Why Sprint Should Be Giving Away The Palm Pre For Free
from the just-get-that-sucker-out-there dept
There was plenty of hype around the launch of the Palm Pre, which by all accounts is a pretty damn good phone (I've played around with it, and like it). However, Palm and Sprint made two huge mistakes in marketing it. First, they didn't have a really well-developed developer community building apps for it, so the app store is pretty weak. Apple did this with the iPhone when it launched (and we dinged them at the time as well), but Apple got away with it for two reasons: Apple is leading the field in such smartphones, and it's Apple, who seems able to bring developers to the table with cultish enthusiasm and loyalty.Palm doesn't quite have that.
If the problem was that the SDK wasn't ready, Sprint and Palm should have waited. Launching before the phone was really ready was a mistake, and the company may be paying for it with rather weak sales after an initial burst. However, one analyst has a suggestion that I think makes a lot of sense, saying that Sprint should drop the price of the Palm Pre to $0.99. Basically, let Sprint subsidize more of the phone -- which it would easily make back in service fees (since the phone requires a two year contract with its most expensive data plan). Pricing the phone at $199 makes it a direct comparison to the iPhone, and that's the last thing that Palm or Sprint should want. But dropping the price to $1 (or, hell, give the damn phone away for free with a two year plan), would get it a lot of attention, and give people a real reason to switch away from other carriers or other phones, and give the Pre a shot. Trying to compete with the iPhone by just saying "but we're better" doesn't work. Rather than spending tons of money on creepy TV commercials that make no sense, why not use that ad budget to subsidize the phone in a way that really builds up a lot of attention and serious buyers? If Sprint did that, I'd go sign up for a Palm Pre that very day.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Filed Under: marketing, palm pre, positioning, pricing
Companies: palm, sprint
Reader Comments
Subscribe: RSS
View by: Time | Thread
As for "give it away for free", it isn't really a money making game. You take away $200 on the purchase price, and the monthly package has to go up about $10 a month to make up for it. There is no free lunch. So if you take the cost of the phone, the cost of the package, and figure what the phone will cost you total for 2 years, the numbers will be the same.
There just isn't enough profit in cell phones to be tossing $200 more out the window for every user.
Further, you cannibalize all of the rest of your market. If a Palm Pre is "free", how much for a motorola phone, or a standard Nokia? They would have to pay people to take those phones. Effectively, those manufactures would likely not want to deal with Sprint in the future, at least not on the same terms.
Pretty much all parts of your idea hurt Sprint's business. They lose on phone sales to current clients, they lose on phone sales in general, they lose on the Pre, and they lose face with the other phone manufactures (who will likely want very strict price non-compete style clauses in the future).
What is the upside again?
[ link to this | view in chronology ]
Re:
[ link to this | view in chronology ]
Re:
No. I have no problem with bundled deals. I have spoken out against bad ETF agreements, but that's different.
As for "give it away for free", it isn't really a money making game. You take away $200 on the purchase price, and the monthly package has to go up about $10 a month to make up for it. There is no free lunch. So if you take the cost of the phone, the cost of the package, and figure what the phone will cost you total for 2 years, the numbers will be the same.
You are assuming that volume of sales doesn't increase. Which would be wrong.
There just isn't enough profit in cell phones to be tossing $200 more out the window for every user.
There absolutely is. By far. If you don't think there is, you don't know much about telco pricing.
Further, you cannibalize all of the rest of your market. If a Palm Pre is "free", how much for a motorola phone, or a standard Nokia? They would have to pay people to take those phones.
Not so. The Pre would still require a very expensive service plan, which many wouldn't want to pay. Plenty would still be willing to buy those other phones knowing they need to get a cheaper plan.
Pretty much all parts of your idea hurt Sprint's business.
No, it wouldn't.
They lose on phone sales to current clients, they lose on phone sales in general, they lose on the Pre, and they lose face with the other phone manufactures (who will likely want very strict price non-compete style clauses in the future).
None of those things seem true. They're all based on assumptions of yours that are unlikely at best.
What is the upside again?
Many more customers locked in at their highest service plan rate (which has the highest margins).
[ link to this | view in chronology ]
Re: Re:
[ link to this | view in chronology ]
Re: Re: Re:
That doesn't even consider the fact that having an extremely well-reviewed and feature-rich phone like the Pre available for very little money (I think even $49 would be fine) would bring in a LOT of new business.
