Tuesday, January 30, 2007

iPrices & iPractices

A few days ago, my brother sent me this article critizing the new iPhone. The author--Adam Frucci--complains that Apple lost a golden opportunity to restructure how phones are sold in the US. Instead of selling the phone and letting people determine the carrier (as the practice in Europe), Apple sold the phone the conventional way: at a discount with a two year contract to a particular carrier. (Frucci thinks the iPhone wouldn't have a higher price if it didn't require a contract simply because half of retail price is profit. This is nonesense: the price is determined by what people are willing to pay, not by what the profit is.)

Frucci goes on to call the wireless industry "anticonsumer" and Apple's actions will lead to them "to start thinking they can rip us off even more." Most plans give people free phones, free services, free minutes, people you can talk to for free all the time and free text messaging. If Frucci thinks he's being "ripped off" he should switch to a land line.


Anonymous said...

You missed the point of the article. Apple marketing talked choice, being unique, being yourself. When it came time for them to make a phone they force you to conform to a single cell phone provider. The iPhone is about the phone itself, not the calling plans. That means you can't compare to other plans that feature the plan itself and not the phone. Cell phones are basically the same these days. That's why the different calling plans collectively give you a choice. The iPhone is suppose to be different and in that respect it failed. It went from being independent to being like every other phone in the US market.

Oh, and I thought the price was determined both by what people will pay and how much profit it will generate. Look at the PS3. It's not selling to well is it. So why doesn't Sony lower the price to compare with the Wii or X360? Not profitable enough.


David said...

In a sense concerning prices you are correct: supply and demand determine price, not demand alone (otherwise all prices would be zero). However, this is why I use the phrase "are willing to pay," which implictly includes the suppliers (as in they propose prices and what becomes the price is what people are willing to pay). Still, I can see why you might think I don't care about profits. I'll be more careful about the wording in the future.

I would also remind you that, regardless on if you believe me or not, the author was wrong. If people are willing to pay a higher price for a phone with no plan commitment, and Apple offered such an option, the price would go up. The current profit margin on the iPhone is immaterial.

Perhaps Apple made a mistake and would be better served to use a European model. But perhaps they made the right decision. Ultimately, we don't know but Apple is most likely to know--they have the strongest incentive to be right. Remember, just because you disagree doesn't mean everyone is like you and thus Apple was wrong. Some people care more about cheaper phones than being able to compare plans.