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Old 11-05-2012, 01:01 PM   #1
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Default Engadget Editorial: Amazon and Google Device Pricing May End up Hurting us?

http://www.engadget.com/2012/11/03/e...obile-pricing/

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The strategy... trains a legion of customers to think that such a jump in value is completely normal and sustainable by most of the industry.
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That's not to excuse prices that are genuinely too high, and devices like the iPad mini might still fall into that camp. But when even budget-focused companies like Acer can't participate without being roasted by critics, it's time to reevaluate our priorities. Concepts like choice and quality, which we're supposed to love as gadget junkies, only survive if we let them. Rather than foster a culture that only allows for either the very cheap or very expensive, we ought to relax and buy what's genuinely good as long as we can afford it, even if it's not in the bargain bin. If phone and tablet makers can expect to compete on a truly level playing field, we're all better off.
I think the root cause of this problem lies with the US market. Phones were $600 for a long time. Before smartphones yeah the top end feature phones would be $350-$450 easily too.

And somehow because the US population sees these devices only through contract pricing, we're somehow taught to think that they deserve to really be this cheap.

Google and Amazon's pricing models are more to penetrate the US market. Apple's somehow had no problem at all, but it seems in part to play game with Apple, Google and Amazon's had to lower prices to ridiculous levels.

I do think it hurts us partially because now we excuse Google's Nexus 7 features and Nexus 4 features with "well it's so cheap, what do you expect?" I don't think a market like this which we want every bell and whistle can function if we want dirt cheap phones. What happens to mid and lower end phones? It's kinda unfortunate.
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Old 11-05-2012, 01:10 PM   #2
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That article made "us" sound more like Apple than consumers, though it is Engadget...

What hardware features is the Nexus 7 or Kindle lacking that the iPad has?
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Old 11-05-2012, 01:18 PM   #3
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Amazon and Google's pricing == Subsidy model.

They want you to buy a "subsidized" device and then use their subscription-based pay services and ad supported free services to recoup the costs.

How is this retraining the way the typical American customer already thinks? (See: AT&T, Verizon, T-Mo, Sprint)
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Old 11-05-2012, 01:20 PM   #4
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I think the point of the article is that if companies with ecosystems, especially Google, keep tightening the hardware profits in a race to the bottom, where does that leave Samsung, HTC, or others that need to make most of their money on the device.
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Old 11-05-2012, 01:25 PM   #5
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Originally Posted by SunnyD View Post
Amazon and Google's pricing == Subsidy model.

They want you to buy a "subsidized" device and then use their subscription-based pay services and ad supported free services to recoup the costs.

How is this retraining the way the typical American customer already thinks? (See: AT&T, Verizon, T-Mo, Sprint)
They're using the printer/ink model, where you sell the printer at a very tiny margin (not at a loss) and using that printer encourages your customer to buy high margin products (ink). They are selling their hardware at near cost in the hopes that a large customer base will consume their high margin software/ads/services.

Where does that leave their hardware partners? It leaves the most vertically integrated ones in a good position; Samsung, Huawei (and other Chinese companies) will continue to do well. HTC is getting hung out to dry unless they can drive down supplier costs or introduce a "must-have" device.

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Old 11-05-2012, 01:25 PM   #6
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I don't think this hurts anyone (yet). The big players (esp apple) have outlandish profit margins on the hardware. Samsung is doing quite well - htc even without this activity is having problems.
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Quite frankly it is the consumers who are hurting. What I would love to see is a national google or amazon phone service to reign in verizon plans
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Old 11-05-2012, 01:32 PM   #7
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Originally Posted by SunnyD View Post
Amazon and Google's pricing == Subsidy model.

They want you to buy a "subsidized" device and then use their subscription-based pay services and ad supported free services to recoup the costs.

How is this retraining the way the typical American customer already thinks? (See: AT&T, Verizon, T-Mo, Sprint)
Because Google and Amazon have their services. What do Samsung, Acer, HTC get to do?

And with the $300 price mark, people have made excuses left and right for Google's Nexus 4 missing feature A, B, C. So now what? We can't get high end models, and have to compromise for devices missing features? If they're trying to make $300 the new standard, then it should be a formerly $600 level phone sold at $300, not some $600 phone missing a feature here and there. Otherewise I feel like $300 deserves to be a mid range phone. I'm asking for balanced specs here.
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Old 11-05-2012, 01:35 PM   #8
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Originally Posted by Red Storm View Post
That article made "us" sound more like Apple than consumers, though it is Engadget...

What hardware features is the Nexus 7 or Kindle lacking that the iPad has?
Rear facing camera. (just answering your question, I don't care to go into a debate on whether or not tablets should have that)

Anyways, back to the OP, I saw that article and the thousands of nerd rage comments that followed it. It was a little dejavu because that same argument came up with the 99cent app model when the iPhone first came out. It's true that people now have this expectation but at the same time some companies are still successful to sell premium apps at a premium price of $5 or even more.

