Linus Torvalds: Is Engadget really that stupid? Just corrupt? Trolling us all?

https://plus.google.com/u/1/102150693225130002912/posts/8KBkzumMEc1

by cramforce • 14 years ago

316 150 14 years ago

plus.google.com

jsz0• 14 years ago

I'm guessing most of Engadget's traffic comes from the US where unsubsidized/unlocked phones are not popular at all. That should explain it. No need for conspiracy theories.

grecy2• 14 years ago

And if the media never covers the fact those are valid (and much liked) options in other countries, all you get is confirmation bias, and a continuation of the (broken) status quo.

fleitz• 14 years ago

Yeah, a big problem is that no one offers unsubsidized plans, so you can either pay $199 for your phone and $100 a month for three years, or $699 for your phone and $100 a month til you decide you no longer need phone service.

About the only advantage paying for your phone gives you is the opportunity to leave your carrier, but since the buyout is usually less than the subsidy on a smartphone it's usually better to use the buyout.

jordanthoms• 14 years ago

Engadget has really gone downhill recently, AOL screwed up bad and everyone left for The Verge. Just compare the quality of their Nexus coverage...

w1ntermute• 14 years ago

Yep, The Verge is the only site I visit for gadget-related news these days. The production value on their videos is ridiculously high - just take a look at the one in this article[2]. And on top of that, they have absolutely amazing features[0], which integrate various aspects of culture as well. Finally, there's On The Verge[1], the show they record in front of a live audience - I think it matches the quality of shows broadcast on TV.

0: http://www.theverge.com/features

1: http://www.theverge.com/on-the-verge

2: http://www.theverge.com/2012/10/29/3570034/inside-android-bu...

btipling• 14 years ago

Agreed, although ArsTechnica is pretty good and I'm starting to like anandtech

gaving• 14 years ago

oh look another Linus Torvalds Google Plus link

lrobb• 14 years ago

Said the exact thing his other post said:

Enter profile information Your profile and +1's appear publicly in search, on ads, and across the web.

shimon_e• 14 years ago

Yes because it really costs $600 per phone to make a quality one.... so 600 billion would be the cost for 1 billion people to have quality phones.

These phones should be dropping to $150 already... but there isn't enough competition for that yet.

sosuke• 14 years ago

You could take the Engadget article as a defense for the iPad Mini pricing, or you could say it illustrates that it is tough to compete with companies who can sell devices at cost. I took it as the latter before reading Linus's opinion.

In case you missed the HN comments on the original article: http://news.ycombinator.com/item?id=4737154

hyperbovine• 14 years ago

Sorry, I must be missing something -- isn't AAPL, the company furthest away from selling anything at cost, the most valuable company in history and making more money in a week than most of these other companies make all quarter?

duaneb2• 14 years ago

Not everyone can make luxury hardware.

seanmcdirmid2• 14 years ago

They have incredibly great logistics, they have made lots of forward looking investments. It is difficult for competitors to produce similar devices at similar costs to Apple, and their margins are much crappier when they do. But they should catch up, as long as Apple stops improving logistics and making forward looking investments (or the competitors do).

esolyt2• 14 years ago

Yes. It is difficult to compete with companies who can sell devices at cost.

But as a consumer, I don't see why I should be unhappy about it.

alpeb2• 14 years ago

The problem is over the longer term. Competitors will have to exit the market, creating a monopolistic situation with all the problems that entails.

rbn• 14 years ago

Engadget stopped being Engadget when everyone moved to the Verge.

forgotusername• 14 years ago

Torvalds must be on drugs or also trolling hard to be talking about an absence of carrier lock-in and Android in the same sentence - an OS rendered practically unusable should you elect not to associate your device with a Google account, and all that such entails.

jackowayed• 14 years ago

Those are very different problems.

Cell-phone carriers have formed an oligopoly due to the extremely high cost of building nationwide service and the limited amount of mobile spectrum. This will naturally lead to a situation where the industry can stagnate and overcharge with there being very little pressure from new entrants to the market that try to exploit the market failure. Carrier-lockin makes this problem even worse because they make it even more expensive to use their services unless you lock yourself in longterm in exchange for a phone subsidy that amounts to a discount.

Sure, there are lots of concerns about Google having lots of information about you. But at least you have choices, and at least you don't have to pay Google $100/month and pay them more if you want to leave.

chongli• 14 years ago

He's talking about the new Nexus 4 which is $299 unlocked with no contract; hence no carrier lock-in.

recoiledsnake• 14 years ago

If you're in the US, the Nexus 4 doesn't support CDMA, which rules out Sprint and Verizon. AT&T doesn't give a discount for bringing your own phone, so you'd be losing money if you don't take a device for them but buy a data plan. So you're effectively locked into Tmobile.

vvhn• 14 years ago

there's some speculation that LG is insependently planning to sell for much higher http://thenextweb.com/google/2012/11/03/spanish-phone-retail...

That sounds like Google is not just selling it at cost but subsidizing it as well.

myko• 14 years ago

What? It's perfectly feasible to have an Android phone and never sign up for a Google account. There are third party app stores (Amazon, GetJar, etc). If you don't feel like using a third party app store you can just install apks directly from the web.

eatfish• 14 years ago

Your device becomes unsellable without the Google lock in. Lots of companies tried it early on in the Android ecosystem. Even those who hit great price points, provided a vanilla Android experience and provided their own app stores failed miserably.

It's just naiive to think you can be successful without Google.

