Hype Is Not The Problem, Reality Is

The reaction to the Motorola X announcement yesterday is fascinating. Most of the reaction that I have seen on Google+ and Twitter has been negative, with most of the negative comments claiming to be a reaction to hype about the Moto X but in reality in my opinion the reaction is to the price.

Part of the problem has been created by Guy Kawasaki, the father of product evangelists who held an exclusive event inviting other product evangelists like Robert Scoble, have been raising expectations by their remarks the last several weeks. Even Leo Laporte contributed to the hype with statements on his podcast.

The problem, however, is that Motorola is not failing to deliver on something it promised. I don’t think the things that Scoble and others have said about the Moto X are wrong. We don’t have a failure to deliver, what people are really complaining about is the the $199 price on contract.

Even the price itself is not the issue. I don’t think anyone seriously thinks the Moto X should cost less than $200, the problem is that people want that price without a contract and here, I think is the crux of the problem. A $200, unlocked phone, with no contract, sold from the Google Play or even the Amazon online stores is never going to outsell the same priced phones sold at AT&T, Verizon, Sprint or T-Mobile stores.

True, those of us who consider ourselves knowledgable of all things mobile recognize that the $200 one pays at the carrier stores is not the true price of the phone, with the two year contract that price is actually much, much more than $200. T-Mobile has decided to make their business plan around telling people that their competition is really ripping them off. The problem is, the majority of consumers in the United States don’t care and aren’t going to listen.

For the majority of smartphone buyers in the U.S., the $200 price they pay at AT&T is the same as the $200 price they may pay for the Moto X on the Play store. The reason is that in order to use the phone one must have a mobile plan with a carrier and the monthly price is no different for the person who buys from AT&T and from the person who buys the unlocked phone from Google or Amazon.

  • In fact, most people think that one who buys an unlocked phone for $600 is crazy. Their thinking is, you buy that phone for more and pay the same monthly service as they pay so you are really paying a higher price. True, there are several ways around this, most involving pre-paid services but I think most consumers find the prepaid service too confusing or simply have too many limitations.

The only “real” impact that people see from the contracts they sign with carriers is that they can’t switch to another carrier sooner than after two years without having to pay the carrier they signed with a large amount of money. Large meaning greater than $100. For most this isn’t a problem because they have no intention of switching carriers. By now they know whether Verizon or AT&T has be best coverage and all the carriers pretty much sell the same phones and at the same prices.

  • Number portability has taken some of the sting out of carrier switching, but I doubt people desire to hop as frequently as they once did. The desire to buy new phones is an issue and T-Mobile JUMP, and the other carriers are trying to take advantage by providing plans that in the end benefit them more than consumers.

The only way that Google could have made people truly happy is if they announced they were going to be a wireless provider and separate the monthly cost of the mobile service from the cost the phone. If Google sold a phone for $200 AND provided the same amount of talk minutes, text, and data as their competition for a lower price, then they might have something, and even still they would need to find a physical presence to sell the phone and service.

  • Keep in mind that Google’s competitors and lawyers looking to make a name of themselves are eager to pull the trigger to bring Google to court for antitrust.

A new smartphone from Google, or for that matter Apple, is not going to change what we pay for smartphones. Apple has been fighting the carriers for much longer than anyone and still the prices for the newest iPhones are in line with every other smartphone. The only way consumers are going to benefit is if the subsidized portion of what they pay each month is known and goes away once the contract period goes away.

Oh, and if you think the manufacturers might really dislike the subsidies, consider this. What happens to Apple if a person buys an iPhone 5 for $200, sticks to their contract, and then after two years sees the monthly price of their wireless service go down significantly? Consumers are going to be less interested in buying new phones as frequently because they will see the real price for doing so and will chose to hang on to their phones longer, and therefore Apple, and all the other handset manufacturers, will start selling fewer phones.

Bottom line is that if you don’t like the price of smartphones what you ought to complain about is the practice of carrier subsidies, which shift the real customer for HTC, Samsung, and Motorola smartphones from consumers to the wireless companies. The manufacturers are able to sell their phones at a fixed price with little to no pressure to lower the price so long as Verizon, AT&T, T-Mobile, and Sprint are willing to keep buying at that price. All of the wireless providers sell their phones on average for $200, with a spread of some lower and higher priced phones to even out the overall margin, and they are making a lot of money, so they aren’t going to change on their own any time soon.

About Frank

Mobile enthusiast and author
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