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Capitalism, Competition & Apple: Samsung Galaxy Note 7 goes up in flames

Sahil Bhalla | Updated on: 10 February 2017, 1:46 IST

Samsung is on fire. Literally. The company is in a position that no other company ever wants to be in. It's not only the exploding Galaxy Note 7s that are the bane of its existence. It is not just the botched recall. It is the $17 billion loss that comes with it. It is the exploding smart washing machines that are also of concern. It is the brand image and trustworthiness that has taken a hit. It is so much more than the phone itself. Samsung may have permanently pulled the plug on the Galaxy but Samsung has a much bigger hole to plug.

Was it the phone's fault at all? No. Instead all the blame should be put on Samsung, capitalism which breeds competition and, most importantly, Apple. The Apple that was born out of that capitalism. The Apple that wanted to garner every last penny that the market would give it. The forbidden Apple that provided the bait to Samsung.

Phone at fault?

The phone itself was announced by the Korean giant Samsung in a glitzy New York press conference on 2 August. 17 days later, on 19 August, the Galaxy Note 7 started selling in 10 markets that included two of the biggies - South Korea and the United States. Five days later, the first report came in of an exploding Note 7. This one surfaced in South Korea. I ask again, how much was it Samsung's fault? Not entirely. There are always two sides to every story as we know. Let's pause for a moment and just take a look at the phone itself for what it's worth.

Just after the launch, the reviews started pouring in and it was all praise. Here's just a sampling from some of the biggest tech websites out there and even a video review.

Verge's Dan Seifert had this to say, "The Note 7 is Samsung's best device ever, and arguably the best big phone ever made. If that's all you're looking to know, then you can stop reading right now and go place your order." "The Note 7's combination of metal and glass, symmetrical sides, and rounded corners make it the nicest-looking phone I've ever laid eyes on. It's just a beautiful piece of gadgetry."

CNET's Jessica Dolcourt called it a "damn fine phone". This is Samsung's ultimate phone, with all the Edge's curved-screen goodies and more: 64GB of storage instead of the Edge's 32GB. An iris scanner for unlocking the phone with your eyes. A good, refreshed take on Android. A USB-C charger port that also charges up your other devices".

Engadget's Chris Velazcot talked about evolution of the Note series. "Samsung has come a long way. When the very first Galaxy Note launched in 2011, it felt like a quirky anachronism -- wasn't the age of the stylus over? The answer, as evidenced by the Note line's continued existence, is a resounding "no." In fact, somewhere along the way, the Note transformed from a curiosity into a premium device that can (and does) outshine the Galaxy S line on which it was based. This year's attempt -- the $850+ Galaxy Note 7 -- builds off what Samsung learned making the Galaxy S7 and S7 Edge, and you know what? The company wound up making its best phone yet in the process."

This is how he ended the review, "The Galaxy Note 7 isn't just the best Galaxy Note ever -- it's a strong contender as the best Android phone you can find right now".

Many more reviewers out there have only positives to say. Like this video:

Today, each review now has an 'editor's note' at the top. They've all rescinded their scores on the phone and proudly proclaim, "we do not recommend you buy the phone even if you do find it out there in the wild". Before the fire, besides the pricing, Note 7t had everything you'd want in a phone and then some more. Maybe the size was too big for some. Personally, I'm not comfortable with the size, but I was wowed by the speed and the ease of use and that camera took some top-notch photos.

Still, it isn't entirely the phone's fault and I'll get into that in a bit. First, back to the timeline.

Timeline of affairs

It took Samsung from 24 August till 2 September to announce a recall. A recall of 2.5 million Note 7 phones. Their reason? Faulty batteries. On 8 and 9 September, US Federal Aviation Administration and US Consumer Product Safety Commission urged consumers not to use this particular phone.

Samsung had said that the Chinese manufactured phones weren't affected. Clearly, Chinese users showed them otherwise.

On 15 September, a formal recall of 1 million phones was issued by the US Consumer Product Safety Commission. By 25 September, a new 'safe' note was issued with a whole new battery inside. On 29 September, Samsung proudly said that more than 1 million people were using 'safe' Note 7s. On 6 October, news came out that a Southwest Airlines plane in the United States had to be evacuated because of smoke from an on-board Note 7.

On 9 October, wireless carriers in the USA, T-Mobile and AT&T stopped sales of the smartphone. Then, during the second US Presidential debate on 10 October, Samsung said it was halting production till it knew the reason behind these burning phones. A day later, Samsung permanently ended production of the smartphone. The Galaxy Note 7 was dead.

The worst part of all this is that Samsung doesn't know the issue that is causing these phones to catch fire and explode. In fact, Samsung has tested multiple phones, both old and the newly considered 'safe' ones and haven't been able to replicate a "burning phone". That doesn't mean the problem doesn't exist. It just means parts of the burning puzzle remains. Somewhere somehow the phone was put together in what, on the surface, was a great package. Clearly all of that was for naught.

