Verizon soaking high end Android buyers to make up for iPhone subsidies

Posted:
in iPhone edited January 2014
Apple has negotiated generous subsidies from mobile carriers to sell iPhones at lower upfront prices, but Google and its Android licensees haven't, leaving carriers such as Verizon to drive up the price of higher end Android phones to make up the difference.



The result is a price disparity that favors the various iPhone models by $100 to $200 over Android devices with a similar hardware cost. That's helping Apple keep its margins up even in a market glutted with competition from scores of Android models from various makers.



It also leaves carriers and other hardware makers fighting over the scraps of profit left, as most Android buyers aim toward cheap, low end models. Carriers like Verizon know that buyers interested in high end Android phones will pay virtually anything, so they're marking those models up to be half again as much as Apple's new iPhone 4S.



Android costs more, not less



When Google first began touting Android as an open source platform, pundits predicted that the wide variety of Android licensees would offer cheaper phones with differentiated, innovative features that Apple simply couldn't compete with. Instead, Apple has consistently offered more attractive hardware at the same or lower prices, in part by negotiating higher subsidies in exchange for access to the iPhone.



For years, Apple has set a standard entry price of its newest smartphones at $199, with higher end models available with more storage. This year however, Verizon has set a new contract price for its high end Android phones at $299.



Both the Motorola Droid RAZR and the just released Google-branded Samsung Galaxy Nexus are $299 with a two year Verizon contract, and both are listed as costing $649 without a contract. In contrast, Apple's 16GB iPhone 4S is offered for only $199, even though it costs the same $649 without a contact. Apple is getting a $450 subsidy, compared to just $350 for Android licensees Motorola and Samsung.



Apple's $450 subsidy remains the same across the iPhone 4S range of 32 and 64GB models. The 8GB, $99 Verizon iPhone 4 has a full retail price of $549, also giving it the same $450 subsidy.



This has the effect of making the base model iPhones appear cheaper, and the higher end iPhones with increased storage appear to be about the same price as the base model, high end Android offerings.







Higher priced, lower end Android models



Verizon's $199 Android phones, including the Samsung Droid Charge, Motorola Droid 3 and Droid Bionic, cost $499, $459 and $589 respectively without a contract, making their subsidies worth just $300 to $390, or $150 to $60 lower than Apple's.



The closest Verizon's phones currently come to an iPhone subsidy appears to be the HTC Thunderbolt, which is being offered for $149, a $420 subsidy compared to its $569 full retail price. However, this involves a special promotional discount of $100, making the "sale" price of Android models still higher than regular price of any of Verizon's iPhones.



Discounted older Android models, such as the $79 Samsung Illusion, $99 Samsung Stratosphere and $149 HTC Droid Incredible 2 are listed with a full retail price of $329, $409 and $439 respectively, giving them a subsidy of between $250 and $310, or $140 to $200 less than Apple's "low end" 8GB iPhone 4, despite their being roughly six to nine months newer than than the original iPhone 4 (albeit saddled with a 2.3 version of Android that is now a year old and lacking upgrade potential; the iPhone 4 runs Apple's latest iOS 5).



Android is subsidizing Apple subsidies at Verizon



In 2010, the "year of Android" at Verizon, the carrier bet on Android as an alternative to Apple's iPhone. Toward the end of the year, it found that it could not attract and retain subscribers as well as AT&T could with the iPhone, and subsequently agreed to carry Apple's iPhone 4. In order to gain access to the iPhone, Verizon had to pay Apple a premium in subsidies.



Rather than pitting cheaper Android models against the iPhone, Verizon has marketed both in parallel; it simply charges more for Android, apparently in an effort to make up for the short term expense of iPhone subsidies.



Additionally, unlike new iPhone models that appear every year, Android licensees pop out new models every three to six months. This has created an upgrade cycle that forces down prices, something that is not in carrier's interests. Because high end Android buyers seem to be price insensitive, Verizon can charge them significantly more to get the latest model at the $299 tier, then trickle down updates to the once standard $199 tier, rather than glutting their offerings with a large number of hard to differentiate models all priced below $100.



The end result is that Apple has an attractive enough product to demand a higher subsidy from Verizon and other carriers, starting the iPhone 4 and 4S at $99 and $199, a significant discount buyers will recognize, unless the are set on buying the latest Android phone to appear on the market. The lower subsidies that Verizon can get away with offering to Android buyers essentially helps it to offer iPhones for less.



