The Problem With Mobile Devices, The Price Tag [Opinion]

by: Dan | posted 10.24.11 | News, Opinion

Standards in the mobile industry have been few and far between in the past. However, cellphone manufactures have recently done away with their different chargers and have adopted the microUSB. While the addition of the microUSB has been much appreciated, there have been other adopted standards that are just unbelievable.

Somewhere, someone thought of the magical price tag of $199.99 as the fair price for a top of the line smartphone, that is with a two-year agreement of course. If you were to buy one of these incredible mobile devices off contract it would run you an upwards of $500 – which is just ridiculous. A majority of these smartphones cost anywhere from $150-$200 to produce, yet these corporations feel inclined to market them with a 100% price increase. You then receive the two-year contract discount, which in the end has you paying much much more. Think about it, every 14-18 months you are spending $199 on a new phone and continue to lock yourself into your (most likely) expensive contract.

Now with the introduction of 4G, service providers are again increasing the price of their plans and smartphones. I plan on pre-ordering the Galaxy Nexus the moment it is available – even with that $299 price tag. However, this mobile phone will cost me more than an Xbox 360, PS3, or even a new HD television – if I was to buy it off contract it would cost me more than some computers.

Just think about it, how much will a 5G phone cost, or better yet a new quad-core one? These prices are absurd, why do we continue to buy into them?

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Kevin Kim

>A majority of these smartphones cost anywhere from $150-$200 to produce,

source or did not happen
Anonymous

It doesn’t matter what it costs to make. It’s about how much they can sell it for. People buy phones every year or two for $200 with a contract extension. They are making money off of it, therefore it is right. That is the proof that it is what consumers want.
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http://twitter.com/aosmitty andy smith

I remember when getting a camera on your cell phone was hot sh!t. Smartphone prices (BB, etc) at the time were obscene – $600 and up as I recall (VZW). I’m not even sure if that was before or after a 2-year agreement.

If anything I think the prices have trended down when adjusted for inflation. When you consider miniaturization and the quality of the handsets – even the “crappy” ones – it’s pretty amazing what you can get these days.

My wife and I bought OG Droids in July of last year on a BOGO deal, and leveraged a big box member’s only chain deal: $50 gift card to big box store for each phone purchased, so that was $100 back in our pockets to spend on groceries. Total cost of the upgrade? $70. You can’t beat that with a stick, especially considering all the extra non-phone functionality that’s built in.

So, I disagree. While they aren’t quite ‘free’ yet (cough iPhone 3GS cough Best Buy Fascinate giveaway over the summer cough), prices aren’t really that bad, as long as you’re not chasing after the latest and greatest hardware. You can get a heap o’ functionality if you have your eyes open for a bargain.

Mikes

Absolutely, cell phones are getting cheaper after you factor in function. My first handheld cell phone, an NEC P300 (circa 1991), was $800 and another $800 for the 3 watt car kit to make it work well when not in an urban area. The battery didn’t even last a full day.

Anonymous

If the G-Nex was really what I wanted it to be I would have paid more. I was wondering what happened to premium products, actually paying for everything that I wanted. The tech seems to be there.

I think these companies are getting distracted trying to figure out what they can leave out of the current phones to put it out in 6 months as an upgrade rather than putting out a real top of the line phone.
Tom

It’s called free market. As long as people say “I plan on pre-ordering the Galaxy Nexus the moment it is available – even with that $299 price tag”, companies will continue to raise prices till they find the breaking point of the customers.
Anonymous

My big issue is the no-more-single-year contracts…I can’t last much longer than a year on a phone; to do so in this age of such amazing technological advances is cruel and unusual punishment!
Mikes

“A majority of these smartphones cost anywhere from $150-$200 to produce”

Where does that come from? It’s very wrong. For example, the HTC Thunderbolt, which sells for $569 from VZW off-contract, is estimated to have a $262 Bill Of Materials. Now, add development costs, manufacturing costs, packaging and accessory costs, distribution and shipping costs, marketing and advertising costs, service and warranty costs, paying for facilities and janitors and administrative employees, etc., and finally, add a reasonable profit for both HTC and Verizon, and $569 isn’t unreasonable.