CrazedGeek• 14 years ago

In what way is an Android device "rendered practically unusable" when not associated with a Google account? Having run an Android tablet without one for a while, it was pretty much exactly as usable as with a Google account.

esolyt2• 14 years ago

OS rendered practically unusable?

No. Only Google services are rendered practically unusable. Actually, they are rendered completely unusable.

The OS on the other hand, remains perfectly and completely usable.

incision• 14 years ago

I don't follow the logic here at all.

pavanky2• 14 years ago

He was talking about the nexus line, which is free of carrier lock in (we will just ignore CDMA galaxy nexus for now).

larrybolt• 14 years ago

I like Torvalds posts/articles. Most important people that blog/post/comment about stuff in their field of "expertise" (I'm assuming in this case that would be technology in general) try to do research on the topic, give advantages and disadvantages. Which isn't bad! But Linus just seems to post his own opinion on things, just the way he sees it.

ericHosick• 14 years ago

The entire "cell phone thing" in Vietnam (and I am sure other Asian countries) is far superior to the USA (in my opinion). I can go to practically any corner and get a SIM card for 5 USD and put it in a phone. I don't have to give my name or an ID or join some plan. I just give them the phone, they put a sim in and it works.

I can get a cell phone within a few blocks of basically anywhere I am.

The carriers make money selling calls and data: not phones.

And while I'm talking about this kind of thing... I can go anywhere and get "free" wifi: even at Circle K. Ya. They have free wi-fi at the Circle K. I can sit at a coffee shop, get a 3 dollar coffee, and work all day. Restaurants are the same.

Admittedly, the internet speeds to the USA are not that great. However, internal to Vietnam, they are really good.

grecy2• 14 years ago

Across most of Argentina, gas stations have free wi-fi.

Such a great idea.

mtgx• 14 years ago

That's pretty much how it works in all of the EU zone, too.

kome• 14 years ago

I wonder how it works in the good ol' USA. Somebody cares to explain?

jsn• 14 years ago

You still have to show some ID in EU, I think (at least that's how it works in CZ and SK).

tlianza• 14 years ago

The USA has these things, don't they? They're just not popular options. BoostMobile, AT&T's "GoPhones", Verizon PrePaid, etc. You can either get a cheap phone, or bring your own phone, without a contract. Is it that different?

seanmcdirmid2• 14 years ago

Not really cheap SIMs, nor can you usually pay 10 bucks a month pre pay for your voice/data needs.

I live in China, and prepay is great. I still pay full price for my phones, but I come out ahead in the end.

greggman• 14 years ago

The USA does not have cheap pre-paid sims with data. I visited Singapore. Got a $50 credit pre-paid sim. Got 1gig of data for $7 a week, taken from the pre-paid sim.

As far as I can see there are no pay as you go data plans in the US. Only subscription plans. If there are I'd like to know of them

duaneb2• 14 years ago

Where I live, Verizon and AT&T are the only carriers with service, and both of them are more or less dedicated to the phone/contract ball and chain. To my knowledge it is not even possible to buy a retail, unlocked CDMA phone (for Verizon).

hboon• 14 years ago

In recent years, sale of prepaid sim cards in Asian countries like Singapore, Malaysia and Taiwan have become more restricted and require IDs.

hfz• 14 years ago

In Indonesia as well.

nemothekid• 14 years ago

Carriers in the US don't make money selling phones either. Flagship smartphones are subsidized by your agreement to lock yourself in for 2 years.

jagira• 14 years ago

In India, they give you the sim for free (or a nominal price). And for around 10 USD a month, you can have unlimited text/voice plans. Data speeds suck, though.

zem• 14 years ago

india was headed down that route, and then some idiots in power got obsessed with the fact that terrorists could be using anonymous cellphones to communicate. it's far more of a hassle to get a sim card there now :(

alpeb2• 14 years ago

The editorial raises some valid concerns, namely how unfair competition can destroy an industry. Not surprised at Linus' again calling people stupid, and his cortege blindingly cheering him up.

doctorpangloss3• 14 years ago

Linus misses two key points. First, Engadget focuses on tablet pricing moreso than cellphone pricing. Second, all Engadget is inelegantly saying that the lowest price for something isn't necessarily its most efficient one.

Efficient prices versus low prices will play out spectacularly poorly in U.S. v. Apple and publishers, the book price fixing case. Like with tablets, Amazon undercut the true price of books, which harms authors and publishers. Hilariously Apple and publishers did a legal "corrective action" that is precisely described in the DoJ's own guidance on anti-trust. But I digress.

I would agree with Engadget that Amazon and Google selling tablets at or below cost is unequivocally bad for the tablet industry. I'd prefer efficient prices. Otherwise, Amazon undercuts everyone, all the other tablet manufacturers cease to exist, and then they let the product stagnate.

mdasen4• 14 years ago

I think there's a real issue here and that's one of sustainable pricing. There are times when companies or countries are willing to dump goods at cost or even below cost for a certain period of time in order to gain market power. That's a bad thing for consumers.

What we want is vibrant competition with many players offering low prices. However, if companies dump their products at or below cost, we may find we're left with fewer players as some companies exit the industry. Apple and Samsung are both doing wonderfully, but others including HTC, LG, and Motorola Mobility aren't in such a sunny position.

