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THIS is why your phone is so damn expensive

 The iPhone XS Max getsup to more than $1,400. A specced-out GalaxyS10 Plus can reach $1,600. Samsung's foldable phone isgoing to sell for $2,000. And Huawei has gone even higher with a foldable that’s going tostart at close to $2,600. Phone prices have gottenwildly more expensive in the past couple of years. Apple, Google, Samsung, and others now charge hundreds ofdollars more for phones than they did just a couple of years ago. And the upper limit on phoneprices won't stop growing. If you're trying to buy a phone, this can be pretty intimidating. Why do these very necessary devices suddenly cost so much? There are a few different reasons that phone prices keep going up. Some good, some bad. I'm going to talk about threekey pieces to this story. To understand why, we have to step back and look at the big picture. (upbeat music) Prices have been rising at pretty much every high-end phone company. But, for this video, I'mgoing to focus on Apple, particularly in the US, because its prices stayed consistent for a really long time. Also, the iPhone is justreally popular here. So, the first thing is phoneprices used to be a lie. You might remember gettinga brand-new iPhone for $200, but, in reality, that phone cost a lot more. Probably closer to $650. The cost was just hidden to you. This is how phone sales worked in the United States for years. And it kind of seemedlike it would never change.

But then came T-Mobile's boisterous, trash-talking CEO John Legere. That is a complete crock of bullshit. When Legere became CEO in 2012, T-Mobile was in a bad place. The carrier was in a distantlast to Verizon and AT&T. It even had 20 million fewersubscribers than Sprint. Legere wanted to do something bold to get eyes back on T-Mobile. So after just six months on the job, he did something previously unthinkable for a major US phone carrier: he killed two-year contracts. Now, Legere's kind of ridiculous, and we make fun of him a lot. But this was a legitimatelygame-changing idea. It made the carriermore consumer-friendly, and it allowed thecompany to lower prices. A T-Mobile plan couldeasily be half the price of a Verizon or AT&T plan. This had a huge effect inturning T-Mobile around and making it the competitivenumber three it is today. But getting rid of contractsand lowering prices really meant gettingrid of phone subsidies. Carriers had only been ableto give you a $200 iPhone because they were quietly charging you for the rest of thephone every single month as part of your bill. The iPhone was always about$650. You just couldn't see it. Within two years, Verizon, AT&T, and Sprint all followed suit. The contract was dead. And now what you saw wasthe exact price of the phone along with the monthlyfee you'd need to pay in order to buy it. So that's part of the story. And it brings phones from about $200, to about $650 in just a couple years’ time. But this isn't just astory about sticker shock.

Phones really are getting more expensive. And there's been a big jump from $600, to well past $1,000 injust the last few years. These price hikes aren't justabout what consumers want. They're also about whatcompanies like Apple need. And that brings us to thesecond part of this story. As weird as it sounds,Apple is running out of people to sell iPhones to. When the iPhone 4S came out, around one in threeAmericans owned a smartphone. Just five years later, there'sa smartphone in the hand of three out of every four Americans. The death of contracts has also made it harder to sell a phone. Customers no longer have a good reason to buy a new phone every two years, which means Apple isn't guaranteedthose biannual purchases. In fact, carriers have evenstarted extending the time over which we pay for our phones. AT&T defaults to splitting upcosts over two and half years. T-Mobile does it over three. All of this has had an impact. By 2017, Americans wereholding on to their phones for more that two and a half years.

 That doesn't sound like a lot, but it'd been closer to twoyears just the year before that. To see the real story, youcan just look at this chart. Thanks to the success of the iPod, Apple had been setting company-best revenue recordsquarter after quarter. When the iPhone came out,that only accelerated. Apple was on a 13-yearrecord-setting streak. But then, this happened. In April 2016, Apple missed. For the first time in more than a decade, Apple made less money in a quarter than it did the year before. Now, don't get me wrong — Applestill made a ton of money: a whopping $50 billionin just three months. But Apple lives and dies by the iPhone. At the time, the iPhone made up 65 percent of Apple's overall sales. So Apple's main goalwas to send that arrow back in the right direction. And that means one of two things: either selling more iPhones or selling more expensive iPhones. And you know which one they chose.

 So everyone got cheap phoneson a two-year contract. Then those contracts died. People bought fewer phones,and prices had to go up. It all sounds a little bit evil, but there is a bit more to it. And that's the third piece of this story. It is the most advancediPhone we've ever created. We designed theworld's best camera, and put it in the world'smost helpful phone. Galaxy Fold is a device unlike any that's come before it. But seriously, modern phonesdo have a lot more stuff and a lot nicer stuff,especially at the high end. There are larger screens,nicer display technologies, multiple cameras, tons ofRAM, waterproof builds. It adds up. If you count up how much every part inside an iPhone 4 from 2010 costs, it comes out to less than $200. Do the same thing forlast year's iPhone XS Max, and it's closer to $400. Now, yes, that is a lot lessthan Apple sells the phone for, but that's just the cost of parts. It doesn't include R&D,manufacturing, shipping, support, the salary ofthe Apple Store employee who sold it to you, and a lot more. The prices for new iPhones haven't necessarily gone up a ton. Apple charged $650 for itsflagship iPhone in 2011.

With inflation, that's now about $720, which is close to thecost of an iPhone XR, a phone that likelycosts a lot more to make. So, in reality, it's less that the iPhone got more expensive andmore that Apple has pushed the boundaries on what the mostexpensive iPhone looks like. And it's worth keeping in mind that if you buy a $1,000 iPhone,you're actually in the minority. In the US, phones sellfor $400 on average. (PRICE: OnePlus 6T is $549) And it's even less worldwide. (PRICE: Moto G6 is $250) You may need to spend a grand to get the absolute best out there,but phones have gotten so good that you can now spenda few hundred dollars and get something thatchecks most of the boxes one could reasonably need. Even Apple will sell you abrand-new iPhone 7 for $450. So yes, phone prices have risen — a lot. You have to spend more toget today's best phone than you had to spend to get the best phone just a few years ago.

 But the difference is thatyou no longer miss out on quite as much if youchoose to spend less. And the phone you do end up with, you'll probably hang on to for longer. So unless you're still buying the best every two years, you might not end up spending all that much more. Speaking of expensive phones, if you haven't seen them already, you should absolutely checkout our hands-on videos with some of the first foldable phones. These things are really cool, and they're one of thefirst things in a while to really redefine whata phone can look like. You can check those out. And, be sure to likeand subscribe for more. 

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