[ link to this | view in chronology ]
Re: Re:
Sprint has been steadily losing market share, mostly due to poor service and billing errors.
I have been using their wireless data for a few years after dumping AT&T's data plan. Cingular/AT&T flat out scammed me for two years with a steady stream of drivel about how hard they were working to deploy 3G. I was stuck in a contract for two years at $60 a month for a connection which was usually slower than a dialup.
I was considering trying their voice service, willing to buy a phone outright but not willing to sign a two year contract. They refused to allow me to add voice to my data contract and as a result they are not getting a crack a five lines of business.
I have made attempts to talk with upper marketing management and those communications went unanswered.
In addition to offering lower cost phones Sprint needs to give at least a ninety day grace period on contracts. Sprint also needs to offer rollover minutes.
Their reputation is so bad that most people are going to be unwilling to sign a two year contract.
They should give people a choice between contracts and subsidized service and month to service if people buy the equipment outright. As long as they actually deliver good service churn should not hurt them.
I cannot see how they can be hurt any worse than they have already caused by their customer service problems.
I believe that Sprint's EVDO network is superior to all others. To survive Sprint must increase its customer base and they are going to have to buy that base back with exceptional terms and service. I do think they can do this but I am by no means certain that they have the vision or will to forgo short term profits in order to grow the business.
Ronald J. Riley,
I am speaking only on my own behalf.
Affiliations:
President - www.PIAUSA.org - RJR act PIAUSA.org
Executive Director - www.InventorEd.org - RJR at InvEd.org
Senior Fellow - www.PatentPolicy.org
President - Alliance for American Innovation
Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
Washington, DC
Direct (810) 597-0194 / (202) 318-1595 - 9 am to 8 pm EST.
[ link to this | view in chronology ]
Re:
I have an iphone and this weekend I looked into the cost of the unlimited Sprint plan versus the not-so-unlimited AT&T plan. At current prices I would save $30-40 per month with Sprint. As much as I hate to say it I am seriously considering switching back to Sprint. I used to have them and left because the prices of the phones, the lack of sim cards, and the horrible customer service.
Sprint seems to have dropped the price of phones (thank goodness), they have immensely improved their customer service, and they offer some phones with sim cards. If they make the Pre or a Google phone with a sim card they will have me sold. AT&T and Apple can kiss my rear-end with their restrictive phone and excessive prices.
[ link to this | view in chronology ]
Thought the same thing
[ link to this | view in chronology ]
It will be free in the UK
[ link to this | view in chronology ]
Re: It will be free in the UK
http://shop.o2.co.uk/update/paymonth.html
[ link to this | view in chronology ]
Re: It will be free in the UK
Only people on pay-as-you-go pre-paid plans actually buy phones.
[ link to this | view in chronology ]
[ link to this | view in chronology ]
Re:
Again, you seem to be assuming that everything is free. It's not. It still requires a high end plan, which the homeless guy isn't paying.
All I'm saying is that to stand out against the iPhone, the pricing should have been different. Hell, if anything just let Sprint include the fee on the back end, and bump up the service fees. But it needs to do something to stand out, because Palm Pre sales started out not so high and then fell off that low cliff.
[ link to this | view in chronology ]
Re: Re:
[ link to this | view in chronology ]
Small Correction
Granted, they'll still be making about $1300 off of me over the course of the next 2 years. Even if the Pre costs $600, giving it away for free would cut their profits in half, and tick me off, but -might- still make sense.
[ link to this | view in chronology ]
Re: Small Correction
Because of my work discount, I'm paying ~$67/mo. for my Pre with the Everything Data 450 plan and insurance and taxes. With evenings starting at 7 pm and mobile-to-mobile calls unlimited and just about everyone I know on cells, I wish I could cut back to a 300-minute plan for even less.
It never ceases to amaze me how much slack Apple gets cut by people who hold their competitors to an unfairly higher standard. "Palm should've foregone months of sales until they could get their App Store and SDK up to full speed. It was OK that Apple didn't have an App Store for a full year because, well, they're Apple and Apple is just the ginchiest!!! [swoon]"
[ link to this | view in chronology ]
Re: Re: Small Correction
[ link to this | view in chronology ]
Re: Re: Re: Small Correction
I, too, have an iPhone. It is by no means the "best on the market", and there are things about it I do not like; but overall, I'm satisfied. That being said, I DO pay about $130 a month. It's the middle plan, not the low or high. So...he DOES "know what it is".