But then again, maybe I'm being naive, but I always considered the cost of entry for hardware to be much higher than software. So perhaps a drastically lowered price expectation will kill off a bunch of competitors (only the largest will survive) and so you end up with less players and therefore less choice.
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Old 11-05-2012, 01:36 PM   #9
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Originally Posted by bearxor View Post
I think the point of the article is that if companies with ecosystems, especially Google, keep tightening the hardware profits in a race to the bottom, where does that leave Samsung, HTC, or others that need to make most of their money on the device.
Google's been good in spreading its devices among many OEMs. First Nexus phone was HTC, Nexus 7 is Asus, Nexus 4 is LG, Nexus 10 is Samsung, etc. They're just selling hardware to Google instead of retailers... And if it helps Android gain market share, then they'll be better off in the future.
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Old 11-05-2012, 01:37 PM   #10
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google is trying to break up the pricing collusion between carriers and manufacturers. they aint nuffin wong wifdat ifya axe me...
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Old 11-05-2012, 01:40 PM   #11
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It is great for customers right now but I could see issues in the future. The way things are shaking out it will be apple and samsung in the phone space everyone else is being pushed out. In the tablet market it already is cheap subsidized tablets by amazon and Google vs apple. There will not be many choices for customers. The phone future really scares me right now. If it is 2 duopoly's with carriers and phones it could get even ugly for consumers if that is possible.
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Old 11-05-2012, 01:47 PM   #12
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google is trying to break up the pricing collusion between carriers and manufacturers. they aint nuffin wong wifdat ifya axe me...
there is no pricing collusion between carriers and manufacturers. just because the US has a broken phone/device purchasing system here doesn't mean it's the same around the world. handsets have traditionally cost like $400-$600.

what you're seeing here is like when emachines gave you free PCs with a 2 year internet contract. but that model obviously spelled failure as dialup was getting phased out. we were able to separate computers from service. luckily comcast doesn't sell you computers....
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Old 11-05-2012, 01:51 PM   #13
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Google's been good in spreading its devices among many OEMs. First Nexus phone was HTC, Nexus 7 is Asus, Nexus 4 is LG, Nexus 10 is Samsung, etc. They're just selling hardware to Google instead of retailers... And if it helps Android gain market share, then they'll be better off in the future.
I don't know if you're looking at the bigger picture.

Take the Nexus 10. Samsung sells it to Google who sells it at near cost to encourage Eco-system growth and marketshare growth. Now, where's the market for the Note 10.1? Sure, it has features the N10 doesn't have, but now you have to have a discussion as to whether or not that even matters for the vast majority of the market. And what about other 10" tablets? Now we're talking the niches of a niche market.

Nexus 7? Same deal. Where's the market for 7" android tabs now? The Fire was bad enough, but it was never sold as an "android tablet", but instead as a Amazon consumption device.

The point is that the Android hardware market has flourished because of the need for low, mid and high end products in different price categories. But if Google comes along and starts selling high end hardware for cut throat prices hoping to make it up on the back end, how do companies compete against someone selling their own products against them?

It's not bad yet. It just has the potential to be.
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Old 11-05-2012, 01:52 PM   #14
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It is great for customers right now but I could see issues in the future. The way things are shaking out it will be apple and samsung in the phone space everyone else is being pushed out. In the tablet market it already is cheap subsidized tablets by amazon and Google vs apple. There will not be many choices for customers. The phone future really scares me right now. If it is 2 duopoly's with carriers and phones it could get even ugly for consumers if that is possible.
no it just means companies that want to compete in the marketplace with have to "stip up they game" and we wont get crap that nobody wants anyway. look at whats happened recently. lg and motorola both just came out with phones that are significantly better than what they had put out before in order to match samsung.
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Old 11-05-2012, 01:57 PM   #15
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no it just means companies that want to compete in the marketplace with have to "stip up they game" and we wont get crap that nobody wants anyway. look at whats happened recently. lg and motorola both just came out with phones that are significantly better than what they had put out before in order to match samsung.
Well, we still have yet to see if those "better phones" translates to better revenue or not.
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Old 11-05-2012, 02:09 PM   #16
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Rather than foster a culture that only allows for either the very cheap or very expensive, we ought to relax and buy what's genuinely good as long as we can afford it, even if it's not in the bargain bin. If phone and tablet makers can expect to compete on a truly level playing field, we're all better off.


LOL. Somebody should slap that dude and tell him to start living in the real world. Might as well throw wishing for world peace on top while we are living in fantasy land.
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Old 11-05-2012, 02:29 PM   #17
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Rather than foster a culture that only allows for either the very cheap or very expensive, we ought to relax and buy what's genuinely good as long as we can afford it, even if it's not in the bargain bin. If phone and tablet makers can expect to compete on a truly level playing field, we're all better off.


LOL. Somebody should slap that dude and tell him to start living in the real world. Might as well throw wishing for world peace on top while we are living in fantasy land.
Heh. It's true though. A lot of things would be far better off if everything was fully cooperative and fair and blah blah blah. If we weren't such greedy bastards (prisoner's dilemma) we probably would have nicer things.

