Nov 14, 2012

Competition, It's a Bitch

Yesterday it was reported in the Chosun Ilbo, South Korea’s most popular newspaper, that Samsung has raised the price of processors sold to Apple by 20 per cent. It is well known that Apple has been making strides to reduce its reliance upon the South Korean company’s components ever since the flaring up of the acrimonious court cases these pair are now famous for. One component Apple is unable to source from other suppliers is the central processor. Knowing this, it seems like Samsung has decided to turn the proverbial screw. 
The Wall Street Journal reports that “Samsung Electronics recently asked Apple for a significant price rise in the application processor. Apple first disapproved it, but finding no replacement supplier, it accepted the increase.”
In our startupy world, we often think of competition coming from the ability of new companies to innovate by being nimble, fast, using lean principles to iterate quickly and forcefully. 

We talk about how difficult it is to be an incumbent, beholden by legacy business models and structures, unable to withstand the momentum of the mighty startup that has nothing to lose, and everything to gain.

But sometimes the most aggressive, even innovative, forms of competition come from the incumbents themselves. Which demonstrates that in an era of connectedness, when information flows so fluidly (and maybe freely), competition can and will come from many places, that it's even harder to compete than ever, and that one's differentiated advantages may only be advantages for a much shorter time than traditional business study has taught us.

Samsung, among other things, has been a component supplier for Apple for years. Some peg this relationship at over $1 Billion. For that time period they have watched a new market (so called smart-phones) develop, and participated in that market from the supply side. But now a few years in, it looks like the supply side is not enough for them. Samsung is famously producing its own smart phone devices that look like they may be able to compete with Apple, it's component customer. Not only compete, maybe even outperform: "Samsung's Galaxy S III bested the iPhone 4S in the third quarter of 2012 to become the world's best-selling smartphone"

Think for a moment about this most interesting dynamic - one of Apple's main supply chain partners is now developing devices that may be outselling Apple's core iPhone franchise. At the same time, it is raising the very component prices that it supplies to Apple. It is pushing hard from both the bottom and the top. Competing in both places.

Apple's suppliers are now becoming its competitors as those downstream suppliers have moved upstream.

Competition comes in many forms and flavors, but it is no less aggressive and interesting when it comes from large companies battling each other.

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