Why Tech Gadgets Are Too Cheap

Wednesday Mar 2nd 2011 by Mike Elgan
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We tech consumers have focused on low price for far too long, and we’ve gotten what we deserve.

The price for Apple's new iPad is $499, which is too low. And the price for most competitors to the iPad are way too low.

Everything is too cheap. Gas is too cheap. Food is too cheap. And our computers, gadgets, and phones are far too cheap.

Now, before you string me up with a made-in-China $1.99 rope from Wal-Mart, hear me out.

I’m a capitalist. I believe in free enterprise. The open, competitive marketplace is a good thing, and generally leads to innovation in efficiency that drives down the price of materials, manufacturing and distribution, resulting in affordable prices for consumers. Consumers make choices based on their own criteria, which includes low price or value for money.

At least, that’s the way it’s supposed to work.

Unfortunately, the system is broken. Free markets require the free flow of information. And because of globalization and many other factors, information isn't flowing freely. Consumers don't have all the facts. Producers don't have all the facts. Nobody has all the facts.

The one fact everybody has is price. So we've come to rely on price far more than any other factor.

Let's look at one small example. When I go to the Verizon store to buy a cell phone, the only fact I am really sure of is the price of the handset. It says, right there: $199. That's what I know.

But all the other facts relating to the purchase are less certain. Will the company provide satisfying tech support? How much will I really pay for wireless service? Is the screen going to break in my pocket? Was the phone made with child labor? Were the workers who made the phone exposed to toxic chemicals that gave them cancer?

If I knew all these facts, I would take them into consideration. But I don't, so I won't.

Because we buy mostly on price, companies achieve the lowest price by cheating on the areas where buyers have less or no information. They'll stick it to me on tech support, use shoddy materials, hire an outsource manufacturing firm that lies, cheats, abuses workers, hires children for the assembly line and poisons the environment.

As I pointed out in this space last week, Apple detailed what happens in Chinese factories pressured by Western companies to keep driving manufacturing costs down, down, down. Apple discovered faked health and safety certifications, bribery, child labor, the use of toxic chemicals, severe worker abuse and much more. Laudably, Apple took strong action to address the abuses they found.

Such transgressions don't come out of nowhere. Manufacturing companies compete with each other in bidding wars to achieve the lowest cost for manufacturing. If you don't bid lowest, you don't get the business. So they bid lower than the price that's possible if you do everything above board, and make their money by cheating, lying and abusing both employees and the environment.

Manufacturers demand the lowest prices because you and I demand the lowest prices.

The factories Apple hires are among the best in China. What about the factories that make the ingredients in your multi-vitamins, the fabrics in the clothing you wear, the clocks, toothbrushes, lamps, power tools and everything else we buy at discount stores like Wal-Mart, Target, Costco and others?

We have zero information on this, so we buy on price, essentially guaranteeing abuses.

Wireless carriers have a sweet thing going, too. They take a phone that costs $700 without a contract, and they sell it to you for $200 with a two-year contract. Is that a good deal? Who knows? Maybe they're making $1,000 on a $700 phone. The whole carrier racket is to profit by charging you less for the knowable price, and more for the unknowable price. The uncertainty and fogginess surrounding the actual value of wireless service *is* the business model for wireless carriers.

In every sector of the economy where we make purchase decisions based mostly or entirely on price, everything turns to garbage.

Flying on airplanes used to be a pleasurable luxury. Now, we buy tickets on price alone. As a result, flying has become miserable, with rude cabin crew, nickel-and-dime pricing on food, water, luggage and so on. Airplanes are dirty. Seats are cramped. Travel has been ruined.

When you try to cancel your cable service, or get tech support for various cheap products, you get horrible phone run-around. It's not uncommon to spend an hour, two hours or three hours on the phone trying to get some simple change made to your account or to fix something that's broken. Now we’re pawned off on an automated interactive voice response system that never seems to have the option we’re looking for – or we’re transferred to some offshore tech support person whose accent we can’t understand and who has no power to fix our problem. You bought some cheap gadget or service, and now you're paying for it.

Free online services are too cheap, too. We all love the price of Gmail, Facebook, Twitter and other services -- free! But of course, it's not like these companies aren't making a killing. They make a fortune, in fact, polluting the Internet and our minds with advertising, selling our privacy, and ignoring user requests for customer service.

Let's say you use a ton of Google services, including Gmail, Calendar, Docs, Blogger, Picasa and others, and have stored vital information there (I think most of us do). You go to log in and your password simply doesn't work. Who you gonna call?

There is no one to call. You didn't pay for Google services, and so you've favored a model where no tech support exists. Of course, I'm picking on Google unfairly. Most of our online services are free, and most have poor or non-existent tech support, privacy policies and respect for your time. And Google does encourage users to register their cell phone for precisely such possibilities.

Also: Have you noticed that the commercials preceding online videos keep getting longer, that ads keep getting bigger and harder to get rid of? Hey, we wanted "free," and we got it.

Low prices change consumer behavior. Have you ever gone into Costco to buy a package of paper towels, and left with $275 dollars worth of stuff you didn't know you needed? You buy a pair of scissors at Costco, but they only come in packs of three. But, hey, it’s cheap, so why not?

The truth is that lower prices don't motivate us to save money. They motivate us to spend the same money on more stuff -- possibly even spend more money on more stuff than we would have done had prices been higher.

Our garages and attics and basements and closets (and offsite storage facilities) are jam-packed with stuff we don’t need. Most of us have way too much. And yet low prices get us to buy more.

In the realm of gadgets and computers, we buy more gadgets and we buy them more often because prices are low. And because prices are low, people are incentivized to buy new devices instead of used ones. The result of both these trends is that we're throwing away millions of devices per year. These perfectly usable devices are shipped to poor countries around the world to be disassembled in unsafe facilities, often worked by very small children.

The illusion is that prices are cheap. The reality is often that you or somebody else is paying dearly for that low price.

Prices have never been lower, but the costs have never been higher.

We gravitate toward low prices because we believe they will improve our lives by enabling us to afford more and better things. But this belief is mostly false.

Low prices result in bad service, shoddy goods, a polluted environment, unethical manufacturing, and cheapness everywhere. Low prices make life dirtier, more dangerous and more frustrating. When prices are cheap, everything becomes cheap.

What we need is a lot more information about the products and services we buy, and good business practices, good customer support and responsible environmental stewardship in exchange for a price that covers all that.

We need higher prices.

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