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So What if Smartphones are Expensive, at Least we have Choices and Subsidies [Opinion]

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.

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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.

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Thoughts?

  • Arcnsparks

    ” 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.”

    Apple is NOT only making 40%… They are announcing that they are operating at 40%GM (gross margin) this is a ton different. It states that they are selling their products at an average markup of nearly 70%! ! (gross profit/total revenue=0.40 or 40%GM) An easy way to look at it is when operating at 50%GM a company is making double.

    For a frame of reference most companies operate between 20-30%GM. 

    Yes that’s one helluva Apple tax ;) 

  • Anonymous

    The market sure decided what the Bionic should be worth with the quickness!

    If you want a new phone on day 0, you’ll pay for it.  If you can wait a little while, you’ll not pay so much.  Simple simple.

    Or, do like I did, and pick the phone that suits your needs right now for the price that you can afford to pay.

    I stayed with AT&T so I could keep my existing unlimited plan. I got a GS2 for $200.
    Panorama camera? check.
    Screenshot capability? check.
    Resizeable widgets? check.

    It like freakin Nexus junior! Love this phone.

    I wanted the Nexus, but I couldn’t see paying the extra $100 dollars. It just wasn’t in my budget. And my other phone was on it’s last legs, so I couldn’t wait.

    • http://twitter.com/KansasJayhawker Jonathan Reid

      I respect your decision, but you would’ve gotten so much more than double what the GS2 has for only $100 more!

      • Anonymous

        True, but he would’ve lost his unlimited data plan……. Whats the point now days to get a smartphone espeically a 4G phone with the rates that they have now, unless you have unlimited data?

        • Anonymous

          That was a large deciding factor; keeping my unlimited data plan.

          Nexus is nice, I got nothing against it.  But I can live with my GS2 and unlimited data.

  • Nrojashbc

    The arguments that go on here are such good readings. I say I’m fine with the 300 price just drop the damn retail price so I can get off this damn thunderbolt and get me a nexus.

  • Anonymous

    I would rather have cheaper plans and have to buy the phone outright then be stuck with the model the US goes by.

  • Anonymous

    “We have to be thankful for subsidies. Some countries don’t get them.”

    True. But some countries also have really cheap voice/data plan w/o extra “plan” on tethering.

    • http://twitter.com/SparkysShocker Kamaron Rianda

      some of those same countries are still on pre 3g data speeds as well, these networks cost billions to develop in the US and the customer does see that reflected in their bills.

      Just as you see in any other product and service there is mark up for finished products.

      Yea I could pay $30 dollars for a Filet Mignon at a restaurant but I could also make that same filet for 10 at home. You are paying for Chef and the Waiters as well as the overhead of the restaurant when you buy that Filet, (Im sure I couldve came up with a better example but no one really cares anyway)

      • Anonymous

        If I didn’t mis-read, One2Free (a Hong Kong wireless carrier) offers a 3900 minutes voice plan with unlimited 4G LTE for HK$267 (or about $35 here) with no contract.

        This may not be a really good example and you can tell me that everything is cheaper in China. But $35 couldn’t even get you onto a basic voice plan on VZW. Think about that.

  • Anonymous

    Only a retard would think that subsidy sale model is a good thing.

  • Anonymous

    Has everyone forgotten that it is possible to get a smartphone for free?  A quick look on Amazon shows that I could get the Droid Incredible 2, the HTC Thunderbolt, and the Droid Charge for a penny each when I upgrade.  Meanwhile, the Droid 3 is only $50 and the Droid Bionic has dropped down to $220.  The problem is with people wanting the new and the latest.  If you want that, then of course you’re going to pay more. 

    The Galaxy Nexus will be $300 when it comes out.  I wouldn’t be surprised if I could get it for half that on Amazon by January.  By March, you’ll be able to get it for $100 or even for free possibly.  The rapid depreciation for Android phones is amazing and beneficial to all of us.  I just wish a lot of people would stop whining about how expensive a brand new gadget is.  It’s annoying.

