Monday, May 3, 2010

Prepaid Subs Will Influence Device Pricing

In the US, there is a predominant demand for post-paid services for mobile services and devices but now, there is a shift towards pre-paid services. So I pose the question: how is this going to impact pricing on the hardware?

When the iPhone came out in 1997, it was priced at $500-600, depending on the storage size. If you think about it, it's an insane price to pay for a phone but there are literally thousands who are willing to shell out the bills for it. However, once you get past that segment of the market, device makers are hard pressed to find any user who are more used to getting high-end devices for more than $200.

As you know, you can get a Droid for $200, a Pre for free, or the upcoming Wimax powered Evo for $200 only because you're willing to sell your soul to the wireless providers for the intervals of two-years. But the indication now is that more users are moving away from the subsidized model of services and more towards paying on a monthly basis.

Because of this, I think hardware makers and wireless providers will be charging a lot more upfront for smart phones and other devices. I'm not sure the market is going to be able to sustain devices with prices in the range of $400-600.

Over time, competitive pressure will force the market to lower the cost of entry for the average consumer. There will still be a market for devices $500 and up such as the iPhone but device makers will be forced to lower their prices down to $300 or anyone price point that is more palpable for the increasingly tech savvy mobile user.

This is exactly what providers are afraid of. Without the ability to lock in users, they will be force to be innovative, not with just tech but with pricing and creating new services for their network.

However, it doesn't mean that the post-paid market will go away overnight. The new pre-versus-post dynamics will take years to work through the market.

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