WHY CHEAP TECH MAY KILL TECH!
Will
companies invest in innovation if they have to make millions of devices at low
profits?
Ask yourself: what do we really pay
for when we buy a new device or gadget?
GOOGLE NEXUS devices and Amazon
Kindle Tablets are state-of-the-art gadgets at impossibly low price points –
there’s a big price to pay for us consumers in the long run.
THE $299 MARVEL
The Google Nexus 4 phone is a
complete sell out. It’s got a nice form factor, a holographic patterned
toughened glass at the back, a 4.7-inch IPS display, 1.5 GHz quad-core
processor (just about the fastest processor on a phone right now), 2GB RAM, a
1.3 megapixel front-facing camera and an 8.0 megapixel rear camera at the back.
Add to this Wi-Fi 802.11b/g/n, HSPA+ and Bluetooth connectivity plus NFC that
also works with Android’s ‘Beam’ feature. It can also charge wirelessly with an
optional wireless charging Orb. And all of this for just $299. That’s totally
state-of-the-art technology at an unbelievable price, right?
THE ON-FIRE FIRE
The Amazon Kindle Fire HD 7.0 and
8.9 have excellent hardware, great looks and fantastic screens. The 8.9 has a
screen resolution of 1920x1200 plus Dolby audio. They are also cheaper than any
similar tablet by at least $150. And the previous generation Kindle Fire is now
retailing at just $159. Sales of all three have gone through the roof. Amazing,
that we can get so much hardware for so less, right?
THE NEXUS OF AMAZEMENT
The only tablet to take on the
Amazon Kindle Fire HD 7 and beat it at its own game is the Google Nexus 7.
While it was already a price and performance leader, Google just upped the ante
with an upgraded version while keeping the price the same, $199. And the
all-new Nexus 10 tablet takes high-end tablets to a whole new level with an
incredible screen, eye-popping resolution (the best in the world as of now) and
great performance. The Google Nexus series of tablets are bestsellers wherever
they’ve been released. It’s awesome for consumers to be able to afford
top-of-the-line tablets without breaking their bank, right?
NO, IT ISN’T!
Unfortunately, the long-term answer
to all three questions asked above is: no, it’s not awesome and no, it’s not
amazing! Welcome to a whole new world of technology where it’s not about
hardware and costs and prices based on a bill of materials. This is all about
selling hardware and making money off the usage of services and content
consumed after. Welcome to the allnew world of Subsidised Tech.
THE HOW AND WHY
So, how do Google and Amazon sell
hardware at such incredible prices? Well, Google contracts it to other big
brands. For instance, the Google Nexus 4 phone is built by LG, the Galaxy Nexus
7 is built by Asus and the Galaxy Nexus 10 is built by Samsung. And it seems
there are many more such ‘partnerships’ coming up, with Huawei, Acer and Sony
also rumoured to be making future Nexus products. While the contract between
Google and these companies is super secret, there can only be one business
model that works: Google asking the partner to give them at very low prices in
exchange for huge numbers, with Google taking the complete hit for selling at
low retail prices. The idea is to get people to buy these devices in huge
numbers, get them completely invested into the OS and the ecosystem and make
the money back from all the Google services used. The hardware partner gets all
the benefits of economies of scale and also use up all that expensive
investment they’ve made in huge infrastructure and factories.
THE OTHER SIDE
Amazon, on the other hand, is doing
more or less what Apple does. It sub-contracts its production of the Kindle
Fire HD to companies like Foxconn that make it for them. But that’s where the
similarity ends. While Apple then tacks on a nice premium and profit, Amazon
may well be selling at a substantial loss. Amazon’s hardware strategy is a pure
play-content-seller business model and the way the Kindle Fire is designed is
to make sure that you buy e-books, music and movies from Amazon only. That’s
where it’ll make its money back from you. While Apple also makes oodles of
money from content sale, it’s still a sideline for them and making a healthy
profit from hardware is critical.
WHY SHOULD ANYBODY CARE?
As a consumer, if you can get a
top-of-the-line, stateof-the-art, no-compromise tablet or phone at half the
price, why should you care about internal business models of various companies
and the how and what of their devices? It’s because this subsidy model in the
long run will kill innovation. Today, a smaller tablet has no chance of selling
if it’s priced over $199! Will a company make huge investments in new
breakthrough technology or expensive R&D if it knows it can’t recoup it?
What if a company with a great product doesn’t have a content or services
revenue model? How will it sell at a competitive price and keep a healthy
balance sheet? What about new companies trying to get a foothold in this
business? Aren’t they going to be blown out of the water as they can’t
subsidise and sell below cost? Even now most of the brands Google partners with
are able to give them fantastic new products as they’ve all spent money on
technologies and innovations in the last few years and Google is reaping that
benefit. But will these companies pour in new money to carry on innovating and
investing in greater infrastructure if they know that they have to make
millions of devices at very low profits? Each of these brands have their own
similar products out in the market and each of them know that they are priced
much higher. Aren’t they going to cannibalise their own brand sales in the long
run?
THE FUTURE OF TECH IS IN YOUR POCKET
At the end, we all have to ask
yourselves: what do we really pay for when we buy a new device or gadget? We
buy it for the thrill of new innovation, that jaw-dropping sensation of
experiencing tech magic take place in front of our own eyes. If
subsidised tech had taken place 20 years ago, we may never have seen a flat TV,
a tablet or a smartphone – and would have been using a much cheaper priced
landline telephone set and a much cheaper fat CRT TV. Maybe, paying a little
premium, an extra $50 for an out-of-the-box device, isn’t asking for too much.
After all, the future of tech may well depend on it!
Rajiv
Makhni is managing editor, Technology, NDTV and the anchor of GadgetGuru,
CellGuru and 
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