    • Anonymous

      That is so true, if you shop around you get some pretty good deals on phones which are only a few months old. I personally dont like to buy phones or any tech on day one. I wait a month or two, this give the OEMs time to fix what ever bugs the devices comes with and not to mention the price will drop. I guess VZW figures that they can charge an extra $100 for the LTE radio. The $300 price on contract started with their 4G phones….

  • http://twitter.com/BeefIsForDinner Jason Pucilowski

    ….. I think the rent is too damn high.

  • Lee

    If they kept prices low on devices, they wouldn’t be able to keep us locked into our contracts.

  • kim@usb microscope camera

    It so bizarre that most of us wanted to have the latest and very high tech gadgets even though that expensive but as long as you can afford to have it. 

  • Alexander Garcia

    WOW!!! (applause)

  • http://atechstory.com atechstory

    My only issue with current cell phone prices is that I dont get as discount for buying my device at full cost and going contract free. 

    • Anonymous

      Agree I think the full retail should be a little cheaper since you get no discount on the plan if you go full retail.

  • http://fujibayashi.jp/ Gasai Yuno

    I second that mention of “not all countries having subsidised phones”. I have been always buying phones at retail prices. No “upgrades”, too.

  • Rizzidy

    Fire Dan.

  • Granted

    Ah, a sentiment from someone that is thankful for what they have in life. A rare quality in life and definitely a rare quality on a forum of instant-gratification addicts. Some sleep on the street, yet that pales in comparison to the new phone you were looking forward to, being locked or some other pathetic rant. It’s good to take stock of what actually matters.

    • http://twitter.com/KansasJayhawker Jonathan Reid

      “instant-gratification addicts”

      I’m putting that on my resume.

  • Barbacoa

    in other news talk around the water cooler at big red id that there will be no contracts in time. That means buying your device out right then setting up service, in fact it sounds like that may be the move all the carriers will make. Sooooo enjoy what you have while you do.

  • joejoe509

    The last paragraph says it all…

  • Anonymous

    We shouldn’t be thankful for subsidies. If we didn’t have them the plans would be less expensive. Look at the UK. The total cost of ownership is much less when buying a full-cost unlocked phone and you don’t have to worry about ETFs.

  • klaviste

    with two smartphones in my family plan with 700 min, I pay $132 / month.  I paid $200 each for droid X and Charge.  At the end of the two year , i’m paying $3,568 for these two lines.

    In my earliest cell phone time, I didn’t even spend that much for 20-free-minute-per-month plan.  Of course, they can argue that I can do more compared to back then, but as time has gone by over 10 years, certainly they should let me do more things at the same price.  Charging more for more feature is understandable, but it doesn’t seem like an advantage.

    However, over all my complaint, I would shut up if carriers or manufacturers deliver timedly updates and bug fixes even if android phones cost more than iphones

  • Anonymous

    What Rob didn’t mention was that those countries without subsidized prices also have much less restricted and cheaper plans to choose from and some carriers in Europe offer these $600+ phones for as little as free on contract, unlike the US. The carriers shaft us here, they did in 2004 and they do today.

    • Keith Sumner

      I’ve heard nightmares from my friends over seas, that data plans are ridiculously expensive and heavily restricted.

      • Anonymous

        Most carriers in Europe offer plans like 1000 minutes plus unlimited text messaging and 1 or 2 GB data for ~$40 a month. Yeah, data options are often limited but service rates are also much cheaper. The phones come unlocked as well so you can keep your phone and just switch sim cards to move to another carrier. Having said that, options do vary as always.

        • Hanswee

          it totally depends on the country.  coverage in a small land mass country like say the UK is not the same as trying to cover a not so densely populated country like canada or the US.

          in canada there are 3 year contracts.   in america we expect service int he middle of no where miles from any city.  we have LTE and they dont even have that in europe.  so our networks cost way more to build out.  that is why we dont have fiber to every home like they do in korea, becuase america has a way less dense poplulation.

          cellphone and data service WONT cost the same in every country becuase every country is not configured the same population and land mass wise. 

          the people who argue that would probably argue that if we built a city with 8 people in it on antarctica with good coverage that they would expect to get $45 a month cellphone service becuase it costs that much in spain. 

          hell sprint is in the obviously lucrative cellphone market and is struggling to just stay afloat.   building out a network in america apparently is not THAT easy or sprint would be minting money right?

