

Amazon and Google are undermining mobile pricing, and that may hurt everyone - blacktulip
http://engt.co/Ry0gmF

======
apendleton
Phone prices have been totally skewed for a long time, and most new high-end
phones have cost $600 only because that's what they were expected to cost. The
release of the first iPad made that obvious, because it was the same mobile
components as the iPhone, a bigger battery, a larger screen, and more aluminum
and other materials for the case, but still cost $100 less. And the iPad was
still profitable! The only reason companies continue to get away with $600
phones is that carrier subsidies distort the market. The notion that there's
some mythical "correct" price that manufacturers used to charge that's now
being undercut by Google is ridiculous. This is a market correction.

~~~
jyap
In certain situations there is an engineering cost to miniaturization of
components.

------
revelation
I think Apple is doped up on huge hardware revenues, and the moves by Google
and Amazon will rightfully bring them back to planet earth. Because what
really matters in this "post PC" era Apple themselves announced is not
hardware.

Hardware without function is called a "brick", a worthless paperweight. Of
course thats referring to hardware where the software embedded was lost or
corrupted, but its as good as any analogy for the iOS situation: premium
integration for the highest bidder (Facebook), functionality determined by
politicial fights (Maps).

~~~
wmeredith
This make no sense to me. "Hardware without software is a brick." So? Software
without hardware is... what? At least you you can use a brick as a crude tool.

~~~
ihuman
Software without hardware is just an idea. Like a brick, it alone is useless
as it cannot be applied to anything, or used. Hardware and software need each
other in order to function.

------
zmmmmm
I get a bit of an ugly feeling about the way competition is working at the
moment. On the surface it's all roses - glitzy features coming faster than we
can count them, hardware obsoleted with far better options every 6 months,
prices falling like crazy ...

But you look under the surface. Apple and Microsoft championing user's
"privacy" - why? Because they want to attack the revenue base of Google. Don't
compete with your competitor. Poison their environment until it is too toxic
for them to survive and they leave.

Google releasing ultra cheap phones - why? Apple hugely dependent on enormous
margins. Don't compete with them directly. Poison their environment by
changing how people think about hardware. Make it a zero margin game and Apple
goes away as simply a side effect.

I feel differently about these things on different days. On good days it seems
like we're in a golden age of competition. On bad days it seems like we're
witnessing a silent armageddon where all sides have abandoned our interests
and have voted for mutual-annihilation. "If I can't win, I'm going to make
sure you lose too" they are saying. I hope my good days are the ones that turn
out to be correct.

~~~
dave_sullivan
_Supreme excellence consists in breaking the enemy's resistance without
fighting._

I think you make good points re: their strategies--but those strategies have
some risks for those pursuing them, and the consumer tends to benefit either
way.

If google can hurt apple's margins, the consumer wins. Meanwhile, if they
can't, they just end up giving away a bunch of phones. And to my knowledge, no
company has been able to maintain the kinds of gross margins Apple has without
becoming a monopoly. The apple brand is a kind of monopoly, and patents add
monopolistic properties to innovation. But no brand lasts forever, and the big
players all have patents they can use against each other, somewhat damping
their appeal with MAD

Meanwhile, on the privacy front, I suspect we'll see more push back on this in
coming years. Better privacy laws are probably good for the consumer, but
could be catastrophic to many companies that currently place huge theoretical
value on their big data. If strong restrictions come into place on how you can
and can't use that data, suddenly it's not quite as valuable as first thought.

So I'm generally optimistic that this is still the kind of competition that
helps consumers.

------
arocks
Aggressive pricing happens to any market which gets commoditized. It leads to
more competition among the existing players to innovate and differentiate
themselves.

Today, a tablet is a commodity product. Making a faster and higher resolution
tablet is no longer revolutionary but just evolutionary. If the OP wants the
existing players to survive why can't they create more breakthrough products
than encourage inflated profit margins?

~~~
rogerbinns
Exactly. I don't see the problem - some manufacturers are giving consumers
what they want at prices they want, and are not doing so illegally. If those
new "incumbents" then later decide to "profit" after having thinned out the
ranks, there is nothing stopping others stepping in and undercutting those
incumbents.

This is exactly how markets are supposed to work - there is good information
about pricing, there is good information about product, and there is free
entry and exit for both manufacturers and consumers in the market.

Not even mentioned in the article is MediaTek whose really cheap integrated
chipsets are allowing another wave of really cheap devices that make the ones
in the article seem expensive.

------
ISL
It's hard to see a consumer downside to subsidized hardware. Don't want to use
Amazon/Google's software? It's your phone, you bought it. Run what you like.

The Nexus 4 is an excellent play; it's a capable and carrier-independent
phone. May it encourage wireless carriers to focus on network coverage,
network quality, and price.

It'll be a great day when Verizon starts pricing like Ting.

------
czhiddy
The only ones hurt by low pricing will be the manufacturers. Companies with no
software expertise and no way to differentiate themselves (basically all the
Android OEMs at the moment) will become the Dells and the HPs of the mobile
space.

