Apple Slices RAZR's Low Price
News Analysis. NPD says that iPhone outsold Motorola RAZR at U.S. retail in third quarter. But price, not volume, is the bigger story. |
Yesterday, numerous blogs and news stories focused on iPhone's sales success, breaking RAZR's 12 quarter top-selling streak. RAZR's style and ridiculously low price made for a powerful combination. Apple's sales success is more significant because of its higher pricing and mobile classification. Higher volume isn't the story.
Anyone remember holiday 2007, when many mobile retailers offered two-for-one specials on RAZR? The phone sold solo for $29.95 some places. How about now? AT&T offers RAZR anywhere from free to $129.99, the latter after rebates. T-Mobile offers two RAZR models, one free and the other for $179.99 after rebate. Sprint has one RAZR for $99 after rebates. Elsewhere, Amazon sells the RAZR V3 unlocked for just $94.99. The RAZR2 V9X is $24.99 with a new AT&T service plan.
RAZR has style, one of the clunkiest mobile operating systems I've ever used and low pricing compared to iPhone. In August and September J.D. Power and Associates surveyed 1,388 business smart phone owners. Average price for iPhones: $337. The iPhone 3G costs $199 for the 8GB model and $299 for the 16GB mobile, that is for qualified subscribers and two-year contractual commitment. NPD didn't provide average pricing for iPhone or RAZR, but the Moto mobile obviously is a lot less than iPhone.
Pricing significance is much bigger than RAZR. Americans love their free phones. AT&T's Web site offers up more than 35 free phones. The first 22 phones T-Mobile lists on its Web site are free. The next two are $9.95 each. Verizon's list of free phones is shorter, just eight. All this freeness explains third-quarter mobile average selling price: $88, a 6 percent year-over-year increase thanks to those pricey iPhones.
Something else related to pricing: Data. Most free cell phones and even most RAZRs either don't connect to the Internet or offer limited data features—at least compared to smart phones. People plunking down two or three hundred bucks for iPhone also commit to a $30-per month data fee for 24 months. So from base price or data fees, iPhone's sales success over RAZR comes with consumer willingness to pay more.
One more thing: Classification, which is almost as significant as pricing differences. Analysts classify iPhone as a smart phone, while RAZR is just a regular cell/camera phone. In fact, of the five top-selling U.S. mobile phones, RAZR is the only one not classified as a smart phone. NPD's ranking:
1. Apple iPhone 3G
2. Motorola RAZR V3
3. Research in Motion BlackBerry Curve
4. LG Rumor
5. LG enV2
There is a dramatic shift occurring how Americans buy cell phones. Free phones will always be popular, but increasingly so will smart phones. NPD's data on features tells the story. Features consumers looked for in mobiles during third quarter:
- Camera, 43 percent
- Text messaging, 36 percent
Feature trends:
- Bluetooth, 83 percent of phones; 72 percent a year earlier
- Music, 68 percent of phones; 49 percent a year earlier
- QWERTY keyboard, 30 percent; 11 percent in Q3 2007
"A growing data divide continues in cellular handsets," Ross Rubin, NPD's director of industry analysis, said in a statement. "Those who see the value in wireless Internet access are justifying the investment, whereas voice-centric users have little incentive to upgrade, which is obviously detrimental to operators who seek to sell data plans and media-access services to their subscribers."
U.S. cell phone sales declined 15 percent year over year to 32 million, while revenue declined 10 percent to $2.9 billion, according to NPD third-quarter data. I predict that increased demand for smart phones will help offset declines, particularly as prices decrease. Wal-Mart now sells the T-Mobile G1. Third-quarter mobile cells were interesting, but fourth quarter will be more interesting as smart phone competition increases. BlackBerry Storm and G1 (aka, the "Google phone") will challenge iPhone, methinks.
[Please send your tips or rumors to watchtips at live.com].
Comments (5)
"The iPhone 3G costs $199 for the 8GB model and $299 for the 16GB mobile, that is for qualified subscribers and two-year contractual commitment."
The reason for this is because AT&T takes on part of the phone cost in exchange for the contract. Try losing your iPhone and buying a replacement. You will pay the entire $400 / $500 because you are already a customer.
Apple's marketing is the best on the planet and has everyone fooled into thinking this device is the end-all in phones. It is a better-than-average device with a multitude of problems that get swept under the rug by the media because they are hypnotized.
Try talking to the hundreds of thousands of people who have had to return multiple iPhones because of hardware issues. I'm sure they will agree this device isn't the world's greatest.
Posted by Mike Davis | November 11, 2008 1:59 PM
The phone market is quite diverse, with the Razr at its peak accounting for 15% of total unit volume sales at retail, and for most of its reign for 11% of total unit volume sales. So besting it in its weakened state means you are grabbing a tiny plurality of a very diverse market. Also, this does not count b2b sales, and contract renewals. Furthermore, Apple's phone sales fell off a cliff for the previous 1.5 quarters as rumors of the improved 3G leaked, and pent-up demand accounted for a lot of early sales.
Posted by htcluvr | November 11, 2008 2:15 PM
Statistics show the iPhone holding up much better in reliability and consumer satisfaction than all of its competitors. Apple's accounting spreads out the payments over years and provides the company a cash flow (as if it needs cash) and solid bottom line. Heavily investing in R&D and providing the best experience are part of it but Apple is working toward a low cost model that will dominate the marketplace. It has earned its rep for quality. Next comes quantity.
Posted by Thoughtful1 | November 11, 2008 7:49 PM
In these tough economic times, I'll drive less, eat less, switch to a cheaper apartment, not go out as much -- the one thing I can't do without is my iPhone. Sure it's a phone, but it's more of a pocket computer PLUS iPod, gaming device, GPS, camera, media player (I love watching tv shows on it). The magic of having your most needed applications ALWAYS at your side is subtle yet is a real game changer.
Posted by John Lawrence | November 12, 2008 12:20 PM
what is mike davis above talking about? i know 30 people with iphones including myself. they did not return them and they all love the iphone.
mikey try it you'll like it
Posted by julian miller | November 14, 2008 2:48 AM