[ link to this | view in chronology ]
weird uninspired and nonsensical? absolutely.
creepy? not even close
/here, someone else can have my soapbox now that im done with it.
[ link to this | view in chronology ]
Re:
A "glowing" woman talking soothingly creeps you out???
You must curl up in the fetal position when watching Snow White then....
[ link to this | view in chronology ]
but mike...
or was that the point you were trying to make until this idea cropped up? sure as a consumer $1 palm pre's sounds like a huge reason for anyone to consider sprint.. but wouldn't they do better to focus less on charging for things like metered data and digital downloads and charging more for things that actually cost a ton of money to produce? like a smartphone? also, I thought you were against loss leader mentality when it came to "compete with free" arguments
[ link to this | view in chronology ]
Re: but mike...
For years I said TiVo should have done the same thing. Give away the hardware for free with a 2 year contract. Lower that hurdle and build in a nice recurring revenue stream. That's a great business model.
TiVo didn't do that, and now they're left suing others for patent infringement, rather than leading the market.
[ link to this | view in chronology ]
Re: Re: but mike...
If you are suggesting to take a $200 product and turn it into a $0 product, you need to say where you are going to make the $200 back up. Remember, at $200, the phone is already HEAVILY subsidized, it might be a $400 phone retail without a plan. It isn't like you are taking a $200 item and making it free, the $200 item is already heavily discounted.
It's like the Iphone - the $199 price is HEAVILY discounted (actual retail would be around $600 unlocked without a plan, if you could find such an animal in the US - that is the going price in Hong Kong, where the phones are all unlocked).
$200 up front written off is pretty much exactly $10 a month over a 24 month contract ($200 of lost income and $40 carry & costs for 2 years). So now you have a free phone, but service plans that are outside of what people really want to spend. People are VERY sensitive to price plans, most users are experienced in being locked into a plan in the past, and fear that way more than anything.
So, if your suggestion is just for Sprint to "eat it", I think you need to check their financial situation. I don't see them being in the position to eat that $200 right now.
You know, there is an answer somewhere between "price" and "FREE!". Your constant push on "FREE!" is simplistic first year marketing student stuff, not a plan.
[ link to this | view in chronology ]
Re: Re: Re: but mike...
The point of 'FREE' is that has amazing marketing power. Pricing something at $50 bucks has nowhere near the same oomph to it.
Here's the key thing to remember: phones are mutually exclusive. If I already have an iPhone, you're going to have to give me a very, very good reason to ditch it for a Palm Pre.
[ link to this | view in chronology ]
Re: Re: Re: Re: but mike...
Second, Palm is also smart enough to know that "FREE!" has amazing market power, but it also has both the ability to lower the perceived value of their product and has a pretty strong whiff of desperation. They also know that today's informed consumer (this isn't their first phone) knows that the monthly cost is what gets you, not the up front cost of the phone. After all, you love the phone, you don't love the service.
Phones are not entirely mutually exclusive. They are contractually exclusive. If you already have an Iphone in the US, you are likely on a 2 or 3 year contract, so you are screwed into it. Your early termination fee to switch would kill any deal, free or not.
Remember, "FREE!" is the easiest marketing tool, but it is also one of the most expensive and least supportive of things like product value and market place position. If making the phone free makes Sprint more popular (they get 100,000 new clients) but they lose $200 over the client's life, they why would they want to do it?
Free in this case would be lazy man's marketing, and not a very well thought out idea at all.
[ link to this | view in chronology ]
Re: Re: Re: Re: Re: but mike...
And why is this relevant? Those people won't buy a contract with Sprint no matter what cost you put the phone at, so focusing on them is absolutely pointless.
You're supposed to focus on the people that are interested in buying/renewing their contract, and give them a good reason to switch over to you.
"Remember, "FREE!" is the easiest marketing tool, but it is also one of the most expensive and least supportive of things like product value and market place position. If making the phone free makes Sprint more popular (they get 100,000 new clients) but they lose $200 over the client's life, they why would they want to do it?"
...because the total net profits are more important than the profits per customer?