          • Anonymous

            Yes you are correct, carriers in the US have far more land to cover than your typical European country and thus have higher costs, however, the population of the US is also much larger. The fact of the matter is that instead of unifying to create one large network like Europe did the US has chosen to build fractured networks utilizing different technologies which leads to higher costs, that combined with our drive for profit and satisfying shareholder demand leads to much higher prices for the US population to bare.

        • jeffrey pham

          yes!  i have an international business and noticed that the phones in europe that are $200+ here for us are FREE with a contract over there.
          the 1st time i saw that, i said.. “i must be reading it wrong.. this can’t be right!  this must be in another language.. oh wait, it’s for england.”

  • Anonymous

    Ahhh circa 2004… those were the days

  • xmizacex

    Maybe if carriers were not only offering smart phones it would not be so bad.  By next year I’d be willing to bet that every carrier offers nothing but a smart phone.  When you figure that, $300 is alot to spend on a phone, especially when the alternative is to spend maybe $75 on a piece of junk, or if they do have dumbed down phones, they are still going to require a data plan because they will give it a shitty browser and call it a multimedia phone, so then your paying $70 a month, for a phone that can’t do a quarter of what a smart phone can do by paying another $20 more a month, but at the cost of dropping another $200 on it, on contract, i don’t think its right.

    • Anonymous

      I agree I am the main line on my family plan and my parents refuse to pay for data that they will not use and there was 3 non smart phones in 2 verizon stores that I went to. Not everyone wants the data so they should not be forced to pay for a smart phone.

  • centeroftown

    I kind of wish carriers would stop with the subsidies entirely.  In the short you’ll pay more up front, but over the long term competition will work to drive down the manufacturers’ non-subsidized prices, and you wouldn’t be locked into a long term contract.  Carriers would then probably turn to other creative incentives to keep you from switching, say gift/rebate cards.

    The reality is we won’t really know what these companies can make and sell at a profit as long as we’re stuck with a $299 pricetage that seems like a good deal when compared to full retail price.  The only problem is as long as we have subsidies we’ll never know what the actual market price of the phone should be.

    Within a couple of years Moto will probably be able to produce a high end smart phone and make a decent profit on it at a $299 full retail price, but we’ll still be locking ourselves into 2 year deals and paying $299 thinking we’re getting a break on the phone price.

    • Hanswee

      americans are not very good at math.  most people in the world really arent either which is why they do that.  $13 a month over 2 years is “cheap” ocmpared to $300 up front.

      why do you think everyone buys cars on monthyly installments, or only buys a house based on the monthly mortgage rate.  it feels cheaper becuase people lack the basic math ability to figure these things out these days.

      • Anonymous

        This is the most ignorant comment I have read. People buy things on a monthly basis because who has the amount to buy a car or house with cash? Come on man you aren’t that smart to act like people do it because they don’t have the math skills. smh

        • Hanswee

          there are a good amount of people who fall fo rit.

          why do you think when you buy a car they just ask you how much youcan afford a month.  peopel dont even bother adding up that say $500 a month for 36 months is much more than a normal loan on say a $30k car would price out at a normal interest rate.

          its the same as the t-mobile even more plus plans.  its $20 less a month .  And tons of people still go with the full on plan even though it would save them $480 + $200 upfront and they could buy any phone on t-mobile for $680 up front.   

          so sure maybe you dont have letrs say $500 for a cellphone up front.  so you pay $200 upfront , plus $20 a month extra for it… becuase you are not someone who thinks about the 24 month costs.  because you dont like thinking about numbers that much.  and you never realize you effectively just borrowed $300 + $200 you had in cash, at some 20%+ interest rate (hence $180 interest over 24 months).  but people dont look at it that way of course, because they are not taught to think about math.

          • Anonymous

            Where are you getting 20 extra a month? You are going to need a plan no matter what whether you buy off contract or not. People think about math and most have more knowledge than your little mind can wrap around. but you are probably one of those people who is paranoid about everything and never goes outside. I buy off contract so please don’t try and tell me I “don’t know and wasn’t taught about math”

  • Anonymous

    So I see that there is a related article above stating “why i’m still excited for the release of the droid bionic” and it made me think.. Is the bionic just old hat now?  It definitely got overshadowed by these new phones coming out.

