Posted by Matt Egan 14 November 2013
Calculating the true cost of your phone, tablet or laptop
Why is the Nexus 5 so cheap? How come Tesco can sell the Hudl for next to nothing? We explain the true cost of that new smartphone or tablet. (For more, see: Why is the Nexus 5 so cheap?)
Pay day loans from the likes of Wonga are hot news right now. The great-and-the-good have lined up to condemn the exploitation of desperate people with cash now for which you pay a lot later. It's a bad thing. But it did make me consider the ways we pay for tech: we don't always pay the full cost up front, and working out the true value of a device can be tricky.
A few years ago broadband suppliers rushed to give away netbooks and laptops with expensive 18-month contracts. Leaving aside the debatable ‘value' of netbooks - good only at being cheap - in the end with such schemes you always paid more for the laptop than you would have paying up front. But given the chance of a shiny laptop for ‘free' many people were sucked in. It's the equivalent of the free Parker pen Parky gives you just for enquiring about life insurance (and just as good value). Broadband suppliers these days focus more on bundling TV channels, or public Wi-Fi subscriptions. The real action can be found in mobiles, where consumers can be persuaded to purchase every year or two, even if their existing handset works well.
A ‘free' contract phone is always more expensive than buying a handset outright and selecting a SIM-only tarrif to suit your needs. Especially so when you consider the resale value of second hand smartphones. But for many people the desire to walk out of the store with a new iPhone or Galaxy outweighs the long-term consequence. And who has £500 to spend on a phone anyway? Telcos are smart, throwing in SMS messages you will never send, and offering iPads and games consoles to persuade people to sign up for 18- or 24 months. That alone should tell you what poor value such ‘deals' are.
The hidden cost of tech
But there are hidden costs everywhere. The best smartphone deal on the market right now is to buy the Nexus 5 outright and source your own SIM. But why is the Nexus 5 so cheap, when it is in essence the same handset as the LG G2? Google subsidises each Nexus device. It does so to encourage use of the Google Play Store, for the purchase of apps and media drives cash money into Google's coffers. But it's also a loss leader to drive Android adoption.
Google wants people to use Android not because it is a friendly giant, but because it makes money from selling adverts. The more you use Android, the more Google knows about you, and the more it can make from delivering targeted ads at you on Google search pages, in Gmail, and on the wider web.
It's the same principle with Tesco's Hudl tablet, which costs £119 unless you have enough Club Card points, in which case it can cost you next to nothing. The Hudl is an extension of the Club Card: a means of knowing not only what you eat and drink but what films you watch, music you listen to and books you read. For a retailer the size of Tesco this is hugely valuable data.
I have no problem with any of this activity - I derive my income in part from a website that carries Google ads. But it is part of the total cost of any device.
You may not pay up front or in increments, but Tesco, Google and others sell loss-leading hardware because the data they gather makes you more valuable to them. And if the model works that means at some point you will pay with your purchasing power.