Amazon hasn't said this, but some have justified Amazon's high P/E ratio by saying that Amazon is going to be the future of retail and once they've killed off some of their competition, they'll be able to raise their margins. That may or may not be true, but such a situation would be bad for consumers. We want low prices (that's a great thing), but we also don't want to lose options and competition in the future (that's a bad thing). Amazon is running razor thin on its profits to be popular. I'm not suggesting that Amazon is evil. Rather, it seems to just be Jeff Bezos' attitude towards margins: they should be low so that people can buy more stuff. However, that attitude may not always prevail, especially if competition dies out.

It's good to make things cheaper and more accessible (as Linus has said). However, sometimes you can make something too cheap to be really sustainable. Often times large players will sacrifice profits to gain marketshare and that can sometimes be justified. Still, it's important to recognize as the play for market power that it may be and the temporary situation that it may be. A company does not intend to lose money forever. If they're able to eliminate competition in their industry, that gives them power in the future to raise margins.

It can be hard to judge an industry sometimes. Apple and Samsung are clearly going to be sticking around: they're making products people want and raking in money. However, other players just haven't been so profitable. Having to compete with a device like the Kindle Fire being sold at cost is hard to do and may drive them out of the industry. You can say, "well, they weren't able to compete" and that's somewhat true.

However, it hides the fact that Amazon may not be playing "fair" (for some definition of fair that I'll explain). Let's say (hypothetically) that Amazon is actually Evil, Inc. They have a war chest of money and are willing to lose money over the short term to become monopolistic. So, they price the Kindle Fire even below cost - $50 maybe. Some competitors will just fold. Others might try to continue competing for a short time, but their war chests are empty before Evil, Inc.'s. So, we end up with only Evil, Inc. selling us tablets. Nice for Evil, Inc. They can now charge a healthy $300 as well as up the margins on content purchases - charging higher prices to consumers as well as negotiating harder against content providers. "Ah, but if they did that, someone else would come in with a $250 tablet to compete!" Probably not without government intervention. Why? Because they know Evil, Inc. will temporarily drop the price on their Kindle Fires until the new company goes bust.

That's an exaggeration, but dumping products like this isn't unheard of. The more people that get Kindles, the better Amazon's market power is over content providers and consumers. Similarly, if the margins become so low that many companies can't create devices, we end up with them exiting the market and competition is reduced. The fewer competitors in the tablet market, the better it is for Amazon long term.

Basically, we want competition today AND competition tomorrow - sustainable competition rather than one or a few companies winning. We want prices at a point where they're low, consumer friendly, and encourage wide adoption while making sure that 5 years from now, we're benefitting from similar low, consumer friendly prices. If we're left with only Apple, Samsung, and Amazon, we'll be worse off.

It can be hard to think about. In some ways, we might see a company like Amazon as winning by providing things cheaper in a way that's good for consumers. However, we don't want Amazon to win - we want others to be able to match Amazon so that Amazon will have to keep innovating and competing in the future. At the same time, we want the lowest price. It's a balance similar to investing in the future (or taking on debt). We don't want to starve ourselves now (we want to enjoy our lives). At the same time, we know that we shouldn't just rack up debt in the present having fun because we want a strong future. We don't want to pay high prices for devices now, but at the same time we don't want one or two companies to come out as the survivors of the "tablet price wars" who can then charge us more money now that the competition has been vanquished.

* I know I picked on Amazon a bit here and that's just because the Kindle Fire is being sold at cost below the competition. I'm not saying that Amazon is evil, but even in the absence of evil, we wouldn't want Amazon to win because competition brings innovation and discourages slacking off. Even if you're a good company trying to do positive things, seeing what others are doing makes you better. As such, even a purely altruistic company is bad as a monopoly.

Retric• 14 years ago

I am not convinced that Amazon is losing much if any money on Kindle fires. They have far less overhead and far fewer middle men than standard tablets which when coupled with extremely high volume sales and crap hardware can drive there prices vary low.

For comparison http://www.amazon.com/Coby-Kyros-7-Inch-Android-Multi-Touchs... low end 7" tablet List Price: $179.99, sale price 100$.

PS: Also, Amazon has little control over there P/E, it's investors that are convinced there going to profitably rule retail in a few years.

brisance3• 14 years ago

We may never find out because Amazon never reveals how many Kindles it sold or whether it really is making money from Kindle, and the whole "financial industry" is complicit in this crime in cheating the naive investor.

mdasen4• 14 years ago

http://news.yahoo.com/amazon-ceo-confirms-kindle-sold-cost-0...

Amazon has confirmed that they're selling the Kindles at cost hoping to make it up on content. Third parties have done calculations on the Kindles and found the parts and assembly to be higher than the selling price (without taking into consideration things like shipping, warehouses, credit card fees, etc.). Amazon is being above board in saying that they're hoping to make their money back via content.

In terms of the P/E thing, I only brought it up because of how some investors justify Amazon's price. Some investors believe that Amazon will be able to get large market power in certain industries (maybe retail, maybe e-content) and then charge higher prices to get fat margins at the expense of consumers. I don't think that's in Jeff Bezos' ethos (to his credit). However, cornering a market is a strategy that companies have done.

tomrod2• 14 years ago

I agree with some of your analysis. Note though, as far as my reading in the literature on this subject, empirically predatory pricing hasn't been viable in the long run. *I'm a PhD candidate studying this very topic.

davidw• 14 years ago

Very interesting; do you have some kind of summary/ survey of the literature on that?

Predatory pricing seems "intuitive", it'd be interesting to read about the conditions that make it not work.