    • joejoe509

      Definitely. But that’s the mobile industry for ya…

  • Marvin de Pano

    This is really quite simple: don’t like the prices, don’t buy them. It’s a free economy. And if you can’t afford a smart phone, please live within your means and get yourself a pre-paid flip phone. No shame in that!

  • webby

    Methinks the author is an apologist and/or somehow associated with the US cellular industry …  I have been to countries where minutes and data are nothing more than “dumb pipes” and as such they compete savagely on price.  And the phones —  in those countries, the carriers do NOT sell phones.  You go buy phones ANYWHERE, and it is extremely competitive.  I have seen “phone malls” where there are literally thousands upon thousands of used and new phones for sale from numerous kiosks who all compete against each other.  And all the phones work on any of the “dumb pipes”.  The consumer is the beneficiary of all this competition.

    Don’t tell me to go live in those countries, as there is plenty there that I don’t like, but I sure DO like the competitiveness in the cell phone industry.  We do NOT really have competitiveness here in the US at all in the cell phone industry.  As someone said, it’s an oligopoly, and they all change prices (always upward) pretty much in unison.  I’ll continue to pay to play, but I don’t have to like the system.

  • http://twitter.com/cantcurecancer Quentin Davis

    “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.”

    The only reason why it is a hassle is because US carriers are idiots. Everywhere else in the world is using a Global Mobile Standard! Plus, switching carriers isn’t as hard as people make it out to be…the FCC has actually enforced laws unto carriers to force them to assist in switching carriers. 

    I look at the iPhone 4S 64gb…$399 ON CONTRACT. That is absolute madness. These subsidized prices are locking us into contracts and basically GUARANTEEING the carriers revenue no matter what they do (ahem ahem, locked bootloaders, data caps, throttle). In the US, the carrier holds the power, and it needs to stop. We know what the agenda is of the carriers, and their power manifests itself into bloatware, data caps, locked bootloaders, and delayed updates.

  • http://twitter.com/crankerchick Latise

    Have you ever seen any of the tear down articles of the phones? The parts alone are over $150 when added up. Even if you account for the massive price break for buying larger quantities of items, when you add in the labor, royalties, profit margin, and whatever else my non-business savy mind isn’t thinking of, $100 just seems ridiculous.

  • http://twitter.com/crankerchick Latise

    I agree with the author.

    I’ve been buying smartphones since 2005 and they cost more then than they do now. Why do people think every single thing should be sold with little or no profit? Business is about making money. Innovation and technological advancement are in part facilitated by money previously made and in part motivated by a desire to make more money. If an item is too expensive, there’s always the option not to buy it, or wait for the price to come down to a more affordable (or in this case, more reasonable) cost.

  • Guessa

    With the economy like it is now, paying $200 on contract is the limit of what many americans can afford. I wouldn’t even consider paying 100 more dollars for a phone. I had plenty of phones before I had a smartphone and I never paid more than that for one, and I will go back to using a feature-phone if $300 smartphones become the norm.

    • Hanswee

      you don’t have to buy a bionic , or razr or galaxy nexus.  theres plenty of optimus Vs and budget phones to buy off contract if you cant afford it.

      the cost of r&d, factory tooling, etc for the absolute latest most advanced phone is obviously going to be more.   and to get it all to fit in a small package,  and get it certified, pay for the lawyers to write the manual in there, etc is much much more than the marginal cost of the materials.

      hell i am a web developer we dont even have marginal cost.  if you all play battlefield 3 or some software which has no marginal cost off say steam or some online place, should they sell it to you for free?

  • http://www.facebook.com/people/Jason-Brown/100001876894472 Jason Brown

    what’s worse is that we pay so much money for are wireless plans! just look at this article saying how the prices are going down while the companies are saying it’s getting more “expensive.” this article includes isps as well:

    http://www.pcpro.co.uk/news/broadband/370393/isps-exaggerate-the-cost-of-data

  • Jboogie1289

    Nice!!!