~~~
bookwormAT
> Companies with no software expertise and no way to differentiate themselves
> (basically all the Android OEMs at the moment)

Most Android OEMs are still learning what it means to be a software and
service provider, but I do not agree that they have no way to differentiate
themselves.

An Android OEM can completely define the software and hardware experience on
his devices. If he wants to stay compatible, he needs to pass the Android
Compability Testsuite of course. But even then the final OS can look and feel
very different from other Android-based systems.

~~~
SwellJoe
The problem isn't that OEMs are unable to modify the OS, it's that they do it
_badly_.

I've owned four Android devices, and used a lot more. Three were Google
branded, and were _awesome_. My current phone is an HTC Sensation 4G, which is
awful. I don't know that I can blame Sense and HTC for all that sucks about
this phone, but I miss my Nexus One pretty much daily. I'm eagerly awaiting
the Nexus 4, because it'll only cost a little more than I can sell my
Sensation 4G for, and will return me to living in a pure Google Android
experience.

I want less OEM customization because the OEMs break the OS and make it less
pleasant. Even if I couldn't sell my current phone to recoup some of the cost,
I'd probably still buy a Nexus 4. The friction of using an unreliable and
quirky phone has a cost that I consider too expensive. So, I regret buying a
device that doesn't have a pure Android OS build, and I'm very unlikely to
make that same mistake again.

~~~
riledhel
You can install Google's Android stock version on your phone and have your
preferred OS experience. Something like this
[http://www.androidauthority.com/htc-sensation-install-
stock-...](http://www.androidauthority.com/htc-sensation-install-stock-
android-4-0-3-ice-cream-sandwich-48436/)

------
dgregd
Well, it is not coincidence that Google decided to lower prices of Nexus
devices now.

They want to neutralize Windows 8 mobile devices. With that price levels it
will be hard for Microsoft to charge anything for its OS.

And the article thesis is completely stupid. What kind of innovation we got
from paying 8 billions yearly for ring tones? Now they are free and what
happened?

------
sses
The Android tablet market was pretty anemic before Amazon effectively created
it by aggressively pushing the Fire, and then Google the Nexus tablets.

How would that market have been better for anyone in the long run if it were
effectively non-existent?

------
hazov
This it will be good to some, now it's mainly good for Google and Amazon who
are trying to win money in this new market, either directly and indirectly,
and consumers who can choose increasingly better products at lower prices.

People were saying that tablets would be the future and would be the new PCs
for every user, well with this new future comes also the late stagnation that
has come to the home computer industry, the new thing ceases to be sexy after
all when it's no longer new. Or do people really thought that Apple like
growth would be sustainable forever? If the PC became cheap enough to be a low
margin product by now then what is so different in tablets for this not
happen?

As I said right here some people are expecting that:
<http://news.ycombinator.com/item?id=3627195>

------
mcantelon
I wonder when Apple's going to start subsidizing their hardware with content
sales? Seems like they have the choice between doing that and losing
marketshare, ulimately ending up a cult/niche offering.

~~~
pazimzadeh
Considering Amazon's recent $274 million quarterly loss, don't you think it's
a little bit too early to say that their model is the best? Apple earned $8
billion in the same amount of time.

[http://www.nytimes.com/2012/10/26/technology/amazon-
reports-...](http://www.nytimes.com/2012/10/26/technology/amazon-reports-its-
first-quarterly-loss-in-four-years.html)

[http://www.apple.com/pr/library/2012/10/25Apple-Reports-
Four...](http://www.apple.com/pr/library/2012/10/25Apple-Reports-Fourth-
Quarter-Results.html)

~~~
moistgorilla
I'm pretty sure they made a loss because of acquisitions they had made and not
because of their competitive pricing.

~~~
ap3
But you're still looking at an 8 billion dollar difference. Hard to argue
against Apple's strategy

------
danmaz74
The Nexus 7 is creating a real market for genuine Android tablets; in the
medium term this will greatly benefit all non-Apple OEM, because they will
have a big market to compete on.

------
vibrunazo
Does anyone remember where exactly that article that made a great counter
point to this, saying prices will keep going down, and in the future
manufacturers will have to provide content instead of only hardware? It was
giving the example of the $50 Chinese tablets etc. I tried googling it but
failed. It made a much better argument than this one.

This engadget article is just looking at the first ply of the game.

