Earlier this week Samsung, and I’m quoting the headline of the press release, “Unveil[ed] Comprehensive, Lifestyle-Focused Galaxy Gifts Package for Next Generation Galaxy S5”:

Samsung Electronics Co., Ltd. today announced its collaboration with 16 of the world’s leading mobile content and service providers to offer Galaxy S5 users more than $600 worth of exclusive, pre-paid and discounted subscriptions. From fitness to news to productivity apps, the Samsung Galaxy S5 comes with meaningful rewards, to make the Galaxy S5 experience even more enjoyable and productive… Designed for what matters most to consumers, the Galaxy S5 is redefining how technology innovation enhances everyday life by providing a refined experience focused on the most essential features for day-to-day use. Samsung’s Galaxy S5 combines an advanced camera, the fastest network connectivity, dedicated fitness tools and enhanced device protection features so consumers can stay fit and connected in style.

I would love to know in what direction the money is flowing with these deals:

If Samsung is getting paid, it’s basically stealing from the PC OEM playbook; most of the profit in PCs comes from so-called “crapware,” and Samsung is certainly feeling margin pressure in its smartphone business

If Samsung is paying, that’s even more telling – they’re effectively trying to buy differentiation. This, too, has precedent: Samsung has used its cash position very effectively for advertising, spiffs for salespeople, etc.

Regardless, both scenarios highlight Samsung’s increasingly vulnerable position in smartphones. So does the fact that Samsung’s American business hired a former P&G VP as vice president of marketing strategy and operations. P&G is the king of consumer packaged goods (CPG), with well-known brands like Tide, Pampers, and Gillette. That business is all about block-and-tackle marketing and brand-building such that you can sell a relatively undifferentiated good – like laundry detergent, diapers, or razors – at a premium. Sound familiar?

Were every smartphone in the world Android, I’d feel a lot better about this strategy; there absolutely are consumers who buy based on brand and/or value the small bits of differentiation provided by the higher-cost option. Unfortunately for Samsung, Apple also makes smartphones, and they have effectively skimmed off all the customers who care about such things. The number of people who both prefer Android and care about brand and cutting-edge tech is only going to decrease as the delta between a $650 S5 and a $200 Chinese brand diminishes. Expect the margin pressure to continue.

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