  • Bogey23

    Justifying a company charging a lot for something by saying you will use it a lot is one of the stupidest things I’ve ever heard.  So by your logic, someone who drives their car a lot should expect to pay more at the dealer?  The problem here is that wireless carriers are preventing manufacturers from competing in the open market and consumers are paying the price, literally.  

    I can buy a 7 inch tablet with a dual core processor for $199, but I’m supposed to pay $299 for a 4.5 inch phone and actually believe that I’m receiving a discount/subsidy?  Please…. 

    • Matthew Merrick

      you hit the nail on the head better than anyone else here. a 3g radio does not cost 300$ + 

      • Anonymous

        There’s other costs too like advertising. The iPhone is everywhere, not so much the iPod

        • Billy Jenkins

          An Iphone is an Ipod with 3g capabilities. Why buy an ipod and carry it around when u can just buy an iphone and have all the ipod features plus the ability to call and text? but why buy an iphone when you can just buy an android phone and have all the same features plus tons more? lol

          • Anonymous

            I’m not talking about what device to buy. I’m talking about the costs associated with a phone besides hardware that isn’t accounted for in hardware teardown.

    • Kris Brandt

      Clearly you don’t see the point.  You have options at $200-$300 much like you have options for a car between $20K-$30K.  You compare price per feature/comfort for either product.  If you’re driving a car every day, you better damn well get a car that’s comfortable to sit in, requires as low a maintenance as possible, and has the features you want or can live with.  Similarly for a phone that will lock you in a 2-year contract, you want one that can do what you need it to and has enough features to justify its cost because you WILL be using it everyday.

      And yeah, you can buy a 7-inch tablet at $200.  Just like you can buy a desktop PC for $500 but pay $600 or $700 for a laptop with similar capabilities.  

    • Ytram

      You’re referring to the Kindle Fire, correct?  If you think they’re making money on that at $199, then you’re mistaken.  Their money will be made with content, not the hardware itself.

      • webby

        BS!  Amazon is actually making money on the Kindle.  Read it and weep:  http://www.lightreading.com/document.asp?doc_id=212876&

        So don’t tell me cell phone manufacturers and carriers aren’t making a boatload of cash on cell phones in the US with the inflated prices they charge for them, because they are.  Don’t be so naive.

        • Mikes

          Seriously? You point to an almost illegible graphic as evidence? Here’s news: that $150 figure from a company which didn’t even have an actual Kindle Fire to look at is for the Bill-Of-Materials. It doesn’t include costs of development, manufacturing, packaging, shipping, marketing, etc., etc. You’ll have to do MUCH better than that to support your claim.

          • Anonymous

            Yes, this is a fact most people overlook when it comes to build lists and cost of manufacturing.  Manufacuring a product is the easy part – design is what takes time and man-hours to complete. Notorola (or Amazon) has a huge timeline for a product that culminates in production.  All of the people who worked on it, from the concept, to engineering, to prototyping and testing, all the way up to production have already been paid.  If you only make a few million dollars, but you’ve paid out more than that in salaries on the project, you lose money.

            But some industry genius comes along and tears down your device, posts a biuld list and average costs for each part, and claims you’re overcharging for it because he could assemble a box full of the same parts for less – not design, not test, not implement – just fill a box with the parts?

        • Ytram

          So that article comes up with $150 just for the materials.  Here’s some useful information:  materials is not the only cost involved in producing a device.

          And I’m not denying that cell phone manufacturers aren’t putting some decent markup on phones, but to prop up a $199 tablet that will be subsidized by content providers is the wrong way to prove it.

          • Anonymous

            But it’s also foolish to think that the individual components don’t have the R&D costs built into those.  True, there is an R&D cost, but I think it’s less than what you’d think as it’s absorbed in the cost of the materials.

            There’s a “wrap” cost to develop and put it all together?  Even so, it’s likely to be a lot less, especially when spread over a ton of devices.  It’s a cost that actually drops the more an item sells.

            Intel pours billions into R&D and except for their premium chips that they don’t make many of anyway, they still have a 50% margin on their chips even including R&D.  I don’t buy that the R&D and assembly costs are nearly as much as the cost of the parts themselves.

