Tuesday, October 18, 2011

The iPhone - Android cost difference is getting large

A colleague of mine bought a $200 unlocked Android phone made by Acer. He's pairing it with an AT&T paygo plan using an automated purchase option that effectively costs him about $200-300 a year total for some voice and a modest amount of 3G data. Of course in many locations he's using WiFi.

So his total two year smartphone cost is on the order of $700.

A minimal iPhone plan, assuming purchase of the 4G without jailbreaking, would be perhaps $1,800 with all the fees and taxes of non-paygo plans.

That's an $1,100 gap.

The iPhone 4 (much less the 4S) is much better than his Acer phone - and iOS is mostly better than Android [1]. I'll count that as a $300 offset against that $1,100 gap.

That leaves an $800 value gap and an $1,100 gross gap. This is not sustainable. Apple's brand isn't worth a value gap that large.

I'm awfully glad Android is out there. As Android captures more of the geek market, and as the cost of Android data falls, there will be enormous pressure on the cost of iPhone plans.

[1] However Calendar/Contact/document functionality with iOS 5/iCloud is much worse than Android/Google Apps.

Update: Lots of great comments on this post. I hope I get to do a f/u post, but in the meantime ...
  • Apple missed analyst expectations today... "Net income in the fiscal fourth quarter was $6.62 billion, or $7.05 per share ... Analysts ... were expecting $7.28 per share... iPhone sales were up 21 percent from last year at 17.1 million ... Analysts, however, were hoping for 20 million". There are lots of good reasons for this expectations gap, but it is consistent with price pressure.
  • I'm only writing about the US. The US Apple Store doesn't yet sell an unlocked iPhone 4S, but it sells an unlocked iPhone 4 for $650. Unfortunately, it's not clear that US users can use it with a PayGo data plan, or even that AT&T officially allows it to be used as a voice-only phone. So using an unlocked iPhone might increase the price gap (unless you can live with T-mobile's limited service area.)
  • It's easy to forget that in the US the purchase price of a phone is a fraction of the cost. The real basis is the costs of ownership over two years. That's why I don't compare unlocked phone purchase costs but compare phone and service. There are a lot of odd and disturbing rules about how and where iPhones can be used.
  • I think the Acer phone is probably more like an bizarro 3GS than a 4, so I'm overstating the value gap by comparing it to a 4.
Apple can obviously close the price gap significantly, but that will impact their margins and, eventually, their share price. The good news for families like mine (five iPhone devices) is that our costs are likely to fall. (It's good for us if Apple's stock price falls!)


Rob Knight said...

I understand your reasoning, however, I think the $300 value gap is more subjective. The better design of iOS and Apple's devices help me work more efficiently.

I'd have to be able to calculate how much more efficient in hours and then put a price tag on that based on how much I value my time.

Of course, I'm a proponent of iOS, but I think I'd come to a higher dollar amount than $300/year.


James said...

An unlocked 16 GB iPhone 4S is $649. 649-200=449. Not sure why you decided to use a locked iPhone for comparison.

JGF said...

James, I never even considered the unlocked iPhone option. You are right that I need to do a post that adds that in.

The 32GB unlocked iPhone 4 is $649. The pricing for a 4S isn't known yet.

I don't know if it can be used with a paygo SIM card.

JGF said...

Rob, We have 5 iPhones in our household, so I guess we're iOS proponents! (2 under T&T contract, 2 no data plan so very cheap on our family plan, 1 no SIM).

For me hassle is very expensive, so I can see more than $300 a year. But $1100 hurts.

Also I'm getting seriously bummed by Apple's crummy Contact/Calender offerings. The iOS functionality gaps are starting to hurt too

JGF said...

I did research using an unlocked iPhone 4 with a PayGo account. It's not simple:


Data access is not supported with AT&T paygo. Maybe with Sprint?

Incidentally, you can't buy an unlocked iPhone 4 at this time ...

Paul Eccles said...

Why not simply compare the price of an unlocked iPhone to an unlocked Android? iPhone 4S costs $649-849, simple.

Anonymous said...

@JGF, You can still use google with your iPhone to sync your contacts and calendars if you prefer. You just have to set up gmail as an Exchange account.

In Mail Settings, Put in your gmail account as gmail, and allow it to sync Mail and Notes.

Then add an Exchange account. Give it your gmail address (full) and password, then it will ask you for a server name. m.google.com Turn SSL on. Allow it to sync Contacts and Calendars.

JGF said...

Oh, I've been doing that forever :-). Setting up my 15 Google calendar subscriptions though is very weird (secret web page). I assume Android multicalendar config is a lot smoother?

JGF said...

Synth, see my earlier comment, but really this deserves a f/u post.

Anonymous said...

FYI, things aren't ideal in Android's contacts space. You bind your phone to one or more gmail accounts. But the downside is that it then syncs your gmail 'contacts' list to your phone.

If you bind to your main gmail account, then your phone will list everyone who you have ever emailed as a contact. This bloats your contacts list considerably, making it harder to find people you actually might want to call.

There doesn't seem to be a way to sync your calendar to a different gmail. So if you want to use the calendar you have to accept the huge pile of worthless contacts.

I ended up creating a new gmail account specifically for my phone which I use for no other purpose.

JGF said...

That makes me feel better about the value gap :-).

As I think through ways to close this gap I realize that Apple and the carriers may have different agendas. Carriers may be incented to hold margins even as Apple may be willing to surrender some margin. Apple may have to bring some pressure to bear.

The thing to watch is the unlocking policies. If carriers give equal status to unlocked Android and iOS phones then we'll know change is on the way.

At the moment, the status of an "unlocked" iPhone is very unclear in the US and, of course, there's no such thing as a truly contract-free unlocked iPhone in the US (sans jailbreak).

Anonymous said...

I wouldn't say that Apple missing the analysts targets is consistent with price pressure. It's more consistent with analysts getting overexcited and customers holding off on purchases until the lastest model arrived.

JGF said...

Maybe I should say "not inconsistent" rather than consistent.

Analysis of Apple is interesting because they are so closely studied. One would think analysts could make reasonable predictions...

I'm very interested in pricing plans for the newest iPhone licensee -- the former cellular south company. I want to compare that cost of ownership to a 2 year Android Paygo plan.