In the media business, any kind of publicity is good. Tech blog Engadget is currently realizing it. An editorial published on the blog yesterday by its associate editor Jon Fingas has irked enough controversy to make it one of the most discussed articles on the web for the past hours. The pro-Apple editorial criticizes the low pricing strategies of Android based mobile devices from Google and Amazon. The author argued that the pricing model will hurt the consumers in the long run, and thus it’s a bad strategy to follow. But, consumers, as well as industry figure like Linus Torvalds, seem to feel otherwise.
So, what does Fingas hold against Google or Android? Fingas argued that the price cutting game currently played by Amazon and Google, especially with Kindle Fire HD tablet, Nexus 10 tablet and Nexus 4 smartphone, pushes hardware vendors over the edge. Because, traditional hardware vendors don’t operate of the business model practiced by Amazon or Google –sell the platform cheap and earn from the content. The inability to follow content-based business models is pushing hardware vendors out of the market. This will ultimately lock the consumers to a limited number of offerings and hamper quality of the products. Plus, the low profit margin would discourage innovation in the category.
How right is Fingas? I don’t disagree with the argument that a pricing war may put incompetent vendors out of the market. It may hurt the profit margin of hardware vendors a bit. But, it would in no way hurt innovation nor would it hurt quality.
Fingas drew the example of the PC industry to support his argument of hampered innovation and lowered quality standards. But was that really so. How many major vendors exited from PC business in the last decade? As far as I can remember, only one – IBM. How many new brands entered the PC industry? Quite a few, e.g. Samsung, MSI etc. Did innovation stalled? Doesn’t seem so.
What Fingas missed was that a pricing war would force companies to innovate in a whole lot of ways. Vendors will be forced to innovate new business models to survive with the competition, essentially opening up new markets. Innovation in cheaper production techniques will essentially spark.
Now comes the argument that a price-cutting war would lead to lower product quality. This argument is true, but only partially. Different sections of the consumers have different needs and priorities. While a low price point will appeal to the many of the consumers, a vast majority could have tastes for certain products or could have a soft side for particular brands. In such a market, price war essentially means that all the consumer segments are addressed. For example, consider the market of cars. While most of the market prefers a cheap Japanese car, many resort to pricier German alternatives, and some go for fancy Italian brands. This revelation rules out the assumption that a price war is bad. Instead, a mobile market with high price points means a substantial part of could-be consumers are left out.
A competitive pricing strategy is a win-win situation for all, except the un-innovative vendors. Low priced Android tablets and mobiles will actually draw people who were reluctant to give in to higher priced devices. As for people, who fear that such a strategy from Amazon and Google would slim down the pockets of Apple investors, such a thing may not come true in near future, unless Apple fails to cater to the needs of its fans.
All of this would ultimately work in favor of the consumers. Yes, in the long run. Who do we have on our side? Linus Torvalds, along with the thousands of people, who thinks that low-priced devices are good.