Here’s an example that shows that something is messed up in the way products are priced. The article “Slashdot | Apple Turning Cell Phone Market Upside Down?” observes:
Everyone assumed that Apple’s $499/$599 prices for the iPhone was subsidized by Cingular. But, it appears that Apple is not allowing mobile carriers to subsidize the iPhone. Why? Because when Apple comes out with the Touch iPod, they don’t want it compared in price to a discounted/subsidized iPhone.
This is a product that isn’t even on the market yet and the price is already being insulated from market forces through contactual obligation. The price of the goods is pre-determined and conditioned by contract to avoid devaluation. Further, just as in the way that cars are priced, the price is made static by pushing the fungibility of the market cost into incentives and rebates. Only this time, because a dominant market position for the manufacturing firm, like any good captain of industry that has consolidated power, is forcing the partners to assume an assigned role in the circus side-show that is the market.
Of course, partly the market itself is to blame, or rather the consumers who both demand the product and are willing to go along with the show because of a suspension of disbelief, or perhaps due to managed access to information or, moreover, because of a lack of real choice other than to step off the treadmill. The managed perception of the goods is part of the sale, just like any good brand, but more than just a brand. Because the hysteria around the product is managed to a fever-pitch, or, well, at least to a slow-boil, something that Microsoft has really never managed to do, Apple has given itself room to make a deal with a partner that includes for itself a 50% profit margin.
But, what will happen is that the bargain-seeking market will make demands from the end-vendor, the retailer, and the retailer is contractually bound to not pass that pressure up the supply chain to the manufacturer. That seems like an amazingly sweet position to be in, if you’re the manufacturer, anyway.
The image that comes to mind is the high-wire artist that wows the crowd by working without a net, but has convinced circus clowns in padded clothes to gather on the ground to break any fall. It all seems harmless until some clown gets crushed.
Update: 29jan07 @ 11am
There’s a note over at Ars about a USA Today report on the deal Apple shopped and the reaction from the cellular vendors: “Verizon kicked Apple out of bed over iPhone deal.” I note with some amusment the irony that Verizon “said no because of the strictness of Apple’s terms.” Yeah, those abusive, multi-year contracts sure do suck, don’t they Mr. Cellular?