Jaecen• 14 years ago

Your analysis ignores competition on any axis other than price. Clearly a low price alone will not win you the market. There is always space for selling premium goods to those who consider their purchase more than a commodity.

sliverstorm• 14 years ago

sometimes you can make something too cheap to be really sustainable

Or even too cheap to be worth owning. That's happened to me before with furniture, and it's happened to everyone who wants a 1080p laptop but can only find 1366x768.

orangecat3• 14 years ago

I've been complaining about lousy laptop resolutions for years, but it finally seems to be getting better. I helped a friend buy a new laptop last weekend, and there were plenty of 1080p options.

It's still not ideal, because the 16:9 aspect ratio sucks, and it's ridiculous that nobody but Apple has laptop displays matching the iPad 3 or Nexus 10 at any price. But it's an improvement over the years of 1366x768 regression.

no_more_death2• 14 years ago

Google claims that prices have fallen and that the supply chain is efficient enough to bring down prices:

http://www.droid-life.com/2012/11/02/googles-director-of-bus...

We have seen over the last 20 years that computers not only get faster but also cheaper. The fact that the top phones have stayed at 600-700 for the past several years suggests that they are padding costs or simply have no compulsion to be efficient in their supply chains. Google says this is definitely the case and they are still making money on the Nexus 4, even though it costs much less than other flagship phones.

Also note just how horrible Motorola built-in UI is, for example. Something's wrong if they can make an inferior project and not expect to get killed. There's a lot of inefficiency at these companies and they don't care and they don't have to care. Google is trying to change that.

The Galaxy Nexus was sold at $399 unlocked (some time after release). The Nexus 4 is $299. Google is trying to bring the cost down further. When top-line phones hit $150-200 unlocked, people will be able to upgrade once or twice a year.

This will actually encourage even higher quality phones. Once all the topline phones fall to $299 or less, it opens up a space for someone else to make a really, really nice phone at the old $600 level. This is not crazy talk. This is exactly what happened with PC laptops over the last 5 years. Now the better Ultrabooks that are now jockeying for the position of "high-end PC laptop."

So there are a lot of benefits and I believe the drop in prices will lead to better phones and tablets across the board.

phaus• 14 years ago

I know that miniaturization is pretty tough, but I hope that we get to the point where I can buy something as nice as a Galaxy Nexus for about 200 off contract. 600-800 for a cell phone is tough to swallow when I can buy an awesome laptop like a thinkpad X230 for the same price range, the latest iPad for 100-300 cheaper, or a macbook air for just 200 more.

Is there really 600-800 dollars worth of technology in a smart phone, or are the margins really high? I honestly don't know one way or the other. I do know however, that the Galaxy Nexus is the best phone I've ever used, and the fact that it was 349.00 when I got it played a large part in my decision.

orangecat3• 14 years ago

When top-line phones hit $150-200 unlocked, people will be able to upgrade once or twice a year.

Not to mention that it would finally break the carrier subsidy/contract model. If you're looking for business practices that harm consumers, that should rank many places above the "problem" of phones and tablets being too affordable.

mdasen4• 14 years ago

I think part of the disconnect here is phones vs. tablets. Intuitively, phones seem to have kept a premium price probably being propped up by carrier subsidies (in the States). However, there's a part of the link you provided that sounds a bit hollow. We simply believe there’s a better way of doing it without extracting that much payment from end users, because there are other ways to drive revenues. That line in particular basically says, "we'll find other ways to get margins off of consumers". It also rings slightly hollow in that Motorola is losing money, LG just swung to profitability this quarter after losing money for a few years (as well as exiting the tablet market because of the inability to profit), and HTC has seen its ability to profit plumet. There are certainly inefficiencies and some companies have kept good margins (Apple and Samsung), but it's not as if most players are doing so well.

In tablets, we see really hard price competition. Amazon is selling the Kindle Fires at cost. In short, tablets are cheaper than phones with much smaller displays and smaller batteries. In a certain light, why is the Nexus 4 a full $150 more than a Nexus 7 (assuming the same 16GB storage)? Sure, miniaturization probably has to do with the cost difference,

Also, I think the comparison to laptops might not be so great. Ultrabooks aren't doing so well and we've seen huge consolidation of competition in the PC/laptop market. Heck, we nearly saw HP leave the market. Dell generates less than 5% of its income from the consumer market. Yes, we have some Ultrabooks coming in, but they aren't selling so well and seem more driven by Intel than by the manufacturers (excluding Apple here). In a lot of ways, Laptops are actually showing how this is a problem: I hate that 1366x768 resolution, but everyone uses it because it's cheap and everyone is focused on price. Yes, I can spend over $1000 and get a nice resolution, but there's this gap in the middle. I remember reading an article lamenting how Dell would try every couple years (in a half-hearted sense) to create a MacBook Pro competitor line just to get hit by a complete lack of sales as people only cared about price. And that's ok in a certain way, but it also leaves little room for innovation and risk taking (what Engadget was commenting on). If I want a Windows version of a MacBook Pro 15", what is there? Certainly, there is no Retina MBP competitor. Really, I don't want Apple to take the high end and have every Android vendor compete on price alone like laptops devolved into. Heck, laptop vendors compete so much on price that poor quality keyboards and trackpads are the norm. Any hidden place they can save a cent gets hit. I'm sure the Nexus devices have fine touchscreens, but if price becomes the only object, things like the touchscreen quality could get hit in the future. We want the lowest price for good stuff. It's easy to read processor and RAM specs, but we also want to make sure that the non-listed stuff works well. And we want to make sure that we don't get to a point where we aren't improving because we've programmed ourselves to be so cheap that we won't spend an extra $15 for something much nicer - I feel that way about trackpads.