The $17 billion loss

The worst ever recall could cost Korean giants Samsung up to $17 billion. According to some analysts Se Young Lee of Reuters spoke to, Samsung were hoping to sell about 19 million phones during the life cycle of the product.

"For Samsung, with a market value of $235 billion and $69 billion in cash and equivalents at the end of June, the loss of sales of one model could be absorbed. The bigger problem will be long-term impact on its reputation and brand, analysts and experts say," writes Se Young Lee.

On Wednesday, 12 October, Samsung slashed its third-quarter profit estimates by a third. They revised the figure to absorb more than $2 billion in Note 7 losses. This is the largest and one of the most costly recalls in the technology industry. Research company Strategy Analytics estimated that Samsung could lose more than $10 billion. Some analysts, though, said it was hard to quantify the financial loses.

Blame it on Capitalism

Capitalism. Why capitalism? Well, let's start with the Dictionary definition of the word. An economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially as contrasted to cooperatively or state-owned means of wealth.

Merriam-Webster's definition: A way of organizing an economy so that the things that are used to make and transport products (such as land, oil, factories, ships, etc.) are owned by individual people and companies rather than by the government.

Basically, private companies running the show. That's how it has been in the technology industry and many others. Companies like Samsung, Xiaomi, Vivo, LG, HTC, Apple and others are designing, sourcing, manufacturing, selling, and most importantly, taking in each and every dollar of profit that comes their way. That's fundamentally how the business of selling a phone works.

Now, capitalism breeds competition. Fighting for that last dollar is what each and every company founder and CEO sets out to do. If they have that extra dollar, then they have one more dollar to invest back in their company and make something even better. That item, feature, software tweak, could be a game-changer and lead to even greater profits.

That's exactly what Samsung was trying to do with the Galaxy Note 7.

Be first in the new product cycle. Get more profits. Cut throat competition where sometimes your own throat is cut. Take undue risks. That is what capitalism forces you to do. But then the next question - if not capitalism, then what's the alternative?

First to market

With the Galaxy Note 7, Samsung was trying to be first to market. And that is just the mentality of anyone locked in competition. It's like how football teams race to buy the next best player. Countless examples can be given. Journalists racing to get the story before anyone else. Each of these, though, have downsides. Cyril Almeida recently had an exclusive story for DAWN and then the Pakistani government put him on the Exit Control List. That's just it. Simple competition can have huge consequences - for some.

For Samsung, the consequences and downsides are still being felt and will be for many years to come. It's easy to pinpoint multiple instances where Samsung went wrong and the media will be going on about that for weeks. The one culprit the media has barely mentioned is Apple. Yes, the company that is locked in a head-on battle with Samsung. Apple, the makers of the 'inflated' iPhones (you could easily make a fully functional phone that is cheaper, and no, don't give me the SE nonsense).

Apple, Apple & only Apple

Yes, Apple is at the top of the list of culprits behind the burning and exploding Galaxy Note 7s. Let me explain. As I've explained before, it isn't entirely the phones fault. The Galaxy note 7 isn't to blame. Yes, one can blame Samsung and give a number of legit reasons and yes, they did do wrong but still, they aren't the biggest culprits here. It is capitalism. It is the competition that has come out of the capitalist model that is to blame. And within the competition, the one to blame is Apple.

Apple, maker of the iPhone, smartphones that cost a hell of a lot (same price as the Galaxy phones), are to blame. Apple and Samsung have been locked in battle ever since the first iPhone came out in 2007 and the first Galaxy phone came out in 2009. And the Big battle was on. So much so that they even have a long standing and still pending court case. The case was regarding the design of the smartphones. The US Supreme Court is hearing a design case for the first time in 120 years. The case started in the spring of 2011 and is still yet to come to a conclusion. By July of 2012, the two were locked in more than 50 different lawsuits with billions of dollars of damages at stake.

It it this race to the top (and bottom) sort of competition that has caused Samsung to miss a step or two. Capitalism breeds competition and leads to a race to be the first. That's just what Samsung wanted to accomplish. Along the way they faltered. On 7 September, Apple held their own extravagant event in California to announce the latest version of their smartphone, the iPhone 7. On that day, Samsung could have been laughing their way to the bank. Instead...

Apple's phones got positive reviews and tech journalists around the world were speaking about the only difference between the Apple and Samsung being a preference in mobile operating system. Except one was catching fire...

On a level playing field (no fires) the consumer would have benefitted as both companies would have cut into the profits of the other. The two phones being near identical, etc The loyalists literally had no reason to switch to the other. Until the 'case of exploding Galaxy's'. Then the whole game changed. One company was broken to the advantage of the other. The brutalities of the industry shone through. Samsung had one of its single worst days on the stock market while Apple is almost at a 52-week high. That tells you enough.

First published: 12 October 2016, 9:55 IST