But, phone and tablet makers have no interest in a level playing field if they're currently ahead. It's in their best interests to squash all competition and become the only player in town and then make a ton of money off the consumers.
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Old 11-05-2012, 03:30 PM   #18
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They're using the printer/ink model, where you sell the printer at a very tiny margin (not at a loss) and using that printer encourages your customer to buy high margin products (ink). They are selling their hardware at near cost in the hopes that a large customer base will consume their high margin software/ads/services.

Where does that leave their hardware partners? It leaves the most vertically integrated ones in a good position; Samsung, Huawei (and other Chinese companies) will continue to do well. HTC is getting hung out to dry unless they can drive down supplier costs or introduce a "must-have" device.
I'll consume all the ads they want, aint costing me shit.
And amazon has given me about 350 free apps so far. Never paid for one.
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Old 11-05-2012, 03:34 PM   #19
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Yeah, 50% profit margin on phones and tablets are perfectly normal.

Thank you Amazon. Thank you Google. Thank you Barnes and Noble.
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Old 11-05-2012, 03:46 PM   #20
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Yeah, 50% profit margin on phones and tablets are perfectly normal.

Thank you Amazon. Thank you Google. Thank you Barnes and Noble.
Incorrect word to use. MSRP - BOM (bill of materials) != profit. BOM does NOT include operating costs of the company.
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Old 11-05-2012, 03:50 PM   #21
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Yeah, 50% profit margin on phones and tablets are perfectly normal.

Thank you Amazon. Thank you Google. Thank you Barnes and Noble.
Agreed.

Inefficient companies die. Welcome to capitalism.
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Old 11-05-2012, 03:54 PM   #22
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Agreed.

Inefficient companies die. Welcome to capitalism.
This. I don't remember people crying foul when Google Launched Navigation for free. Do you remember having to pay ~$80 for a simple map update and ~$10 a month just to use a GPS unit?

Sure it sucked for those companies, but who cares? Android tablet makers tried to emulate iPad pricing and got no where, then we get Google and Amazon tablets at low cost and they start to rise in popularity and now Engadget has a problem with it? Seriously, this combined with their other editorial on the Apple Maps thing has ended my visits to their site.
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Old 11-05-2012, 04:06 PM   #23
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I'll consume all the ads they want, aint costing me shit.
And amazon has given me about 350 free apps so far. Never paid for one.
Amazon still values you, because Amazon (and Google) don't operate on anecdotal single user experiences.

They're entirely data driven companies. Amazon sees the correlation between the number of Kindle's sold to the number of e-Books they sell, or the number of movies/TV shows they stream, etc.

Amazon's probably the most lethal competitor of all, because they put their eggs in every basket. Kindle, iOS, Android, PC, Mac, etc. They're only goal right now is to keep losses low while dramatically expanding their customer base.
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Old 11-05-2012, 04:24 PM   #24
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I had wondered about this when I saw the prices for Google's new offerings. The only thing that really amuses me about it all is that everyone freaked out when Microsoft announced they were creating the Surface. A lot of people thought it was unfair that they were competing against their "partners" in the tablet space. Now here comes Google who's not only competing but destroying them on pricing. Man I'd hate to be Acer or Tobshiba right now.
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Old 11-05-2012, 04:27 PM   #25
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This. I don't remember people crying foul when Google Launched Navigation for free. Do you remember having to pay ~$80 for a simple map update and ~$10 a month just to use a GPS unit?

Sure it sucked for those companies, but who cares? Android tablet makers tried to emulate iPad pricing and got no where, then we get Google and Amazon tablets at low cost and they start to rise in popularity and now Engadget has a problem with it? Seriously, this combined with their other editorial on the Apple Maps thing has ended my visits to their site.

Agreed.

The best things for us doesn't always end up meaning the best things for our old standby corporations. But why should we honestly care?

This is part of the problem some people have: sometimes new production revolutions mean old businesses will likely downsize if not fail altogether. Sometimes this results in a loss of jobs - which, at the present time, is one of those "OMG NOOOOOO!" situations. It's a sacrifice that has to be accepted in order to move things forward in the world. In this case, that means new corporations may step up, or the new leader will expand. They can fill the job hole left behind. Hell, new corporations may pop up (part of the "innovate or wither" concept) to fill the void.
If an American corporation fails because these new markets destroy them, honestly, we need not worry. That just means the new competitor will now have a chance to inspire a new generation of people, when they see a different approach now successful. That leads to new ideas, new approaches, and the market will surely produce new competitors that pop up. It's a cycle. Businesses boom, someone steps up as a competitor with a new approach, those booming businesses wither away, the competitor rises and itself becomes a booming business, rinse and repeat. It happened before, it is happening together, and it will continue to happen (so long as allow businesses to operate free of government control - oh, and even governments come and go ).

It's not a brand new idea, btw:
old companies operate on large profit margin, has been successful for decades.
All of a sudden, a new group thinks they can offer the same (or better) product/service on much smaller profit margins. Said new group succeeds, old business adapts, shrinks in market penetration, or withers away.

We shouldn't worry whether we are providing companies the most profit possible, how much we are growing their market value, or whether their CEOs walk away with the largest bonus possible that year; we should merely demand quality products. If that means our dearest tech companies go belly up because they couldn't compete in a changing market, so what? Obviously, something better has come along. And something even better will follow that new better something.
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