We'll see over the coming years how it all plays out, but LG already exited the tablet market. Motorola's last tablet was a year ago? There certainly are vendors struggling and some giving up. That's not to say that there isn't some bloat in there and not efficiencies to be had. Google is a great company - great companies push the bounds. At the same time, I'd like to be sure that the level of competition will stay high - that there will be many companies able to remain competing. It's hard for us on the outside to be commenting because we don't have complete information. Google is saying things to the effect of, "well, prices are sorta coming down and we think we can make up the money in other ways like making sure that people continue to think of Google for search". According to the link, even Google's Motorola division seems to think Google's vision for pricing isn't quite fully realizable.

You might be totally right and in 5 years we'll have awesome competition at better price points than we have now and I'll have been the silly spoil-sport raining on the parade. I was mostly trying to point out that these prices may not be sustainable (at the same time, they may well be). Even if companies aren't purposefully trying to corner the market or anything, this could happen. Amazon might think that they'll make $x off of content for each Kindle Fire only to find out that people just don't buy on them, but were buying them on price alone. Then, a few years later when many companies leave the market due to price, we're left with less competition. Low prices are certainly good. We want to make sure that the prices and innovation keep going into the future.

bitcartel• 14 years ago

Costs are coming down. This is what a retail price of 999 yuan ($160) gets you:

"ZTE U950 smartphone packs a 1.3GHz Tegra 3 chip, 1GB of RAM, 4GB of internal storage and a 2,000mAh battery beneath the 4.3-inch display."

http://www.engadget.com/2012/10/29/ztes-u950-tegra-3-phone/

tsotha• 14 years ago

>I know I picked on Amazon a bit here and that's just because the Kindle Fire is being sold at cost below the competition.

First of all it's not clear Amazon is losing money on the Kindle hardware. But even if they are they seem to have adopted the console model - I give you subsidized hardware and then you pay through the nose for content. They are not going to lose money in the end even if they do lose money on the hardware.

Ask anybody who has one of the old Kindles how much they spend on ebooks compared to what they used to spend on dead trees. The impulse buy will get you every time.

And that's a perfectly reasonable and sustainable business strategy, provided not too many people root their kindle and use it for something else.

Amazon lost money last quarter because they made some questionable acquisitions and because they're in the process of expanding into new markets (like film production), not because they're dumping hardware below cost.

cloudwizard• 14 years ago

Amazon is exploring the idea of ad supported hardware. Ad supported content on the web has pretty much wiped out paid content. We will see if ad supported HW does better.

To call it predatory pricing is stupid.

If you leave prices high and keep Apple in business, you have to be concerned about their slow rate of innovation. Most of their innovation is figuring out how to extract more money from you. They are like Microsoft IE innovation. MS was really slow until the FREE Chrome and Firefox browsers started to take significant market share.

mistercheese• 14 years ago

I'm not exactly sure what solution you're proposing here, to an old problem that's already been around longer than Google or Amazon - Government intervention?

I'm also curious how this would be evaluated if Amazon/Google price their hardware devices in a different fashion than more hardware based companies like Apple/Samsung - on the services they lock you into. I'm skeptical that Amazon is really losing money on each tablet sold, as those tablets really are just vending machines which they then make money off of product sales. (Similarly with Google and its services/ads.) Do we regulate hardware pricing even if the profit calculated isn't directly on the hardware sale itself?

mdasen4• 14 years ago

I'm merely pointing out that this might not be the best situation. I'm not proposing any intervention or anything like that. I'm merely pointing out that we may find that we have fewer tablet vendors in 5 years than we have today - the opposite situation from what we would want to happen.

In terms of the Amazon tablets, they are selling them at cost (they've explicitly said this) and it will take time to see whether they make back the money they spend on shipping, warehousing, R&D, etc. via content. It may be a model that others adopt to provide competitor tablets. It could also lead to a duopoly of Apple and Amazon on tablets. That would be bad. It could lead to Amazon getting further leverage over publishers and consumer prices. Also bad.

The thing is that bad behavior isn't without precedent. Standard Oil sold at below cost in a market to make the competition exit. When the competition was gone, they would raise prices significantly. So, in the short term you could get cheaper gas, but in the long run, you removed the competition. And sometimes we do regulate bad behavior. We did it with Windows and in the absence of Android, we might be considering it against Apple.

I'm not saying that I'm a fan of intervention or that companies can't attempt a console-style business model for tablets. I'm just suggesting caution in a developing industry that many see as a future of computing: one where we'll want competition and innovation, not for most players to exit before it even takes off. Low prices are a good thing, but let's not get ahead of ourselves and happily applaud low prices into an oligopoly. We want cheap prices that can be sustained and innovated on. Maybe these tablets are going to hit that. But there are some signs that might not be the case given LG's exit, the fact that Moto and HTC don't have recent offerings, the general mediocre financials of Amazon, Moto, HTC, LG, and Asus, etc. Then again, maybe that will turn a corner in the near future and I'm worrying for nothing and we'll have an awesome, cheap, competition-filled future.

chj• 14 years ago

Sure, they are using low pricing to gain market share, but we all see the tablet market is now dominated by iPad. So some cheap fresh blood is a good thing if you ask me.

dude3• 14 years ago

Apple just needs to get into cloud services more so they can compete. I don't feel bad.

fauigerzigerk• 14 years ago

We heard all these arguments before in various industries along with calls for protection(ism) and government intervention. Unsustainable, unfair competition, crushing the competition leading to lower quality and higher prices down the road. It just rarely seems to come to that, not for long at anyway. They never manage to actually hike prices.