[ link to this | view in chronology ]
my sprint/pre story
[ link to this | view in chronology ]
Re: my sprint/pre story
[ link to this | view in chronology ]
Re: Re: my sprint/pre story
[ link to this | view in chronology ]
Re: my sprint/pre story
[ link to this | view in chronology ]
[ link to this | view in chronology ]
Re:
1200-1160=40
You NETTED $40 bucks, dude. Yeah that's $40 bucks you didn't have before, but...
40/24=3.33333333
$3.33 a month...woot(?)
[ link to this | view in chronology ]
Re: Re:
[ link to this | view in chronology ]
And what if the problem is not the fee, but the phone?
The software isn't bad, but a friend has one and it's not significantly better than the iPhone's. And worse in some aspects. Build quality is plastic blob so-so and, like it or not, it's competing against the Apple/iTunes/iPhone cache and the App Store's 65,000 applications.
In short, you can't really show someone the phone and generate any excitement, as it doesn't really do anything more than the iPhone or Blackberry they already have in their pocket.
I think this ties more into your earlier comments regarding innovation and copycats. Apple did it right and covered the essentials the first time out of the gate, then proceeded to refine their design over the next two generations.
Palm got complacent and let their technology lead slip away, then tried to hit the market with a "me too" product, and one tied to a third-tier carrier, to boot.
They could give it away, as you say, but I suspect that in this case that a "free" phone will be worth every dime you paid for it.
[ link to this | view in chronology ]
Re: And what if the problem is you're an iPhone fanboy?
"Plastic blob"? More like "sensuous pebble" instead of hard bar. It's smaller in the pocket; feels better in the hand; and when opened, it has a slight curve that fits the hand and face better.
But because Lord Jobs didn't give it to you, you don't think you need it. Lord Jobs knows all.
Doesn't generate excitement? I had someone who'd just bought an iPhone a few weeks before get a case of buyer's remorse when I showed him the multitasking, THE killer app of the Pre over the iPhone.
As I bounce from email to multiple web windows to SprintNav while streaming Pandora via Bluetooth to my car's Sync system and, oh yeah, make phone calls, I wonder how the iPhone users get along with Apple's gimped one-at-a-time setup. (And no, running the iPod in the background doesn't count!)
But because Lord Jobs didn't give it to you, you don't think you need it. Lord Jobs knows all.
How's that $10/mo. GPS nav service working for you? Sprint users get that free. Are you able to send MMS yet? Nope, cuz AT&T's collapsing network can't handle it.
You see, the facts are plain: it's Apple that's falling behind in innovation. If Lord Jobs ever deigns to let his herd have multitasking, that would make Apple the me-too company, wouldn't it?
Apple's got a two year head start and plenty of status-over-usefulness sheeple willing to ante up to hop the hype train. But the Pre doesn't have to "kill" the iPhone - it just has to serve the needs of those more discriminating users than the iPhone typically attracts.
[ link to this | view in chronology ]
Re: Re: And what if the problem is you're an iPhone fanboy?
Multitasking? You mean like making a call, checking contacts, merging in a second caller, and then going out and getting movie times off the internet all while still on your conference call? That kind of multitasking?
Doesn't generate excitement? Nope, it doesn't. A few card tricks does not a killer app make. And the sales numbers reflect that fact.
Palm's real problem is that all it has is a phone. Buy an iPhone, however, and there's an entire ecosystem of applications and accessories, not to mention iPods, MacBooks and iMacs, downloadable music, movies, and TV shows, hooks into Apple Mail and iTunes and iPhoto and MobileMe, live in-store support, and more.
All backed by a technology company with a stellar reputation, outstanding consumer satisfaction ratings, and billions in the bank.
Sprint and Palm? Sprint is bleeding customers and the Pre is Palm's Hail Mary pass play... and it's beginning to look like the wide receiver just fumbled the ball.
[ link to this | view in chronology ]
Re: Re: Re: And what if the problem is you're an iPhone fanboy?
[ link to this | view in chronology ]
Re: Re: And what if the problem is you're an iPhone fanboy?
Seriously. Fanboy vs. Fanboy hate is awesome. :)
[ link to this | view in chronology ]
Sprint Bad
[ link to this | view in chronology ]
Sprint and the Pre
[ link to this | view in chronology ]
[ link to this | view in chronology ]
As long as people keep buying these pathetic devices with their ripoff contracts the thiefs will continue to peddle them because we are led to think we have no choice in the matter.