HTC reported that in Q2/11, the average selling price they got for a phone was $349. The TB is a high end model, so it would sell to Verizon for significantly more than that average. Let’s say the real cost for HTC to produce a TB is $300 (probably low, given the parts cost). HTC said they made about a 30% gross margin in Q2, which would put the selling price (HTC to Verizon) at ~$428. Compared to that $349/phone average, that appears to be a reasonable number.
So, say VZW buys a TB for $428. They’ll sell it to you outright for $569, making a 25% margin. That’s not unreasonable, and their cost is nowhere close to “$150-200.”

http://pulse.yahoo.com/_OOO7GVPXWATBC75FGMUTLHJJME SjB

it’s insane to factor in marketing and ads into the cost. that’s the cost to get ppl interested in the product. that cost is null if a device sells enough, it’s not factored into the cost of each individual device.

Mikes

So, you saying marketing and advertising don’t cost money. Google disagrees. And no, it’s not “insane,” it’s just basic business economics, which you obviously know little about.

BionicFaither

That is a FAIL way of looking at that…Marketing is an overhead for HTC…not a charge passed on to the end-user.

Mikes

LOL. Where do you naively think the money for marketing comes from? That it grows on trees?
RW-1

You must be kidding, of course it’s passed on. It’s that you have method for having them take it off when you purchase.

Couple of years ago a car dealership actually had the stupidity to place an “Advertising” fee on my invoice, had them remove it because I clearly don’t pay for your overhead.

But you have no such option here as the MRP is that, and it is factored in.

Bluemillion

I love responses like these. It almost seems like you were a planted seed to help steer the conversationn one way, or you are trying to make a haphazard validation for spending an absurd amount of coin. It has already been proven that cellphone manufacturers sell phones and tablets through carriers because they are able to unload the product at an inflated retail price on the carrier, who then absorbs the risk of selling it to the consumer, because they know that they will make the money back in contract fees. But rest assured that change is coming. It seems that Big Red is growing tired of assuming that risk becbause of phones like the Thunderbolt, which don’t sell as well as hoped. As a result, -one day the hardware will be offered through a standard retail outlet, and you will then go to the carrier for the service only. That is theblue next big change coming down the pipline. Big Red will do it first, the other carriers will follow. And guess what? That is inside info heard in a meeting, so you can pretty much count on it. The manufacturers are going to have to offer the hardware at a more attractive price to consumers at that point, although I am sure they will try to go with 500 dollars or more at first until they find that it is unsuccessful.

Kentshaw2010

I agree that prices are high and the increase was a bit annoying. However, the “cost” as you stated isn’t what it seems as that amount doesn’t include any money spent by the OEM for research and development that must be recouped. A similar argument is made for pharmaceuticals although the R&D there is considerably higher than for smartphone OEMs. In 2010, Motorola Mobility spent 13% of their revenue on R&D. Merck spent 18% of their revenue on R&D in 2010.
Raven

What choice do I have? It is as if they have grabbed me by the base of my snarglies!
http://www.facebook.com/profile.php?id=642730284 Roxanne Byerly

I was actually thinking about this yesterday.There are several elements at work here. Personally, I am willing to fork over the cash because I need a phone with organizational capabilities that I lack (ADHD). However, I could get it at such a smaller price tag. Phones are some of the fastest churned out gadgets these days. They are widely used, multi purpose (could replace my laptop if I weren’t a gamer). Because of the phone’s abilities, I am not buying a new iPod (old one broke), a GPS nav system, or a new portable gaming device– the price tag seems more reasonable. As far as contracts go, I have long been a permanent Verizon customer due to my extraordinary ability to beat up my phone by the end of each year.
JW

I can’t wait for the Nexus. The price is what it is. Go out work hard and save money maybe you have to wait a couple weeks to save up I don’t know. Its not the evil corporations that are at fault here. It is okay for them to be profitable. There isn’t a Dans non profit wireless that sinks billions in network each year or a Dans non profit handset manufacturer that spends millions on R&D, patents, licensing, marketing etc. If people didn’t buy them at the current pricing then they couldn’t charge 199.99 to 299.99. However most people have no problem dropping a couple bills every other year on the new smart phone. If you do Dan I hear the motor citrus is on sale or you could treat yourself to a nice LG vortex. LMAO
4djincredible

I work for Verizon and the reason we charge close to $500 for a smartphone without of contract is because thats what we get charged from the manufactuer. Verizon makes no money on the product our money comes from the 24 month agreement. Some Verizon stores will give you credit for your old phone but that depends on the condition of the phone and the market that you are in.
Kris Brandt

I’ll take the $200 “subsidized” price over the $500-$600 retail. The price of the plan will remain the same, regardless of whether I get a contract or not. If I’m buying a new phone every year, then I might have an issue.