Sustainability is a messy concept. What is the product that needs to be sustainable? How do you define that? Why is the handset alone necessarily the product that you want to be sustainable on it's own? Is a web browser a product that needs to be sustainable on its own? There are many businesses where the real product is not the gadget we hold in our hands. And every time those who try to make a profit from some individual component complain about unfair competition from others who sell a larger package and subsidise that individual component.

Let me ask a few questions about your Amazon example. You say no one will enter the market once Amazon crushed everyone else for fear of Amazon coming back with low prices.

But why wouldn't someone else cross subsidise from a different kind of business and successfully compete with Amazon? Google definitely does exactly that. Others may come up with more ways to do that. Oracle reviving its Java handset business, carriers + Mozilla, someone buying Sony and it's media business. Apple might well be able to do it through media subscription services or just keep selling into the high end luxury/fashion market.

Will Amazon shareholders put up with razor thin margins (even losses recently) forever or will they eventually ask for a payout?

What keeps another big retailer that doesn't carry the cost of giving away handsets from undercutting Amazon in the retail market? Or if it's such a good idea to give away handsets, why wouldn't WalMart buy Netflix and join forces with Samsung or HTC to do the same?

At the end of the day, I'm not concerned about any of this being just temporary. Smartphone prices will never go up. There are just too many angles from which a wannabe monopolist could be attacked.

speleding• 14 years ago

There's an economic concept called "pricing behind the curve" that looks a lot like "dumping". But it's different.

Pricing behind the curve means you base the price of your product on the average component cost over the life time instead of your actual current cost. Microsoft does that with the Xbox. In effect you subsidise the early models and make up for that in the long run. It's a valid strategy to gain market share quickly and does not hurt consumers.

Dumping means you subsidise your own product to push competitors out of business. It does hurt competition in the long run if done effectively. Dumping is illegal and you can get into a lot of trouble if you are found doing it.

Since the competing companies are not accusing anyone of dumping, I think it is safe to say no dumping is currently going on.

msabalau• 14 years ago

If we actually had meaningful competition the tablet space, the Engadget article wouldn't strike many of us as absurd. The Kindle Fire and the Nexus 7 have been the only credible contenders with sustainably differentiated offerings against the iPad juggernaut. Microsoft might become a player, but even they evidently they feel they have to toss in the family jewels (Office) to have a shot.

The players who are failing/exiting had no hope of ever presenting a meaningful challenge to the iPad. It's still to be seen if even Fire/Nexus/Surface devices can sell in the same order of magnitude as the iPad.

barrkel4• 14 years ago

The only way what you write makes sense is if Apple were dumping, not Google or Amazon.

Dumping to protect market share, then jacking prices back up once the competition has been seen off.

But with new entrants trying to compete with an incumbent with an enormous lead, I don't see anything wrong with making the investment to sell at cost or a loss. The consumer wins because they get hardware cheaper and more competition which should drive prices down across the board. The only people losing out are the people previously in a monopoly-like situation.

phereford• 14 years ago

Do consumers really win here? If your only indicator is that they save a couple of bucks, then sure. But there is more behind consumers winning.

Imagine a scenario where a company is able to cut costs, never over take the market leader and eventually dump the product, support and all (because they can't afford it due to the low cost). Does the consumer, who is still tied to this device, still considered a winner? The argument can be made that the company can then raise the price to try and offset the low cost previously. Sure, they can do that...and if they get caught, they could be called out for predatory pricing.

There are so many ways to compete with an incumbant, and price could be one of them. The only pitfall is the scenario (which has happened time and time again) of hemorrhaging losses because you are solely competing on price.

Competing solely on cost relies on heavy volume being sold in order for it to even provide razor thin margins. The companies will continually lose here because they aren't able to really recoup their investment put into the device.

In my opinion, the consumer only wins when the company wins because of the intangible benefits a company can afford to provide such as support and customer service. Without these, I don't see the consumer winning with companies competing solely based on price. And I think Apple is the perfect example for this (only because I cant think of others). They charge higher than normal for their devices, but they have great support and are willing to bend over backwards to make sure you as a customer are happy.

Just my .02

gurkendoktor• 14 years ago

What you say is true when there are only two competitors - every move by the underdog will then be good for consumers. But chances are that a dumped Nexus/Kindle will hurt others much more so than Apple. (Most likely example: Google may push Amazon out of the tablet market, which would be a loss for consumers.)

brisance3• 14 years ago

That g+ post is particularly bad because it shows that Linus is opinionated (we knew that already), that he doesn't understand business (predatory pricing) and that he doesn't read very well (the Engadget article clearly explains that in the short-term, lower prices work in favor of the customer). In fact his own post can be considered a trolling piece since at the end he suddenly switches tack and justifies his choice of Nexus phones. Which is due to his own preference of the UI, but similarly ignoring others who may instead prefer iOS.

no_more_death2• 14 years ago

It's not about his preference of the UI, it's about his preference of phones that do not appear locked down. He prefers Nexus because of the stock Android UI (nothing to do with iOS UI here!), but even more he prefers nexus phones because Google is fighting the proprietary locked down carrier approach -- the one that makes us slaves to our carriers in order to get a good phone at a decent price. I may get a Nexus 4, and in that situation I can purchase my freedom from my current slavery to Verizon for a paltry $100. I can actually evaluate all the carrier options and determine which phone is the best. If this kind of freedom takes hold, it is likely that carriers will actually have to compete at some point, instead of customers being forced into one carrier their whole life (basically). Then other aspects of carriers will probably improve because they have to compete.