Really a shame. In other words people are paying the carriers who want to keep these same people in slavery over a simple phone call using puposefully crippled devices they shovel in your face.
[ link to this | view in chronology ]
Palm
Also noteworthy is palm's creepy reporting of usage statistics, sure the os will report by app crashes (fine), apps installed (fine but can also be a bit creepy) but also reports the user's gps location! (NOT FINE). I don't know if they changed that yet as it did cause a bit of an uproar.
All in all, I will stick with the saturated iphone market than go to palm's poorly executed strategy.
[ link to this | view in chronology ]
not 199
[ link to this | view in chronology ]
Mike Mike Mike Mike
We'll see who wins.
[ link to this | view in chronology ]
Mike Mike Mike Mike
I can see the headline now:
"Mike Ho, Employee of the Month for the next three months, makes a reason to buy."
[ link to this | view in chronology ]
why not give the pre for free?
[ link to this | view in chronology ]
why not give the pre for free?
[ link to this | view in chronology ]
I don't think that would help much.
Palm and Elevation Partners have mainly marketed the Pre to the Apple-hater all along. The parents-basement living, MacSux T-shirt wearing, PC gamer/Apple hater. The Engadget/Gizmodo gamer/losers. How are these creeps going to pay a monthly fee for the contract? And besides, who would they call?
Palm's Pre marketing strategy makes no sense at all, except for the creepy girl, who would appeal to the target audience.
[ link to this | view in chronology ]
[ link to this | view in chronology ]
[ link to this | view in chronology ]
Personally, I like Apple's products, I think they are intuitive to a user though I wouldnt quite say that they are as cutting edge as some people believe. I have a pre and have had since launch and have to say IMHO the phone is amazing.
[ link to this | view in chronology ]
No smart phone for me
[ link to this | view in chronology ]
[ link to this | view in chronology ]
Pre for me
I've had my Pre for 6 weeks now and absolutely love it.
And ever since I discovered the growing library of homebrew apps on precentral.net, I'm up to the gills in useful and useless apps (most of what apple app store has too). Many of these apps will be in app catalog soon.
I love the WebOS interactions. I've gone back to iPhone and find it clunky and not smooth to navigate around.
[ link to this | view in chronology ]
As Dan Hesse has already stated, Android device(s) will be hitting Sprint before the end the year. At least one will most likely debut Oct 11th, with pre-sales starting as early as Sept 13th, if you believe the rumors.
With the HTC Hero & Samsung Instinct Q on the way, the Pre is only filling a void in Sprints hardware for a limited time before their are more (and better) choices out there.
It should also be noted that the Pre is only exclusive to Sprint for 6 months and then it should hit VZ, and then what? Will you write how VZ should also be giving the phone away?
[ link to this | view in chronology ]
Bogus
And in just 2.5 months, 1.5 since the SDK was released there are almost 200 homebrew apps, along with 50 official apps.
The pre is more open than the iphone, so while apple had a 2 year head start expect the pre to catch up and surpass it in usuability.
[ link to this | view in chronology ]
Nokia is..
Check again the sale numbers in the smartphone market.
[ link to this | view in chronology ]
Re:
You're wrong.
Nokia is..
No, Apple is.
Check again the sale numbers in the smartphone market.
Ahhhh. I see. It ain't sales we're talking about (and, actually, can you name me a specific Nokia smartphone that outsells the iPhone in head to head competition? Not "all of Nokia" but a specific phone?)
The iPhone is head and shoulders above any other smartphone in terms of what the market wants right now.
[ link to this | view in chronology ]
Inconsistent, Mike ?
So what happens when someone starts reprograming their "free" Palm Pre ? Or is that different ?
Also, in the UK, cellphone usage really rocketed when they introduced "pay as you go" tariffs (people hate contracts and being surprised by big bills).
Now PAYG and contracts probably hold comparable market share. You can't heavily subsidize a phone on PAYG so people see the real price of the phone.
When people can compare the price of the phone on PAYG with that on a contract they figure out how much of the plan is paying for the hardware.
The decision between PAYG and contract thus gets distorted.
[ link to this | view in chronology ]