Now that 2-year contracts are beginning to go away, at least here in the US with Sprint, T-Mobile, Verizon and AT&T all having gotten rid of contracts. Consumers are beginning to see the real price behind their smartphone. When subsidies were popular, most smartphones were $200 or less on a new contract, however that kept many people from upgrading more than once every 18-24 months. Many consumers did not know that the smartphone they were buying for $199 on a two-year contract was in fact closer to $600-700. However, with subsidies going away now, and financing being the big new thing for buying smartphones, consumers are much more aware of the cost of their smartphone. Smartphones have steadily gotten higher in price since they started becoming the standard for everyone. My first smartphone the Motorola Droid, which I bought in February 2010 (6 years ago now), I paid full price for (as a Verizon customer, I was stuck in a contract and it was the only way to "upgrade"). With taxes, it was just under $600. Now, if you look at many of the smartphones available, we're looking at around $600-750 before taxes. Now we're talking about flagships like the Galaxy S6 Edge+, the LG G4, HTC One A9 versus the Motorola Droid. Which when it was announced in 2009, was a flagship device and got a ton of marketing support from Verizon.
A prime example is the Samsung Galaxy Note 5, which runs for about $700 at full retail. AT&T is offering their variant of the device for $739 full retail. That's a pretty big increase over the Original Galaxy Note, which was around $550, five years before that. Even at $550, the Galaxy Note wasn't exactly "affordable", but that's a much better price than the $739 that the Galaxy Note 5 is currently going for. Of course, we see the Galaxy Note 5 going on sale all the time on eBay and Amazon, but that's the normal price of the device, at full retail. Even at $739, when you're financing the device on AT&T Next, you're looking at $24.67 per month on top of your bill. That is 30 months of payments too, before you actually own your device (you can pay it off sooner, if you wish, however)
Recently, we've seen more and more manufacturers coming out with flagship devices at lower prices. Let's take the Motorola Moto X Pure Edition (or Moto X Style if you're outside the US), it's priced at $399 full retail. Or even the Huawei Nexus 6P – which is even closer in terms of specs to the Galaxy Note 5 – and it's priced at $499 (usually, right now it's going for about $449 at most retailers). This raises the question, should manufacturers be looking to compete more on price? Yes, that's one of the few places where manufacturers can differentiate themselves from competitors. Especially with specs being largely the same now, as we've hit a plateau in terms of hardware, in many areas.
Competing on price is something that Motorola has been doing lately, and it's something that OnePlus has been doing for the 2 years that it's been around. Both Motorola and OnePlus have high-end specs (and some would argue that the OnePlus 2 is a bit higher end due to the Snapdragon 810 and USB Type-C port), both of which are under $400 full retail. Their prices have begun to open the eyes of many consumers as to what they can really buy for their money. One of the downsides for OnePlus is that their device only works on AT&T and T-Mobile. However the Moto X Pure Edition and the Huawei Nexus 6P work on all four carriers in the US. Making them a pretty big deal, especially at their price points.
Mobile World Congress is nearly upon us. And as usual with Mobile World Congress, there are a few big smartphone launches planned for the end of this month. Which include LG debuting their G5 and Samsung debuting their Galaxy S7/Galaxy S7 Edge. Both of which are likely to have some pretty big prices attached to them. As noted on the Galaxy Note 5 that was released in August, the Galaxy S7 and Galaxy S7 Edge are likely to be priced pretty similar, especially the Galaxy S7 Edge. Because let's face it, curved displays take longer to make, cost more to manufacture, and those are costs that are all accounted for in the cost of a smartphone. Now when it comes to LG, it's a bit of a strange thing, seeing as the LG G4 wasn't high priced, like Samsung's devices. The LG G4 was around $499 when it released, and we quickly saw prices of it drop to under $400, and now you can even get one unlocked for as low as $339 if you play your cards right. However, with a complete redesign of the LG G5 this year, and going with an aluminum unibody, we could indeed see a higher price coming with the G5.
Not to mention the HTC One M10 coming after Mobile World Congress. Now HTC could throw us a curve-ball with the One M10 and price it a bit more aggressively. The HTC One A9 which they launched last October, was $399 at launch, but then quickly jumped to $499 about a month later. With relatively mid-range specs, that seems like quite a bit of cash. With the One M10 coming after Mobile World Congress, I wouldn't be shocked to see a few surprises from HTC. After all, they desperately need a winner. And throwing out the One M10 (with its rumored 5.2-inch QHD AMOLED display, Qualcomm Snapdragon 820, 4GB of RAM, 32GB of storage and the 12-megapixel UltraPixel camera which also features laser auto-focus) at a fairly low price would definitely help win over some customers.
Could manufacturers try harder to price check their offerings? Of course. Will they? Probably not. Profit margin is pretty important to manufacturers. If you look at Apple, their profit margin is huge. The iPhone costs under $200 to manufacture (the last cost we have is for the iPhone 5S which is two and a half years old now and cost $167 to manufacture), while Apple sells that same iPhone for $649. That's more than two-thirds profit for Apple on every iPhone sold. Now you know why their earnings are so high each quarter. It's similar for Samsung, LG, HTC, and other Android manufacturers, although the profit margin isn't as sky high for them. While these Android manufacturers have pretty large profit margins, they still aren't making a ton of money on mobile. A large part of that is the amount of smartphones they make but aren't able to sell, another big part is R&D.
Then you have Amazon, who sells their hardware at cost, and sometimes losing money to sell you a Fire Tablet. They are definitely a big reason as to why the more "affordable" tablets and smartphones are beginning to get popular. How many other tablets are there that you can buy for $49 and not be signed to a contract or an equipment installment plan? Amazon's Fire Tablet is likely the only one. For Samsung, LG, HTC, Motorola and Sony to lower the prices on their smartphones and tablets, they'd likely sell a bit more. Without affecting their profits too much. With the smartphone industry being stagnant in recent years, they are going to have to do something. Sony and HTC are two of the Android manufacturers that haven't turned a profit in mobile in quite some time. Which has got to change.
The rise in affordable handsets from Alcatel OneTouch, OnePlus, Motorola, Xiaomi, Meizu, Huawei, and the many others out there making smartphones that aren't over $500, are really bringing the competition to these bigger manufacturers. It's also the reason why Samsung is struggling in other markets like China, India and Japan. In China and India, consumers want something that's cheap. In India, most want something that's close to Rs. 10,000 (equivalent to around $150 USD), China is much the same way. That's why Xiaomi and Meizu have seen record growth in the last couple of years, as the majority of their business takes place in China and India. Smartphone prices are going to have to come down, especially for flagship smartphones, otherwise many of these manufacturers are going to continue to struggle, until they can find a way to differentiate themselves. Think about it, why would you spend $600 on a new smartphone from LG, when you can get one from Alcatel OneTouch that can do everything your brand new LG smartphone can, but it's less than a third the price. It's kind of a no-brainer there.