    • IntlGrizzly

      That’s not the point. The point is that we are undervaluing our phones. The best part of the article is breaking down the $300 phone per month price. $13 a month? That’s nothing. Of course my phone is worth $13 a month…even if that is without the verizon contract price thrown in. 

      • Anonymous

        but you have to add the $13 dollars plus what you pay a month for your plan.

        • IntlGrizzly

          obviously there is a balance of blame between the plans and the phones…personally I am fine with the phones costing 200-300 dollars but  i think that should be the limit….cant say i feel the plans are fairly priced though

    • Mikes

      Good luck making a phone call while on the road with that tablet. If you think a phone costs too much, don’t buy it. Simple.

  • bigrob60

    Maybe I’ll try and wait a few months for the Nexus to drop in price before I sign on. Emphasis on try.

  • http://twitter.com/James_C_L James C. L.

    Where are you getting these prices from?
    My wife got a razr with a 2 year contract on Cingular for free, and I paid $50 for mine.
    That was August 2004.

    • Ytram

      If you’d click on the link you’d see where he got his prices.

  • punkorambo

    I think people who don’t like these “high” prices, just don’t like dropping $200-$300 in one shot. If they could spread out that cost by adding $13 /month to their bill then it might lessen the pain for them.

  • Anonymous

    “$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.”

    Except for software. Consider the fact that manufacturers and carriers aren’t actively supporting high end devices to the set standard and instead prolonging and over-complicating the process. I.e. Thunderbolt, Charge, Droid devices etc. Such poor track records do not justify raising prices, even if to accompany 4g. How much was the Evo 4g? 

    • Anonymous

      charge has only been updated twice…once only had one bug fix on the update sheet which didnt matter at all and plugged up our root exploit. the second update was for bug fixes and a couple other things. still (officially) stuck on froyo 2.2.1 like the day it came out 6 months ago

  • Anonymous

     ahaha I totally understand! I used to buy whatever phone whenever. Those where the days! Incentive though to bust my *** and make more so I can buy whatever… trying to be the 1%!

  • http://profiles.google.com/majorcovert Dane Carpenter

    I remember paying $350 for HTC Faraday on 2 year contract back in 2005. And that was with a corporate discount. The first Moto Razr came out at the same time and was $200 dollars on 2 year contract. I didn’t mind paying that much back then. However, I was a bachelor back then and didn’t have a spouse to answer to. Now I  get the “Why can’t you get a free phone” comments when I purchase a new phone over $50 dollars.”

    • Bogey23

      I paid $2,000 for a desktop computer back in the day too.  I’d pay half that now for a top of the line desktop. Technology is cheaper nowadays.  If wireless carriers weren’t in cahoots we would be getting smartphones for $100.00 or less.

  • DismalScientist

    Price isn’t a function of how useful an item is. It’s a function of supply and demand. 

    Carriers and manufacturers impose constraints on supply and bottlenecks on the free exchange of devices to keep prices and profits high. Notice how carriers aren’t cutting you checks for signing up for two years, if you provide your own phone.

    The PC market doesn’t have these constraints on supply. And that’s why their prices are much closer to actual cost. If carriers weren’t propping up prices, the smartphone market would be a bloodbath for everyone but Apple. Already Motorola and LG make little or no profit.

  • Anonymous

    I like cellphone subsidies as much as the next, what I dislike is the lack of *choice*.

    Here’s what I mean: I can buy a phone for $600 and pay $60-80/mo average for a phone package in the US or I can pay $2-300 for a subsidized phone but I still pay $60-80/mo average for a phone package in the US.

    This really annoys me. If I pay extra for my own phone with no subsidy I should be able to pay a lower monthly tariff, similar to the British system of increased tariffs with decreased up front phone costs.

    Instead we are incentivized in the US to upgrade our phones on a 2 year cycle or otherwise our carriers are making additional money off of us.

    Tmobile briefly toyed with this option, allowing you to bring your own phone with a lower monthly cost but I think they let that plan go after a few months. I’d really like to see one of the big two try it out, I’d be on it in a heartbeat, because it would allow me to upgrade my phone whenever I wanted and not have to wait on the carrier’s timeframe.