Somewhat ironically, this means that Google's Android is assisting Apple's hardware business in a way that's similar to how Microsoft makes more money licensing its IP to Android makers rather than selling its own Windows Phone 7 platform to them, or in the respect that some Verizon Android phones are shipping with Microsoft Bing as their default search service rather than Google's own.



While Android is consistently being positioned as a threat to Apple in comparison to Microsoft's Windows from the 1990s, Google's efforts to push Android are actually funneling an additional $100 or more from each devoted Android consumer to ensure that carriers such as Verizon can offer iPhones for less by paying Apple a significantly higher upfront subsidy per phone. Microsoft Windows never similarly benefited Apple's Macintosh platform.

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Comments

  • Reply 1 of 238
    Shouldn't this just be our little secret?
  • Reply 2 of 238
    Quote:
    Originally Posted by jdlink View Post


    Shouldn't this just be our little secret?



    Be vewy, vewy quiet. We're hunting twolls!
  • Reply 3 of 238
    Quote:
    Originally Posted by BigBillyGoatGruff View Post


    Be vewy, vewy quiet. We're hunting twolls!



    Here's your first troll.... what you get for 199 is a 2 year old iPhone. Hows that for a troll start.
  • Reply 4 of 238
    "While Android is consistently being positioned as a threat to Apple in comparison to Microsoft's Windows from the 1990s..."



    I disagree with these comparisons. While Microsoft may have participated in some dubious practices their business model wasn't blatantly illegal, immoral or unethical.
  • Reply 5 of 238
    Quote:
    Originally Posted by Taylormade View Post


    Here's your first troll.... what you get for 199 is a 2 year old iPhone. Hows that for a troll start.



    What you get for $199 is a 16GB iPhone 4S, which I'll happily take over any phone on the market today. What you get for $99 is an iPhone 4, which by any standard is still a fantastic phone. If you're suggesting (trolling?) that the $199 buys you an iPhone 4S, which some suggest is 'just the iPhone 4' because its name didn't change or because it wasn't redesigned on the exterior, I'd suggest that such a statement, if a label is to be ascribed to it, is simply 'shallow'. Apple (pretty much any company, really) shouldn't redesign their products simply for the sake of redesigning them. They should only gradually improve on that design.



    Quote:
    Originally Posted by MacBook Pro View Post


    "While Android is consistently being positioned as a threat to Apple in comparison to Microsoft's Windows from the 1990s..."



    I disagree with these comparisons. While Microsoft may have participated in some dubious practices their business model wasn't blatantly illegal, immoral or unethical.



    What does that have to do with the quoted statement, though?



    And some of Microsoft's business practices were truly illegal. At least the courts decided that was the case.
  • Reply 6 of 238
    Quote:
    Originally Posted by Xian Zhu Xuande View Post


    What you get for $199 is a 16GB iPhone 4S, which I'll happily take over any phone on the market today. What you get for $99 is an iPhone 4, which by any standard is still a fantastic phone. If you're suggesting (trolling?) that the $199 buys you an iPhone 4S, which some suggest is 'just the iPhone 4' because its name didn't change or because it wasn't redesigned on the exterior, I'd suggest that such a statement, if a label is to be ascribed to it, is simply 'shallow'. Apple (pretty much any company, really) shouldn't redesign their products simply for the sake of redesigning them. They should only gradually improve on that design.



    And you fed him.
  • Reply 7 of 238
    Quote:
    Originally Posted by ChristophB View Post


    And you fed him.



    Yep, I'm a little bit of a sucker sometimes.
  • Reply 8 of 238
    chabigchabig Posts: 613member
    Quote:
    Originally Posted by AppleInsider View Post


    Android licensees pop out new models every three to six months.



    I first read this as, "Android licensees poop out new models..."
  • Reply 9 of 238
    solipsismxsolipsismx Posts: 19,566member
    So much going on with Verizon's pricing. I compared 5 devices being sold at $299. DED's statements are factual. Verizon is charging you more up front for a less expensive device.Add to the fact that several are '4G' which means you'll use more data while draining your battery faster and you end up with having to buy ore data and additional battery packs. Unfortunately for Android users less and less models are coming with SD card slots, HW QWERTY keyboards, though most still have removable batteries but that seems to be fading away, too, as OEMS wanting to use Android find the only way to compete is to mimic the iPhone in every way except screen size, which is really just a nice marketing ploy for being able to have less refined components between the same display with an equivalent thickness.



    We have Apple actually making a decent profit and being able to invest in good on-boad NAND, RAM, and interconnects that make their devices that much better than the competition. I wonder how fast those 16GB microSD cards are that they suppling run? Are they Category 2 or are they paying extra for Category 4 or 6?



