The Age of Mobilism Has Hit Puberty: Prices of Smartphones and Tablets are Going to Plummet! YAY!

• By Elliot Soloway, Cathie Norris
• 04/08/13

And, in a short amount of time, the Age of Mobilism has matured and is entering puberty. Catch this statement by Meg Whitman, CEO of HP, the world's second largest¹ maker of PCs.

• "We're shifting resources from PCs to tablets," said Whitman. "The market moved very fast to tablets and smartphones....²
• "We're not incrementally changing the business, we are shifting resources from PCs to tablets, from one operating system to another, from one kind of chipset to another."³

If HP is going full bore — "not incrementally" — into tablets and smartphones, then CEO Whitman is basically betting the company on mobile devices. Yup, the Age of Mobilism is entering high gear!

T-Mobile is Behaving Disruptively — Just like a Teenager

A second recent news item, again a harbinger of the maturing of the Age of Mobilism, is this: T-Mobile just announced a new pricing scheme where they are unbundling the sale of a smartphone from a sale of the data plan. Here is an analysis of why that will help drive the price of smartphones down:

"The problem with the wireless market in the U.S. under the subsidy model is that people have no incentive to shop around for a lower cost device. Regardless of whether they get a cheaper device, they still pay the same monthly service fee.

"That changes under T-Mobile's model. Not only do consumers see the true cost of the device, they also buy a less expensive device or even use an older device for which they didn't have to pay. The total cost of ownership, when you consider the device cost and monthly service, is less.

"If consumers start looking at the true cost of the device and there is an incentive to buy a less expensive piece of equipment, this will pressure device manufacturers to compete on price — something they haven't had to do in the smartphone market."⁴

Just what the consumer in general and K-12 in particular needs: a price war on smartphones! Some interesting facts about Apple and its smartphones:

• "One Apple product, something that didn't exist five years ago, has higher sales than everything Microsoft has to offer. More than Windows, Office, Xbox, Bing, Windows Phone, and every other product that Microsoft has created since 1975. In the quarter that ended March 31, 2012, iPhone had sales of $22.7 billion; Microsoft Corporation, $17.4 billion."⁵
• "70 percent of Apple's revenue comes from iOS" devices.⁶
• "Apple Inc. earned gross margins of 49 to 58 percent on its U.S. iPhone sales between April 2010 and the end of March 2012...."⁷

Comparing the Cost of a 4.5-inch Smartphone with the Cost of a 7-inch Tablet

The coup de grace is this statement from the same article by Anand Shimpi, editor in chief and CEO of AnandTech.com, a Web site for technology enthusiasts:

"There is no question that device makers are charging too much for their smartphones. The actual cost is probably somewhere around $200 or $300 per device. But it's nowhere near $700."⁸

Frankly, we have been wondering why a smartphone can cost $600 while a tablet — essentially a smartphone minus the cellular radio — can cost $170 — and the tablet has a MUCH larger screen!

Let's follow that logic a bit deeper: How can a 7-inch-screened tablet cost $170 while a 4.5-inch screened smartphone costs, say, $600? We were under the impression that the cost of a mobile device is largely in the screen — so a 7-inch device should be more expensive than a 4.5 inch device.

Aha! The smartphone has a cellphone radio, which the tablet doesn't have. (Both have a WiFi radio and a Bluetooth radio.) A 16 gig, black, Retina-displayed iPad with WiFi and Bluetooth costs $499. The same iPad equipped with cellular radio (Verizon or AT&T) costs $629 — $130 more. So, the cellular radio costs $130. Add $130 to $160 and that's $290 for a 7-inch tablet that now does have 3 radios and can function like a smartphone. Why does a smartphone, then, with a 4.5-inch screen cost $600 roughly?

And, based on today's published prices, a 10inch screened iPad with WiFi, Bluetooth and cellular radios costs about the same⁹ as a 4.5-inch screened iPhone. Curious. But the only real difference between the 10-inch iPad and the 4.5-inch iPhone is 5.5 inches of screen, and thus the 4.5 inch iPhone should cost maybe half as much as the 10-inch iPad? Curiouser and curiouser.

Please, you hardware, supply-chain types — explain what's wrong with our logic?

Implications of Smartphone Price War for K-12

BYODⁱ⁰ is big in K-12. Why? One of the reasons is that schools no longer need to provide students with computing devices. That's the good news. But the bad news is that the heterogeneity of the devices that is the hallmark of BYOD causes a broad range of headaches, mostly for the classroom teacher and some for the IT department.

But, if a computing device costs $100¹¹, the equation changes. Schools can direct parents to buy a specific computing device, just like schools directed parents to buy TI graphing calculators. Or, schools might just buy computing devices for the students. Homogeneity of computing devices in a classroom makes a teacher's life much easier.

Puberty is oftentimes a disruptive change: The sweet, compliant child becomes the problematic, emotional ... child. Well, folks ... with T-Mobile's disruptive act, perhaps the smartphone & telco industries are now entering puberty. Coming out of the tumult, let's make sure it's a win for K-12!

¹ http://www.bloomberg.com/news/2012-10-10/hewlett-packard-s-reign-as-top-pc-maker-ended-by-china-s-lenovo.html

² http://www.dailytech.com/HP+Shifting+Focus+from+PCs+to+Tablets/article30000.htm

³ http://www.zdnet.com/hp-we-are-shifting-resources-from-pcs-to-tablets-7000011885/

⁴ http://news.cnet.com/8301-1035_3-57577615-94/how-t-mobiles-new-service-plans-could-change-the-industry/?utm_medium=twitter&utm_source=twitterfeed

⁵ http://www.vanityfair.com/business/2012/08/microsoft-lost-mojo-steve-ballmer

⁶ http://arstechnica.com/apple/2011/10/despite-record-mac-sales-70-of-apples-revenue-comes-from-ios/

⁷ http://www.reuters.com/article/2012/07/26/us-apple-margins-idUSBRE86P1NI20120726

⁸ http://news.cnet.com/8301-1035_3-57577615-94/how-t-mobiles-new-service-plans-could-change-the-industry/?utm_medium=twitter&utm_source=twitterfeed

⁹http://www.walmart.com/ip/22401228?wmlspartner=wlpa&adid=22222222227000000000&wl0=&wl1=g&wl2=&wl3=21486607510&wl4=&wl5=pla&veh=sem

ⁱ⁰ http://www.emergingedtech.com/2012/12/making-byod-work-in-schools/

¹¹ http://thejournal.com/articles/2013/01/07/when-computers-are-free — next-month — what-is-k12-going-to-do.aspx