Let’s be honest. I mean… We can all pretty much agree that the cell phone retail model sucks, right? I’ve already outlined how cell phone manufacturers set arbitrarily high prices for their cell phones so that carriers can hawk those phones at discounted (aka subsidized) prices. Of course, the carriers’ discounted prices usually represent, for smart-phones at least, a markup of close to 100%. That unsubsidized price we have to pay if we buy an unlocked phone often represents a markup of 100-200%. What other consumer-focused electronic devices can garner such a markup. Not many…
Pricing isn’t the only issue. As we now see from the AT&T / iPhone debacle, when carriers hold exclusive agreements on phones they come to hold their customers in contempt. AT&T sat and watched Apple launch the iPhone, the iPhone 3G and then the iPhone 3GS – knowing full well the impact the phones would have on their network – and did little to increase the capacity of the network to match demand. Sure, you have a beautiful high-speed capable iPhone, but your network often only supports slower speeds because of AT&T’s commitment to mediocrity.
Carriers need to get out of the retail cell phone business. Carriers have been complicit with manufacturers in gouging consumers on the prices of cell phones. Doing so has led to a huge conflict of interest that has resulted in the carriers considering the devices more important than the services they offer. It’s almost as if the broadcast networks sold the TVs on which you watched their shows. Remember when Ma Bell leased you a cell phone along with your phone services. They stopped post breakup because they realized phones weren’t there core competency. The same goes for the carriers. They’re essentially network service providers who play cell phone sales people on TV. They need to stop.
The alternative, in my mind, is two-fold:
- Create phones that work on any network — I don’t mean create unlocked phones. Instead, I’d like to see phones, like the Blackberry Storm, that support the network technologies of Verizon, Sprint, AT&T and T-Mobile. The expense of adding multiple technologies to mobiles doesn’t add substantially to the price of the phone and it gives consumers more options
- Manufacturers should partner with big box stores – Stores like Walmart, Target and Best Buy have the heft to pressure manufacturers to deliver phones at prices that are more consumer-friendly. It is true that manufacturers’ margins will decline, but I expect they’ll make up some of that on quantity given the lower prices, lack of burdensome contracts or carrier exclusives. What we’ll also see as a result of this, I believe, is more innovation. Lower margins give manufacturers less reason to stick with phones that don’t sell. Lower prices will lead to greater sales of popular phones. This, I believe, will lead to greater and quicker phone innovation as manufacturers work harder to deliver phones with innovative features that allow them to keep a leg up on their competition.
These two changes will change the industry but in doing so benefit all involved. Consumers will have more selection at better prices. Manufacturers will be able to better gauge consumer need and react more quickly as consumers become free to buy phones as frequently as they’d like. Carriers become more able to focus their energies on their core competencies – their networks. Seems like a win-win to me.
I’m at a fan of Nokia phones – or at least I was. Nokia, one of the largest mobile companies in the world, has failed to establish a real foothold in the U.S. market. Unfortunately for them, the U.S. is where so much of the mobile excitement is these days. Between the iPhone, Google’s Android and RIM’s quickly evolving Blackberrys (Canadian, I know), the smart-phones have changed the way people see and use phones. Nokia has sat on the sidelines releasing phones with inferior features and usability inhibited by a long-in-the-tooth operating system. They’re one of the few manufacturers who has actually tried the end-run around the carrier-retail model by going direct to retail. High unsubsidized prices and curious lack of marketing, along with lackluster phones, have impeded their success. this article from the New York Times analyzes some of their issues.
Based on recent news, there is another company considering trying to circumvent the carrier-retail model. It is rumored that in January Google will launch its own HTC manufactured Google Phone. The phone, if speculation is accurate, will be sold directly through retailers as opposed to carriers. I have not seen pricing details but my own guess is that the price of the phone will need to be competitive with that of subsidized phones sold by the carriers. I also expect that, contrary to Nokia’s approach, Google will market the Google Phone – perhaps heavily.
I’m hoping that this could be the start of some really great changes in the mobile phone business that lead to more innovation and better products for consumers.
I expect they’ll make up some of that on quantity given the lower prices, lack of burdensome contracts or carrier exclusives. What we’ll also see as a result of this, I believe, is more innovation. Lower margins give manufacturers less reason to stick with phones that don’t sell. Lower prices will lead to greater sales of popular phones.