What does it mean for Samsung when the gap between luxury Android and mid-end Android vanishes? Or when Chinese brands can prop up a smartphone company within 3 months?

”Time is a flat circle,” says Oscar winner Matthew McConaughey in True Detective, HBO’s new wonder drama.

Two seemingly innocuous announcements at the beginning of this year show that the smartphone industry isn’t immune to True Detective’s Nietzschean philosophy—and that what goes up must eventually come down.

The first was that the King of Cupertino had finally slipped: Apple’ iPhone growth for Q4 slowed for the first time since it was launched in 2007. The second was that the Chaebol of South Korea had similarly driven into a pothole— Samsung reported its first profit decline in two years in January this year.

Apple’s announcement is symptomatic of what the larger smartphone industry is going through: it is clear that the rest of the world must adapt to an era of slower growth and smartphone saturation as they wait for emerging markets to play catch up.

Samsung’s quarterly report on the other hand is so much more interesting. It was close to a year ago that Samsung was set to unveil its much awaited Galaxy S4. At that time, the Korean conglomerate could do no wrong; commentators and analysts were ready to crown the company and announce that it had beaten Apple.

Yet today, in the Indian market, Samsung is showing the faintest signs of distress. The company still commands a market-leader position no doubt, with a neat 38 per cent market share. On the other hand, its margins are reportedly down, its differentiation is disappearing, its average selling price (ASP) is dropping and its flagship products aren’t moving off the retail shelf.

Analysts, both Gartner and IDC, say that nearly 50 of the phones sold by the company in India were in the price range of Rs. 6,000 – Rs. 15,000. This would imply that only a small portion of the company’s mid-end and high-end phones are being sold in the country.

So what stinks? Quite a few things as it turns out:

1) The Business Angle/Competition: It doesn’t take a genius to realize that in the last one year both Apple and the rabid, fermenting Chinese-Android OEM bunch have made great strides in the Indian smartphone market.

Apple, for instance, has pulled out all the marketing rabbits out of its hat. Buyback offers, EMI schemes, credit card cash-back and so on and so forth.

Micromax, and Karbonn on the other hand are starving. And from their perspective, Samsung is the prodigal lamb, just waiting to be eaten. I spoke to Micromax’s co-founder Rahul Sharma recently and he was talking about how the company could churn out a phone—from the ideation stage to manufacturing— in less than 70 days.

The problem in tackling companies like Micromax is that it’s near impossible to keep up with their go-to-market strategy. They can exploit the smallest of demand windows. Suppose, for instance, they see demand going up slightly for a smartphone with X, Y and Z attributes. Micromax can have a phone out in less than two months that exploits the demand for X, Y and Z without worrying about problems of rotating products, over-inventory or optimally using shelf space, the way Samsung has to fret over.

Chinese OEMs like Gionee and Oppo fight over margins down to a fraction of a rupee—something Samsung hasn’t had to worry about in India for quite a bit of time as it had the second-mover advantage (Apple never really exploited its first-mover advantage in countries like India).

There’s little surprise, therefore, that with this much competition, Samsung’s average selling price has been coming down. The problem with lower prices and lower margins is that signals the start of the commoditisation process— where you start fighting down to the last rupee, the way PC companies like HP, Acer and Asus are doing.

2) The Technology Angle: Its also not just an issue of Chinese scale, supply chain and margin. The smartphone hardware/software quality bubble is close to popping—so close in fact, that I can see the foam straining to break loose.

What this means is that it’s becoming harder and harder to make a poor-quality smartphone. Or, looking at it from a slightly different perspective, advances in technology have made it such that a consumer can now be satisfied with a Rs. 15,000 phone—when earlier he or she would have been satisfied only with a Rs. 25,000 phone.

The lines between quality and price category are blurring: a Rs. 18,000-Nokia Lumia 720 is now good enough for a customer who might have earlier purchased a flagship Galaxy S3 smartphone. Just as there is no such thing as a “bad PC” (casual customers don’t need more than a Rs. 30,000 PC), there will be, very soon, no such thing as a “bad or poor-quality smartphone”.

What this also means is that anybody can put together a decent-quality smartphone—the recent foray by John Sculley’s InflexionPoint into India is a case in point. Indian and Chinese smartphone OEMs now have a recipe: Get a Chinese manufacturing base, a snappy brand name and marketing plan, a good distribution chain and a chic brand ambassador. Voila! You now have a smartphone brand.

And if this wasn’t enough, the X factor in the Indian market—and across China and Asia— is Lenovo. Lenovo CEO Yang Yuanqing, known to his colleagues as YY, is a man who plays to win and therefore is a man to be feared. Every market he enters, he has succeeded in reaching the number 1 or 2 spot through a superior cost structure and better R&D. (Incidentally, this will eat into whatever is left of Samsung’s differentiation.) With the acquisition of Motorola, the odds are indeed stacked in his favour.

A three pronged attack

All of the above developments have disastrous consequences for Samsung, who, when you think about it, doesn’t have a brand differentiation of the likes of Apple.

When companies can appear out of nowhere, with “good enough” Android smartphones, what does it mean for Samsung? The gap between Samsung’s hardware quality and Lenovo’s, for instance, is quickly reducing. In terms of software, Samsung never really had any differentiation—everyone runs the same stock Android. And thus you have the disappearing differentiation.

There are two lessons of import for Samsung here. The first is that surviving profitably in the Rs. 40,000+ price category is now down-right impossible if you aren’t Apple. The second is that when you start a race to the bottom with companies like Micromax, you’re going to come out bruised.

On a global scale, Samsung’s average selling price has dropped by $30 and its share of >$400 phones slipped from 40 per cent to 21 per cent. These mimic the conditions that are confronting it in the Indian market as well.

In hindsight, Samsung’s position as both a low-cost leader (selling cheap phones) and a differentiated high-player (trying to play to the high-end market) is now turning against them. Fighting the high-end battle against Apple in the West and Lenovo in the East —and the low-end battle against Micromax and its clones— is a tall order.

In many ways, the Android smartphone space—where it’s becoming more and more difficult to distinguish between high-end and medium-end— is very much like the FMCG (fast moving consumer goods) market. It’s no coincidence that Samsung India’s head Vineet Taneja, who was hired last year, traces his roots back to Hindustan Unilever.

Unilever is the king of consumer packaged goods—with well-known brands like Lakme, Dove and Pepsodent—where brand-building and marketing help sell a relatively undifferentiated good at a premium. Sounds familiar? The conditions in the Indian smartphone industry are such there selling an Android smartphone isn’t radically different from selling a bar of soap or a tube of toothpaste.

The problem with adding a little bit extra differentiation is that Apple has effectively captured the consumer base that is willing pay to a whole lot extra for a little more differentiation. The number of people who prefer Android and care about differentiation will drop as the quality-distance between a Samsung Galaxy S4 and Rs. 20,000 Micromax phone decreases