~~~
blacktulip
<http://news.ycombinator.com/item?id=4533215>

I think you are looking for this one

------
dreamdu5t
If companies such as Apple cannot produce products at prices that people want,
then they _should_ go out of business. That helps everyone by providing them
with the products they demand - it doesn't hurt them.

Aggressive competition is a great thing. It incentivizes innovation to reduce
cost and incentivizes competitors to differentiate themselves, which gives
more options to consumers at lower prices.

The assertion that intense competition prevents companies from providing new
products is unsubstantiated by anything in the article.

~~~
wes-exp
_Aggressive competition is a great thing. It incentivizes innovation to reduce
cost and incentivizes competitors to differentiate themselves, which gives
more options to consumers at lower prices._

Competition is not always beneficial. Consider copyrights and patents. These
are deliberate monopolies, i.e. huge restrictions on competition, in order to
foster desirable economic outcomes.

As an example, if we eliminated pharmaceutical patents, this would enable
greater "competition" in the pharmaceutical manufacturing industry, but guess
what? Private companies would cease to invest in drug research. Meaning that,
you, as the consumer, lose out on potentially new treatments being invented
and brought to market.

~~~
wycx
Please refrain from using the pharmaceutical industry as an ideal model for
innovation, competition and new treatments fostered by patent protection.

There is a significant problem with the emergence of multiple-drug resistant
infections. Even with patent protection, pharma companies are not pursuing
development of new antibiotics. Why? Because the economics are unfavorable.
Better to have a monopoly drug like Lipitor that people have to take for the
rest of their lives than an antibiotic that you only take for two weeks [1].

Patent-protection does not necessarily provide solutions that markets want. It
only provides solutions that are profitable with patent protection. There is
clear market failure regarding antibiotics. Where are the desirable economic
outcomes and new treatments?

Appealing to the pharma industry as an example of where patents work at their
best is not helpful for a discussion on patents unless you identify its
obvious shortcomings.

[1]
[http://www.abc.net.au/4corners/stories/2012/10/25/3618608.ht...](http://www.abc.net.au/4corners/stories/2012/10/25/3618608.htm)

~~~
eddieplan9
If you seriously believe the reason we don't have new class of antibiotics is
because of the pharmas are not interested enough in making one, you don't know
what you are talking about.

You know why we cannot find new antibiotics class? Because it is hard, really
really hard! Your statement about economics being the main drive of finding
new cures, including antibiotics, is a great insult to tens of thousands of
researchers working hard day to day with the sole purpose of find that damn
compound. Yeah, these researchers are human with lots of feelings and
sometimes with friends and families needing new treatment too, and they are
not just working for the salary or bonus.

Patent system is not perfect, but getting rid of patent system will not speed
up or better incentivize any effort of finding new drugs and cure. Think more
public funding in basic research in universities, and new/better way of
regulation/approval instead.

------
metatronscube
Google and amazon have started a race to the bottom and no one will win that
way. It has to be profitable for all concerned otherwise there is no point.

~~~
landryraccoon
Consumers win. If competitors can't differentiate on anything other than
price, why do they deserve to exist?

~~~
metatronscube
I didn't when I got a cheap device that was faulty and fell apart more than
once. I have since decided it is a false economy. 159 quid plastic tablet vs
259 quid aluminium one is what it comes down to for me. The extra 100 quid
gives me as the consumer a much more pleasurable device that's much more
durable and lasts longer. It pays for itself because I can actually use it
before it breaks. That's just my experience so far.

~~~
cico71
Last time that I decided to shell out more money investing in the "aluminium
factory" I bought an mp3 player and found out rather quickly that they break
as any other cheap player.

I also found out that the sustainable model of the "aluminium factory" is to
make me pay almost the same price of a new player to replace a shattered
display.

In the end I was lucky enough to find on ebay some companies madly working
against the sustainability of the free market that sold me a replacement
display for 20£.

I ever since bought only cheap, plastic players. They still even let you
change batteries...