    • http://www.facebook.com/profile.php?id=100001458670467 Tyler Cameron

      Nothing stops you from buying another phone while in a contract. I went from OG Droid -> Droid Incredible -> Droid X -> Thunderbolt -> Rezound -> Galaxy Nexus. I renewed for the Rezound/Nexus.

  • Mikedeamicis

    i never complained once. i paid full retail for my old samsung sch 720 slider winmo phone in 2006. I was laughed at by all my coworkers till i left 2 hours earlier than them every single day because i was doing all my field reports on the fly with my phone. i think it paid for itself by the hour not spent at the office in the first week. I think everyone is just spoiled and also a bunch of drama queen crybabies who need to constantly have something to bitch about or criticize. 

  • Dan Meyering

    Saying that a phone is only costing you that $13 a month isn’t really fair though, because on top of the cost of the phone, you are paying an awful lot for the service to that phone, and what good would it be without that service.  My ipod may have been $300, but I’m not also paying $70+ to use it every month.  I see a big difference.

  • guest

    High end phones are expensive. But they are the single most used devises by most people today. If you think that they are worth the cash up front then buy one. If you do not see the worth then do not. It truly is that simple.

  • Anonymous

    The cost of the phone is a drop in the bucket.  The cost of the plan on the other hand…

  • http://pharaohtechblog.blogspot.com/ Conan Kudo (ニール・ゴンパ)

    I’m surprised that he didn’t tackle the fact that monthly rates are often quite cheap in countries where subsidies are not the norm, because subsidies are unnecessary. And even so, it would still be possible to finance the purchase of a smartphone, just like it is possible to finance the purchase of a TV, a computer, or a car.

    • Mctypething

      u surprised bro?

      • Billy Jenkins

        yea he is surprised bro. I’m pretty sure thats why he said “I’m surprised”. lol. You absent minded bro? must be if you didn’t notice that in his comment. lol. You 10 bro? u must be for asking if hes surprised after he said it in his comment. lol

  • Anonymous

     I don’t mind spending $300 on amazing phones like the upcoming Galaxy Nexus.  Just keep my damn unlimited data and ill be happy! :)

  • http://pulse.yahoo.com/_T3NRV5OOEQS5Y52QG6WG6SMTEU ML

    I agree.  All of this new technology is not cheap.  Just a fact of life.  If you want something on the cutting edge, you have to pay for it.  Otherwise, you can wait until the technology matures and gets cheaper.  If you want to be an early adopter, you have to pay the early adopter penalty.

  • Anonymous

    Nice article and I agree. Let the market decide what the price is.  The mentality that everything should be free (or inexpensive) seems to be pervasive these days, but isn’t how the world works, nor should it.

    No one is forcing anybody to buy the latest and greatest, especially when, if someone waits 6 months, they can usually get the same phone for less than 50% or sometimes free.

    • LiterofCola

      Totally agree, as someone said eariler; you have to pay to play.

    • Anonymous

      The market can’t really decide. We have four major wireless carriers in the US it’s an oligopoly. What is going on is tacit collusion. $300 will be the $200 sooner rather than later. Just look at the death of the unlimited plan even though it costs Verizon less money to send data over 4G than it does 3G. 

      True waiting does help. I would just like to say that the phones should be much cheaper full retail and subsidized. $400 full retail and $100 or less on contract wouldn’t be that bad.

      • http://www.facebook.com/people/Kane-Stapler/597191406 Kane Stapler

        The stupid part is i bought a 3G XOOM for $650 and thats the same price for a phone that is half the size and half the materials. 

        • Hanswee

          that is idiotic.  smaller items cost more.  it costs more to design those things that small.  a vaio Z series laptop costs $2000-3000.  it has the same features as some $800 laptops but it weighs 3 pounds and has a 11″ screen. boohoo. 

          thats like saying a ferrari should cost less than an escalade.

      • DismalScientist

        This, and Stynkfysh’s comment. Saying “you get what you pay for,” “smartphones are great nowadays,” is just economically illiterate. The phones are priced way above what they’d cost in a free market because carriers collude with manufacturers to prop up prices. 