In other words: It's not a preference for one design over another, it's a preference for freedom. You may disagree with the freedom argument, but this is certainly what it's about. This is why Linus is coming out to bat for Android -- not because he likes Google or Google's style, it's a pragmatic decision because he thinks Google is his friend as far in trying to reintroduce competition into the market.

drivebyacct24• 14 years ago

>Which is due to his own preference of the UI, but similarly ignoring others who may instead prefer iOS.

Projecting much? At best he said he likes Android's UI. He didn't even mention iOS.

brisance3• 14 years ago

You have to read the Google post in its entirety and the context; in this case, the Engadget article was about the different business models of Amazon/Google as compared to Apple, and how they hope to profit not from the hardware but from complementary services. Thus the implicit meaning is that Android is "open", which we all know not to be true.

Getting "carrier lock-in" is more symptomatic of American carriers' way of doing business rather than a universal once, since, as pointed out by many others, Apple sells unlocked iOS devices in many parts of the world.

brigade• 14 years ago

It's kind of funny that the other day he was complaining about low-res screens in laptops... when the degradation/stagnation in laptop screens is in a large part due to the race to the bottom he's arguing is unequivocally a good thing today!

Osiris2• 14 years ago

Those things are not mutually exclusive. LCD manufacturers can both 1) make better displays with higher resolutions and 2) reduce the cost of producing said displays.

So, there can be a 'race to the bottom' of high quality products.

drivebyacct24• 14 years ago

Cough, $400 Android tablet with that screen. Frankly, I'm betting the Nexus 10 would be something Linus would be happy using if it were in a laptop form instead of a tablet. Super high res, it would be quite small for a laptop. Linux runs quite happily on ARM.

css771• 14 years ago

Why are you bringing iOS into this? He never mentioned anything about it.

drivebyacct24• 14 years ago

So what happens if Desktop Linux ever takes off? What's going to happen when there isn't one organization to target and attack and villanize?

dewiz• 14 years ago

my 2 cents: complaining that underpriced hw kills competition, is like saying that a free Linux will kill Apple and Microsoft. I can see where Linus is coming from here :) Well, that is apparently not happening yet after how many years of free software? Welcome then to free hardware, however free hw won't happen thanks to volunteering, there are paid ads, content, services, is that bad? good ? did free Skype, Gmail, Github, Youtube, Zip compression kill the market, or was the market itself creating the conditions for them to be free?

shinratdr• 14 years ago

All I learned from that article is that Linus Torvalds is as uninformed as your average Engadget commenter. I thought that was one of the most spot on and original pieces to come out of Engadget in months if not years.

TechNewb• 14 years ago

I agree with what his argument is with cell phones, but if it were not for Apple's higher margin tablets and laptops we would probably be using crapy netbooks today with a crappy OS. Both Engadget and Torvalds have a good point.

CountSessine2• 14 years ago

Isn't this the same Linus Torvalds who just last week complained about how PC laptops, commoditized and cut down to their marginal cost of production for years now, weren't the target of innovation and how they were stuck using low resolution screens?

doctorpangloss3• 14 years ago

Yes.

drivebyacct24• 14 years ago

You missed the part where the Nexus 4 out specs the iPhone? And many do? And many outperform the iPhone?

CountSessine2• 14 years ago

I don't disagree with that, but remember that the development of each of these smartphones is made more than a year ago with the profits of the last smartphone. If LG is just scraping by with the Nexus 4, and Apple and Samsung are ultimately forced to lower their prices to remain competitive, can we really say that anyone in this industry is going to have the money to keep pushing the technological envelope?

On the other hand, maybe the big players have exhausted themselves of their creativity for the time being. After all, how creative is an extra row of icons on the home screen? Or an even wider, bigger version of last year's phone?

ricardobeat• 14 years ago

The post is cut off at the third paragraph, is there a way to read this on mobile?

sounds• 14 years ago

Linus Torvalds 4:11PM

Editorial: is Engadget really that stupid? Or just corrupt? Or trolling us all?

Here is another "race to the bottom is bad" article, this time in the form of an "editorial" from Engadget. It's even more idiotic than usual.

The whole "race to the bottom" concept is odd to me: people complaining about how technology gets less outrageously expensive, and more available to everybody, and more commoditized. Like that would be a bad thing? So the whole argument is fundamentally flawed to begin with - any time I see some pundit or CEO complaining about how the competition is making things cheaper, I go "Uhhuh, crybaby".

But when it comes to cellphones, it's not just a flawed argument, it's doubly stupid. Because in that market, particularly in the US, the alternative is the whole broken carrier subsidy model, with all that entails. None of which is good, and all of which is much worse than any (hypothetical) "race to the bottom" arguments.

And at no point did that deeply flawed editorial even mention carrier lock-in issues. What crock.

I have many reasons to like the google nexus phones: I just think that the plain android experience is generally cleaner than most of the skinned ones, and even when there is superior hardware (Samsung Galaxy SIII) I tend to prefer the Nexus model (honesty in advertizing: I've gotten free phones from both google and Samsung, but I actually bought my own Nexus One and Galaxy Nexus on google play store. And I installed CyanogenMod on the SIII Samsung gave me, because I wanted the JellyBean experience).

So I like the Nexus phones just because I think they have a nicer interface.

But I like the Nexus phones even more because they are clearly pushing the whole "no carrier lock-in" model. And price is absolutely part of it.

