After seeing an opinion piece on smartphone pricing by Dan yesterday, followed by our report that the DROID RAZR may be $649 off contract, one of our readers wanted to express his thoughts on the matter. Are we more fortunate than most countries? Has the smartphone become so integrated into our lives that the higher prices are justified? Rob K weighs in.
Smart phones are EXPENSIVE! And guess what, they always have been. The Palm Treo 700w (which I owned) was upwards of $620 off contract and a whopping $500 with 2-year agreement. That was in 2006, with a 2-year agreement!
What has changed since then? Well for starters we have Android and iOS, and phones have actually come down in price while improving dramatically. We have diverse hardware and software (for better or for worse). The cameras! The screens! The apps! I think we have it pretty good.
Full retail aside (as I assume most people do wait until they have an upgrade), $200-$300 for a piece of hardware and software that will literally be used every single day for a considerable amount of time isn’t too bad. I would argue that we use our mobile phones comparatively more than both TVs and home computers. The phone goes in our pockets when we wake up in morning and is not departed from us until we go to sleep for the night (where it will then serve as our alarm clock and weather report as soon as we wake up). For some people I know, the mobile phone has replaced the need for a home computer. To drop more dough on that device seems fair.
Motorola Mobility (the smart phone arm) lost money last quarter on $2.1 billion in mobile device revenue. Although their financials don’t break out segment level gross margins, as a total company they were only making 25% on their devices, a far cry from the 100% touted in previous articles. That doesn’t include the fact that they have to advertise and research and develop new phones! At the end of the day they didn’t make a single cent. Now sure Motorola might just be a poorly run company, but the fact is that even Apple is only making 40% (total company, including Mac sales) before advertising and R&D and they are considered the king of mark-up.
We have to be thankful for subsidies. Some countries don’t get them. At the end of the day, people don’t switch carriers all that much. It’s a hassle. We have family plans. There’s mobile-to-mobile. The service of X carrier is better here. We rarely pay full retail. Only hardcore enthusiasts and those who have disposable income are doing that.
$300 for a brand new phone with top of the line hardware is $13/month over a 2 year agreement. You don’t get $13 worth of enjoyment out of that phone you have every month? Get a RAZR (circa 2004)…oh wait that cost $500 on 2-year contract with Cingular when it debuted.