Jake

Exactly. I’m grandfathered into VZW’s unlimited plan, and I love the service, so I won’t be leaving any time in the next few years. Might as well take advantage of the discounted price on the phone. Plus, two year contracts don’t mean that you must stick with that plan for two years. You can switch to a cheaper plan with fewer minutes and text messages within your two year contract.

Anonymous

Don’t care. At this point, I now take the buying a Car and TV approach: always buy last year’s model; its always 65-75% cheaper than the latest model. In terms of cell phones, just wait 4-6 months for a BOGO deal…
Anonymous

It’s just like computers with a high end and low end, people pay the tax for the latest tech. The vast majority of people are buying low/mid level and spending $0 – $100 on a phone otherwise Android would never be where it is.

I do think the two year is a long time now to lock yourself in however they aren’t really subsidizing the phone, they are giving you a loan with interest in the form of a higher service price. IMO they build in the price of subsidies into the plan. In fact if you buy off contract you are not receiving this “benefit” AND still paying the extra premium monthly cost thereby paying even more.
Anonymous

for the price of a new phone i could go buy an ounce of weed. the good shit….. i mean seriously those are crack prices. ik the phone companies wanna make money but seriously? $500 no contract or even the xoom was like 200% over priced.
Anonymous

I’m eligible for an upgrade in March but the Galaxy Nexus is MAP’d until May… I’m sure there’ll be something even better around the corner but I might opt for an older but cheaper phone at that point.

I’m was trying to convince my friend who is eligibe to upgrade right now to get the G-nex. Unfortunately when he saw the price he balked and is probably going to go back to a flip phone or an iphone. He said he could buy an xbox 360 for that price and he’s right. I love my phone, but I’d rather have a 360 if I really had to choose.
Anonymous

I’m always going to have a cell phone, so a contract doesn’t matter much to me. I have 4 lines on the family plan so me and the wife usually get what we want and pass the hand me downs to the kids, and then use their upgrades for the latest and greatest. New phones every 10 months works for me.
Anonymous

It’s even more ridiculous now when you can buy a high end tablet for less than the retail price of a new phone.
Anonymous

tiny.cc/qcfnd
Lunshbox

I will be buying my wife a GN. She still has an OG that she just let me root and flash Cyanogen onto (not that there is anything wrong with the OG). I love the GN, I am just not sure I am down with a phone that is a) crazy expensive and b) lacks an SD slot. But that is just speaking for me. My wife is in love with the GN (and rightly so), I am just not 100% sure I want a GN for myself. My contract doesn’t end until July so I may wait to see what comes down the pipe in the way of a quad-core phone (Not Moto. I have had three Moto Droids and one HTC and would rather use Moto for a door stop *posted from my Droid X *)

To the question raised in the post by Dan, we will continue to buy them because we are all tech heads and love having a phone that is more powerful than the first 8 computers we owned combined (and that is speaking as someone who is only 30). Occupying Verizon and demanding lower prices is pretty ridiculous and should in no way be compaired to what has happened on Wall Street.

I know this may be controversial, but when it comes down to it we don’t need a smart phone (business people excluded). When it comes down to it most people would be fine with an old flip phone. Not having a smart phone will not take food off of your plate or turn your power off (and with the prices of plans and phones it would probably be to the contrary). If you don’t like Big Red’s prices, go somewhere else. That is the bottom line. Vote with you wallet.

I will personally stay with Verizon (at least in the short term) as I like having coverage and not dropping my connection everytime I shift in my seat. If another carrier has a better price and offers the same coverage where I live then I will switch. But we will continue to spend more and more for smart phones because we like them, we don’t need them.
http://twitter.com/grdanes clive

I buy phones outright for the full price. here is what really bugs me….i bought an iphone for att service, but when i got a contract from verizon as well, verizon told me that i couldnt use my i4….so dead phone, I bought the d3 outright via verizon, but I’m not sure if I wanted to switch whether att would let me use it. I plan on getting the galaxy and will pay in full too for that one…..I just think if you buy it and pay full price you should be able to connect it to any network you want to connect with.