    And so far we have one smartphone being sold with ICS after more than year long wait for any real update. When will these others phones get ICS? Has Verizon or the vendor made any promises that included an exact date?



    I don't know, seems like a lot of money to spend when you can get more and better HW for less percentage of the retail cost with a solid track record of frequent and consistent updates… But that's just me.
  • Reply 10 of 238
    Quote:
    Originally Posted by Taylormade View Post


    Here's your first troll.... what you get for 199 is a 2 year old iPhone. Hows that for a troll start.



    When people want a 2 year old device over brand new stuff from Android, what does that say about Android?



    Game, game, and game.
  • Reply 11 of 238
    Am I the only one that says "no crap" when I read this? Apple forces the carrier's to sell at the price points that they do. Apple is very smart in how they want their phones marketed and maintain total control of it. Do you not believe that if AT$T could sell the iPhone for $299 - $399 it would? The iPhone sells itself and people would pay it whatever is asked, except Apple will not let them and maintains the price right where they want it. They will sell the Android phones for what they can get for them. As long as people are paying they will sell them, then when sales drop off, the price will drop with them. This has nothing to do about "making up" the differnce. This is about selling an item for what they can get for it. I love sensationalism.
  • Reply 12 of 238
    Quote:
    Originally Posted by Tallest Skil View Post


    When people want a 2 year old device over brand new stuff from Android, what does that say about Android?



    Game, game, and game.



    And when people spend $100 more for a phone that is supposed to be inferior to the iPhone what does that mean? The Android phones are selling, regardless of the high price.
  • Reply 13 of 238
    Quote:
    Originally Posted by Hellacool View Post


    And when people spend $100 more for a phone that is supposed to be inferior to the iPhone what does that mean? The Android phones are selling, regardless of the high price.



    Yes, and not as many as any model of iPhone. Until at least October, not even as many as the iPhone 3GS, which is really sad.
  • Reply 14 of 238
    Quote:
    Originally Posted by Tallest Skil View Post


    Yes, and not as many as any model of iPhone. Until at least October, not even as many as the iPhone 3GS, which is really sad.





    And yet Android still has the market, anmd the gap continues to widen.
  • Reply 15 of 238
    Quote:
    Originally Posted by Hellacool View Post


    And yet Android still has the market, anmd the gap continues to widen.



    What market? Not mind. Not profit. Not reliability. Not customer service. Not app.



    Oh, marketshare. Okay.
  • Reply 16 of 238
    Quote:
    Originally Posted by Tallest Skil View Post


    What market? Not mind. Not profit. Not reliability. Not customer service. Not app.



    Oh, marketshare. Okay.



    Right, marketshare, the only market business's care about.



    Profit - Yep, Apple is raking it in, they have the robots to thank for that.



    Reliability - Can not argue there, iPhones are pretty robust.



    Customer Service - Personally have better customer service outside of Apple but that is my experience, unless you pay extra of course.
  • Reply 17 of 238
    This is an absurd logical fallacy. There is no direct connection or "subsidy" relationship between the prices of Android and iOS phones.

    It is like saying the price of a can of soup at the market directly subsidizes the discount on a loaf of bread, ignoring the thousands of other products being sold a various price and profit points. Let's not forget that the big cash flows for Verizon have nothing to do with a measly $100 discount on a bi-yearly purchase.
  • Reply 18 of 238
    Quote:
    Originally Posted by Hellacool View Post


    Right, marketshare, the only market business's care about.



    Sure it is.
  • Reply 19 of 238
    Yep,



    I just ordered two Galaxy Nexus Phones. (Upgrading two original droids) Of course I used my new every two plus a hundred dollar rebate on each phone.... Verizon does kind of stick it to the Android users ( unless you know where to get the rebate promotion codes ) It seems like 1/2 ( about 15) of the people in my office are ordering them. It won't have iPhone sales numbers, but this looks like it will be a good seller for Samsung...



    I like the iPhone, but wanted 4G and love the larger screen (old eyes)......



    In any event, I'll find out what they are like tomorrow.....
  • Reply 20 of 238
    Quote:
    Originally Posted by Tallest Skil View Post


    Sure it is.



    That is all Apple seems to talk about. The number one reason Apple hates Android so much. No matter what Apple does, Android keeps pulling away. I give it 5 years and the iPhone will be the Mac, very niche very little market share. Android will be everywhere and Google will be laughing.
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