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In this show, we discussed the true meaning of “digital inclusion” – what does it mean to have an online device, when we can perceive helplessly that it “rots” before our eyes?
With Restarter Dave Lukes, we asked if statistics about device ownership, numbers of people online, really mean anything if we are becoming mere passive receivers of information and playing catch-up to access key online-only services.
Then we talked about how mobile users in Europe and North America have few choices in terms of form-factor, and even fewer in what relates to the underlying software powering smartphones.
As a counterpoint, we talked about the mobile ecosystem of Shenzen, China, as featured by this great MIT Media Lab video.
Lastly we mentioned the “back-alley upgrades” happening to iPhones in China, and what this all means.
For background reading, in order of our discussion:
- AndrĂ© Lemos’ essay: The Dogmas of Digital Inclusion
- MIT Media Lab’s Knotty Objects
- WSJ on Chinese iPhone upgrades
- Photos of Chinese iPhone upgrades
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Memory upgrades from the original manufacturer have often been disproportionately expensive and “back alley” upgrades (for Apple and other manufacturers) have been around for a while:
I remember buying 3rd party memory for Apple laptops back when they had upgradeable memory.
Of course, some people are willing to pay the premium, which is why Apple can afford to charge a premium (some would say “overcharge”) for simple enhancements such as memory upgrades.
This trick: offering something which is actually very cheap for a very high price is a lot older:
my favourite example from many years ago was a mainframe computer manufacturer,
who would produce several “different” processor boards of different speeds
which were actually the same, apart from a few wire links, each of which could be cut to “upgrade” the processor to the next higher CPU frequency.
When you consider that the “upgrade” (costing several thousand pounds even then) consisted of the air gap between the ends of the cut wire link, it makes Apple’s premium memory prices seem positively philanthropic.
One could argue that these “tricks” are ways of offering a wider range of products and prices to a wider audience while only needing to run one production line and source one set of components, but in some ways it’s wasteful and to me it feels immoral.
It may seem distasteful, unfair, even immoral, but it’s economics. Am I being immoral if I seek to get the best possible price for something I sell on eBay, provided I’m not using deception? Apple is not a charity – its policies are dictated by shareholders who want a good return on their investment, as every one of us does who has a pension pot, a portion of which might even be invested in Apple. Nobody is forcing you to pay through the nose and buy an iPhone, but while there are people prepared to pay a premium for one with extra memory, can you really blame Apple for taking their money?
This was forcefully brought home to me back in the 70’s when semiconductor memory (which we all now use) was starting to take over from core store, the previously dominant technology. The minicomputer firm I was working for at the time produced 2 versions of our first semiconductor memory module: the standard one, and a faster and more expensive premium model. I was shocked to learn one day that the only difference between them was that the standard model had an extra
capacitor in the timing circuits (probably costing about 10p) to slow it down! Your example from mainframe computers from a similar era is exactly the same. Price has next to nothing to do with the cost of production, and everything to do with what the market is prepared to pay. Think about it: how much can it cost to produce a copy of Microsoft Office?
It all comes down to economic theory. The “elasticity of demand” measures how much the volume of sales is influenced by variations in price. For essentials such as loo rolls, you’ve just gotta have them and it’d take a large price hike to make you do without and use newspaper instead. Nor are you likely to use many more just because they’re cheaper from the pound shop. So they have a low elasticity of demand. But when it comes to cream buns, they’re very nice, but if we’re tight for cash we’ll only buy if we like the price. In this case, the elasticity of demand is high.
This means that for any product there’s an optimum price point which balances profit per unit sold against sales volume in order to maximise the total profit. But the optimum price point assumes all potential buyers are Mr Average. In reality the elasticity of demand amongst the well-off is likely to be much lower than amongst those of limited means. So manufacturers often produce several models aimed at different segments of the market, in order to match the price sweet spot of different groups.
Car manufacturers have always done this. You have the basic model with 4 wheels and an engine for those who can’t afford anything else, a mid-range model for those who can afford a few extras, and the luxury model for those who want all the bells and whistles and for whom money is no object.
Apple is doing exactly the same in offering an iPhone 5C with its relatively cheap and plasticky feel at a price which will appeal to the most price-conscious who would otherwise go for an Android, the standard iPhone 5 for those with a bit more cash, and the one with extra memory for the yuppies and those who really really need it.
The advantage for the manufacturer is not simply that they can milk the rich. Even if they sell the basic model almost at cost, they can avail themselves of economies of scale by buying parts in greater quantities and using more automated and less labour intensive manufacturing methods, thus giving cost reductions across the range.
So can we expect Apple to reduce the premium on 32 or 64GB models? Certainly not out of altruism or because any of us might tell them it’s not fair. But they might well if they see 32GB Android devices becoming the norm, so making Apple equivalents look undesirable. If they’ve revised their policy on tablets this is very likely the reason – if you can store 3 or 4 full length films on your cheap Android but only one on an iPad unless you pay a large premium then that is certainly going to put pressure on Apple.
So in summary, don’t winge at Apple because of their margins – nobody is forcing you to buy an iPhone. And don’t blame it on capitalism. Blame it on human nature if you like, but we’re all part of the capitalist system in the purchasing choices we make.
Many people are not as clever as you two, and often do not find out until it is too late what the trade-offs are. It still sucks, no matter how much theory you recite.
Yeah, in the real world life sucks in many ways, but it has really good bits too. Some of those are Restart Parties!
Hi Philip,
Saying “but it’s economics” is disingenuous and avoids the real problem:
it’s *selfish* *capitalist* economics.
There is nothing fundamental in the nature of money or the universe which makes it that way:
it’s the unpleasant manifestations of certain parts of human nature and the society we live in.
We can either accept that or strive to change it.
“Am I being immoral if I seek to get the best possible price for something I sell on eBay, provided I’m not using deception?”
I would say that if the price is more than the product is actually worth then yes, you are.
Of course that’s a complicated issue, but, for example, if you choose to charge more due to someone’s ignorance or their perceived but unreal need, then I would say that you are behaving immorally.
Perhaps you would disagree.
“Apple is not a charity”.
It’s not, but there’s no reason why it couldn’t have incorporated moral principles into it’s legal basis if it wanted to and as some companies are now doing.
“its policies are dictated by shareholders”
No they’re not: see above. Its policies are dictated by the way it’s incorporated.
When shareholders buy shares in a company, they buy into (implicitly support) that company’s policies, not the other way round.
Companies are appearing which have moral values built into their legal frameworks and people are investing in them, showing that there IS an alternative.
“… who want a good return on their investment, as every one of us does who has a pension pot”.
There’s a difference between “good return” and “good return and ignore the consequences”.
I am approaching retirement age, so this is very relevant to me also.
Of course I would like a comfortable retirement, but at the expense of everyone else? Absolutely not.
I believe that it is possible to invest ethically and still make a reasonable return so I have decided to ensure that, as much as possible, none of my savings are invested in companies whose principles disagree with mine.
It’s a tough decision to make and it’s damned hard to carry through:
I’m still scrabbling through the various occupational pensions that I’ve accumulated over the years and deciding what to do with them, but I’m not shrugging my shoulders and saying “it’s economics”.
I’m not going to respond point by point as I can see we’re not going to agree anytime soon. Except to say that I wasn’t arguing that this is the way the world should be or how I’d like it to be, but how by and large it is. This is why Apple trades the way it does, and yes, it sucks. We all can and should seek to change the world by trading and investing ethically where we can but being realistic, we’re not going to see Utopia established any time soon. Communism tried to achieve that and failed spectacularly because it failed to take human nature into account.