Mikes

It’s not that they wouldn’t. They can’t. ATT and VZW use different cellular technologies and frequencies. A phone from one network will simply not work on the other. That may eventually change, as both are moving toward LTE (Verizon only uses LTE for data at present, calls still go over their CDMA2000 network).

http://twitter.com/grdanes clive

” A phone from one network will simply not work on the other” Yes, thanks, but thats my big complaint…..Im buying a $600+phone/piece of technology, I should be able to use it anywhere just like a tablet, laptop or desktop which essentially what these things are now

Anonymous

Its the American Way(tm) buy stuff now and worry about it later
drinksprite

verizon sent me an email about two months ago granting me an early 1 year upgrade so im gonna use that. ill just be paying an extra 20 bucks as an early upgrade fee. cant waitt til nov 10!
http://www.facebook.com/profile.php?id=100000094932571 Austin Dailey

The reason why we are all still buying these smart phones when the prices are rising for 4G phones is because we all want whats new/better and we all basically will pay whatever the cost is the get what’s hot as of today untill a new phone comes out a few months later than we buy that phone.
Anonymous

This is a good topic to bring up. +1 Droid Life! I don’t agree with the price tag on these phones either. If you ask me, more than $150.00 for an upgrade phone is asking a lot from your customer when your a phone service provider, and we all know how the modern carriers are. I am on Verizon like many of you guys here, so if I chose to switch would i get a better priced 4g phone compared to big red? Probably not. So do we as consumers have a choice, without lowering our expectations, to get a better deal on these top tier phones? Nope. I will go ahead and throw out the, “Thank you Capitalism”, line and point my finger to some ex President. Yep I said it.

http://www.facebook.com/fferaysuryc Cyrus Yareff

Maybe the Gov’t should step in and regulate the price points of these point. Big Red pretty much as a monopoly on the real 4G market so they should choke them off.

was that Sarcasm??

Anonymous

The reason why we keep buying new phones is because we’ve fallen into the hypebeast trap. I know the New Nexus is bound to be awesome. Yet, every single phone release claims to be the definitive phone to get right now. Let’s face it, until we decide that we are jumping off this bandwagon then we’ll get caught up on each and every upcoming device. Is that the fault of the providers? In part, yes. It’s good marketing. But we don’t really need every device that comes out, and sincerely, not the minute it comes out. For me, I intend to keep my rooted Thunderbolt using Liquid’s 3.0 AOSP, by giving it to my wife. It’s smokin’ fast and I’m certain that they will have an ICS build sometime down the road. I also do intend to upgrade my phone to the nexus Prime. However, I will be upgrading it sometime in Q2, 12. By then, the Prime will be old hat, outdone by every major manufacturer since January, and I’ll likely get two for $99 out of contract. And if there are any bugs, they will at least in part be ironed out. If not, I will at least have waited until someone rooted it, and modified it to be more impressive than stock.
klaviste

I like what the new devices do. But I agree that those devices don’t deserve $500-600 retail price tag looking back at level of their support. How many bugs do they get by without fixing them? For most devices, do you get more than 1 patch or upgrade per year? while they are not doing anything, why are they so expensive?
Anonymous

I won’t and am leaving Verizon soon. I just cannot justify paying so much for the service and phones (on a contract). They did make a nice profit this year though….
http://pulse.yahoo.com/_E6UNKOLSRDXXGIP77NMPHSALO4 Jaciel

Thats why i am getting a 3g smartphone because 4g on Verizon is too damn expensive, i wont get a 4g phone until they reach the standard at 199.99 2yr contract. Lets have strike everybody!!!

http://www.facebook.com/fferaysuryc Cyrus Yareff

Lets all stop upgrading for a little while and keep what we have until they lower the prices!!!

Anonymous

It’s ridiculous what they charge per month AND what it costs for the phone. Will be getting the Nexus or Vigor,but the wife will be ticked if a couple years down the road here we go again. These phones are nice but not tablet priced nice. It’s a bit absurd….
http://twitter.com/timberwolfkw Kyle Wilkins

It would appear smartphones are an inelastic product. I’m hoping Amazon will have an ‘opening day sale’ on the Galaxy Nexus where the full retail will be the same as new-contract like they did with the Bionic.
http://thisisjohncoffey.com GRAND MASTER SEN$Ei {{-_-}}™

Always haggle. Never pay full price. {{-_-}}
Anonymous

I knew this would happen a long time ago, it all started when the DROID charge came out. It was the first smart phone for 300$, it was unherd of, but i knew that would be the new normal price for a smart phone
Sperho

$300 for a modern high-end smartphone. Freakin’ bargainsauce. These devices are nothing short of amazing.

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