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A Tech-Econ Mashup with a Libertarian Flavor

Why Didn’t Sprint Give the Pre Away Free?

Michael at Techdirt poses the question (and answers it):

Basically, let Sprint subsidize more of the phone — which it would easily make back in service fees (since the phone requires a two year contract with its most expensive data plan). Pricing the phone at $199 makes it a direct comparison to the iPhone, and that’s the last thing that Palm or Sprint should want. But dropping the price to $1 (or, hell, give the damn phone away for free with a two year plan), would get it a lot of attention, and give people a real reason to switch away from other carriers or other phones, and give the Pre a shot. Trying to compete with the iPhone by just saying “but we’re better” doesn’t work.

My answer: because Sprint and Palm don”t want you to assume that their new handset, which presumably took a long time and a large budget to develop, is a cheap piece of crap. There are lots of cheap copy-cat handsets out there on the market, and even among the decent ones, if it’s not a BlackBerry or an iPhone, no one outside of gadget-geek circles is really paying attention to it. Pricing the Pre at $1 would signal to consumers that it’s nothing more a stripped down, crappy, kiddie version of a real smartphone.

Furthermore, I’d guess that Palm may be trying to poach the early adopters from Apple. While the iPod and the MacBook are still relatively expensive compared to other mp3 players and notebooks, Apple and it’s iCrap isn’t quite the same spendy, for-cool-kids-only brand that it was a few years ago. That you can order an Apple laptop from Best Buy’s website (really) is evidence enough that the brand has become mainstream. When priced at $500 two years ago, only the richest of the hipsters could afford an iPhone; today any Joe Schmoe with $99 can get one. All of this indicates that Apple had one damn effective business model: attract the hipsters first, then pair quirky Gen-Y advertising with steady price declines (or declines in the price-performance ratio), and watch the money pour in as more and more consumers switch to your product. Today, Apple is becoming a household name. The word “iPod” itself is joining the ranks of brand names that have lost their trademark to ubiquity, like “kleenex” and “google,” and I wouldn’t be surprised if someday “iPhone” becomes synonymous with “smartphone.” My guess is that Palm is trying to replicate, or at least profit off of, Apple’s get-the-hipsters-and-the-rest-will-follow strategy. Only Palm isn’t just saying “But we’re better,” they’re also saying “the iPhone is stale.”

Of course, copying a strategy that relied on bringing a revolutionary new product to market requires that, um, you actually have a revolutionary new product to bring to the market. The iPhone had a stylus-free touchscreen and an intuitive user interface. While I’ve heard good things about the Pre, it still has a friggin’ keypad(!) for crying out loud…

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Whenever you find that you are on the side of the majority, it's time to pause and reflect.
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