iPhone Pricing Overshoots World Demand for Cheap Phones

By Wayne Rash  |  Posted 2011-05-23 Print this article Print


Outside the U.S., the economic arrangements are much different, but the needs of people, especially those who must have a wireless phone to conduct their business, aren't that different. They need to make phone calls; they need SMS for messaging; and many of them need email. These are basic smartphone functions that can be filled in a variety of ways, and none of those ways require an iPhone.

iPhone users, especially those with religious affinities for Apple products, will decry the supposed inferior quality of Android phones and they'll praise how much better their iPhones are than anything available that runs Android. Regardless of whether that's true, it's beside the point.

The quality, real or imagined, of an iPhone doesn't matter if the person who needs a smartphone can't afford an iPhone. The sense of exclusivity and entitlement that goes with iPhone ownership doesn't matter at all if they don't help someone communicate. As frequent tests have revealed, the iPhone is no better at the basic communications functions that matter most to phone buyers than even the cheapest Android phones.

So why is Apple continuing to sell the iPhone at a premium price? Well, it's not totally. You can buy an iPhone 3GS in the U.S. for about $50. But again, that's in the U.S., and it's a subsidized price. You can't buy the 3GS for that price in the real world. So again, why the high price?

Partly, Apple charges a lot for its phones because they cost a lot to make. Several sources reported just after the iPhone 4 came out in 2010 that the device cost about $188 to manufacture. With most products, the retail price, counting assembly, packaging, sales, shipping, advertising and retailing, is about double. The iPhone sells (unsubsidized) for about three times the cost to manufacture. That extra price differential helps account for the level of profitability at Apple.

But that extra price differential also helps explain why Android phones are outselling Apple phones. Android manufacturers are able to make the phones more cheaply, and that means more people can afford them. It's also likely that many Android phones have much less of a markup, again making their unsubsidized price lower.

Since there's nothing special about an Android phone that would prevent Apple from making something similar at a comparable price, one must assume that Apple is intentionally pricing its phones so that they are out of reach for a large part of the population that needs smartphones, but can't afford Apple. This is a valid choice on Apple's part. It helps their stockholders make money, and it gives those iPhones the air of exclusivity. But it doesn't help Apple stop losing market share to Android. 


Wayne Rash Wayne Rash is a Senior Analyst for eWEEK Labs and runs the magazineÔÇÖs Washington Bureau. Prior to joining eWEEK as a Senior Writer on wireless technology, he was a Senior Contributing Editor and previously a Senior Analyst in the InfoWorld Test Center. He was also a reviewer for Federal Computer Week and Information Security Magazine. Previously, he ran the reviews and events departments at CMP's InternetWeek.

He is a retired naval officer, a former principal at American Management Systems and a long-time columnist for Byte Magazine. He is a regular contributor to Plane & Pilot Magazine and The Washington Post.

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