Link to http://www.engadget.com/2012/11/03/editorial-amazon-and-goog...

programminggeek• 14 years ago

This is one part of Apple's model that I swear people just don't get at all. Apple, as a company, refuses to operate in unprofitable hardware markets. So, they make a $329 7" tablet instead of $199. They make a $400 tablet with "outdated" hardware, they make a $500 tablet that is top of the line. They won't sell a sub $999 laptop.

Apple then focuses on selling as much of those products as they can irrespective of market share. They don't deep discount just to gain "mindshare" or "marketshare".

Engadget and others could moan that it isn't fair, but to be fair the only company that has been able to build and sell even remotely comparable hardware at comparable margins is Samsung, and frankly that is largely because Samsung supplies the same parts to Apple, so Apple is effectively subsidizing Samsung's overhead.

Other companies could play Apple's game, there certainly is room to do so, but it is a low volume/high margin strategy traditionally. The anomaly is Apple's been able to take low volume/high margin to very high volumes while leaving the high volume/low margin business to everyone else as prices fall downward.

I don't feel bad for Acer, LG, ASUS, Sony, Dell, or HP because they've all become so bad at designing, building, and selling a premium product that they really don't deserve to be competing. Ironically, much of iPhone's design was inspired by Sony's design heritage, and yet, Sony is still yet to truly match it.

To put it another way, you know it's kind of a sad state of affairs when Microsoft can put their own team together and ship a legitimate competitor to the iPad in a very short period of time and Microsoft isn't even a hardware company.

UntitledNo4• 14 years ago

I disagree with the comment about Sony unable to match Apple's design. I have an Xperia S and although I don't flaunt it around, people who have seen it made comments about how good it looks. Including a few Apple Fans with iPhones. A couple of friends even bought Sony phones after seeing mine. The design of the phone was one of the main two reasons I chose Sony (the other is sound quality when playing music on the phone). They even manage not to screw up the Android experience, in my opinion. They are not the most popular phones, but I think the design is not the reason for that.

GFischer• 14 years ago

A coworker has a Sony (Live Walkman, not Xperia), and I don't like what they did to his Android (maybe I'm too used to Samsung's TouchWiz).

Other than that, it's a nice phone.

mycodebreaks• 14 years ago

Linus is right. I agree with him. Engadget is stupid, corrupt and trolling in this case.

Lower prices aren't hurting consumers. Good quality Nexus devices around $200-400 ranges aren't hurting consumers. In fact, it encourages a fair competition. As a result, Apple/Samsung have to work hard to make their $600 & up devices feature-rich to justify higher price. Consumer wins!

Ramonaxvh• 14 years ago

Linus is a socialist, and has always hated big corporations and profiteering too much off technology.

Thats why I think he's awesome.

b1daly• 14 years ago

Aside from the technical argument about whether predatory pricing really exists there is another aspect of "race to the bottom" that is at least worth a thought.

Ironically, Torvald's post and the Engadget article both have an assumption that whatever provides better quality(innovation) and product choice at lower prices to consumers is an unequivocal good. While seems likely to me that this is true, I don't quite get the conflation in popular culture between "consumers" and the public good.

I recently picked up a Nexus 7 and I was a bit stunned at the level of technology I could get for $200. If the margin is getting squeezed, that means entities on the other side of the transaction are too, including labor.

At what cost to humans (and the environment) is this rock bottom technology being created? Is there a connection between ultra competition and increasing income inequality in the US, if not the world. It seems at least intuitively plausible.

beloch• 14 years ago

The Engadget piece seems to argue that Amazon and Google are engaging in predatory pricing when it really boils down to the fact that Apple and Google are trying to fight the iPad's market incumbency.

Let's look back a decade for a moment. i.e. The iPod.

Apple made the iPod good. Then they made the iPod cheap. Nobody could compete. Could companies like Diamond or iRiver have made better devices if they didn't have to compete with cheap iPod's? Almost certainly. Once Apple diversified the iPod line into the extremophile niches other mp3 player manufacturers were clinging to it was game over. Complete and utter dominance. Now almost nobody buys iPod's because everybody's phone can do the same job.

Apple knew that the key to maintaining dominance was to drive down prices faster than the competition without compromising quality. By offering premium devices at prices that are just barely above that of inferior devices Apple made the iPod a no-brainer purchase for consumers. They did this so well that it was only Apple themselves who finally obsoleted the iPod with the iPhone. They've tried to do the same thing with the tablet and have arguably built up some degree of incumbency with the iPad. Low-margin pricing on the Nexus 7 and Kindle's can be seen as attempts by Google and Amazon to fight Apple's tablet incumbency before they're locked out of the market completely.

Let's face it, if Amazon or Google tried to sell their tablets at the same price as Apple's offerings they'd never catch up. Even if they were of exactly equal quality, Apple's is the proven product because it's been around longer. If Google and Amazon made poorer quality tablets and sold them cheap, but with decent profit margins, they'd wind up like Diamond and iRiver. Only their ability to sell at low-margin and profit from ads/media sales gives Google and Amazon the edge they need to compete with Apple and have any hope of catching up.

The end result of this is a three-way battle for tablet superiority where there would have only been one choice: the iPad. Oh, and now Microsoft is throwing their hat into the ring too... Quite frankly, I think the next few years are going to be very kind to tablet-fans, and that's partly in thanks to "predatory" pricing.

Linus Torvalds: Is Engadget really that stupid? Just corrupt? Trolling us all?

Related Stories