal line functions and end up going straight to the board. This can have a stifling effect on innovation, with potentially negative consequences for customer service.
A typical banking environment is already creaking under the weight of close to 100 acts, which makes it difficult to take the calculated risks needed to develop and launch innovative new banking products. Entire new industries could now emerge, focusing purely on the matter of compliance and associated litigation. GDPR already requires the services of Data Protection Officers, but the growing complexity of regulatory compliance could add a swathe of new job functions and disciplines. None of this points to the type of innovation that the modern titans of business are renowned for.
A three-step plan of action
So how must banks and other financial services firms respond? I would argue there are three main elements to successfully navigating the immediate impact of the new regulations:
Firstly, ensuring that the technologies you use to secure, manage and store personal data is sufficiently robust. Modern financial services providers have a wealth of customer data at their disposal, including unstructured data from non-traditional sources such as social media. The tools they use to process and safeguard this data needs to be able to withstand the threats posed by potential data breaches and malicious attacks.
Secondly, rethinking the core organisational processes governing their interactions with customers. This includes the internal measures for setting terms and conditions, how customers are informed of their intention to use their data, and how risk is assessed. A customer applying for medical insurance will disclose deeply personal information about themselves to the insurance provider: it is imperative the insurer provides reassurance that the customer’s data will be treated respectfully and with discretion and with their express permission.
Thirdly, financial services firms need to define a core set of principles for how they treat customers and what constitutes fair treatment. This should be an extension of a broader organisational focus on treating customers fairly, and can go some way to repairing the trust deficit between the financial services industry and the customers they serve.