        Apple is probably the only company that can maintain a price premium (aka the Apple Tax), because they are so highly regarded. We saw that in the PC/Mac market – Apple’s products had healthy margins, while PC vendors were always cutting prices to the bone. And even their prices are inflated beyond that, as is evident from their Touch vs. iPhone pricing.

        • GhostFaceKiller

          You’re really going to talk about overpriced Macs vs a PC some geek can whip up with parts he can buy for cheap online? Sorry but your leave overpriced Apple on another site because the parts it takes to make an iPhone is about $187.51

        • Anonymous

          I agree, in a free market they should sell for around $200 retail since the marginal cost to produce a phone is less than that.  We are definitely getting screwed buying it at retail price, and even at the 2-year price.

        • Lunshbox

          I think you misunderstand what the free market is. In a free market economy the price of a product caps where people will stop paying for it. Smart phones are the price they are because people continue to scrape up the money to buy them at their current prices.

          I am not sure many people understand this fact, but you do know that the purpose of a business is to make money, right?

          • DismalScientist

            But it isn’t a free market. It’s an oligopoly. And that’s why there’s so little price competition. Companies making money doesn’t mean there’s a free market. It’s actually the opposite.

            Outsize profits can only be achieved when there is something to constrain competition, in the long run. It may be natural, as in the case of oil where scarcity raises prices far above marginal cost of production, and even there, oil companies are pursuing increasingly costly, less profitable oil. It can also be the result of government regulation, eg patented products. http://en.wikipedia.org/wiki/Perfect_competition#Profit . 

            This is why when a market has several entrants, analysts will talk about the market being “commoditized,” i.e. there are no profits to be made. This has already happened to an extent in the mobile phone market – Moto, Nokia, Sony Ericsson and LG make no profits. Apple has a quarter of the market and two thirds of the profit. http://www.asymco.com/?s=profit+htc+sony&submit=Go

            Competition is the enemy of profits. That’s why investors like Warren Buffet seek to invest in companies with strong, anticompetitive advantages that help profits stay above market. http://37signals.com/svn/posts/333-warren-buffett-on-castles-and-moatsLike I said, the prices are higher than they would be, in a competitive, free market. That you get $1000 of value from a $600 smartphone, or that you pay five times as much on your phone service is irrelevant. 

      • Genius

        2 phones = $600 w/ 2 year contract. 1400 shared minutes, plus two data packages, texting, taxes, etc = $200/month. 

        That’s $2700/year for a married couple upgrading 2 droids every 2 years. $2400/year if you keep the same phone FOREVER. 

        IT’S NOT THE PRICE OF MY PHONE THAT PISSES ME OFF THE MOST.

        • Lunshbox

          Dude, chill out. The point is that this is a first-world problem. You don’t need your smart phone. You need food, a place to live, and a way to get to work. I pay the same that you do because I like having a smart phone. If finances changed then I would drop the phone and continue to live my life.

          • Genius

            I’m chill. My point was that compared to the cost of using the phone, the $300 contract price is a drop in the bucket compared to the $5000 I’ll spend for 2 phones over the live of the 2 year contracts. 

    • http://plus.google.com/100780849097348485078/posts Stynkfysh

      Free market is not at play with these phones.  The retail prices are artificially set a high prices to convince us that the contract rate is a good deal so we can be locked in.  Its like going to a car dealership and the first thing they do is show the unwitting a huge payment so that they are shocked, and then they give them a high payment after ‘talking with their manager’ that the buyer is relieved to see and will agree too…  Its a psychological trick!  And they only need to convince a relatively small percentage to manipulate the entire market.  iPod Touch price vs iPhone 4 price is case-in-point. The difference in iPhone 4 hardware alone does not justify the iPhone 4 to retail for $400+ more than iPod Touch, yet it does.  However, ‘subsidized’ – the iPhone 4 sells for just about the same as the iPod Touch, which I argue is likely closer to the true market value of the iPhone without the influence of the carrier contracts.

    • Bobby Phoenix

      Agreed.  I also think of a smartphone in this day and age as a mini computer that makes calls.  We pay $600 for a “good” laptop.  I see no difference in a $600 phone except the benefit of more portability, and I can make a call too.

  • Keith Sumner

    fIRST

    • Mctypething

      u first bro?

      • Keith Sumner

        lol XD