In This Issue:
1. Editor's Note: The Razor-Blade Strategy
2. Today's Top Story
- Microsoft Would Lose Patent Rights Under New Linux License Terms
3. Breaking News
- Feds Arrest 'Spam King' On 9 Charges
- Everest Game Takes Players Into Thin Air
- World's Largest News Organization To Monitor Web Use Of Its Content
- eHarmony Sued In California For Excluding Gays
- Gartner Lowers Global Sales Forecast For Semiconductors
- Wireless Silicon Valley Behind Schedule
- Lenovo Ultraportables Get Wireless Performance Boost
- EU Decision On Google Data Privacy Months Away
- ChoicePoint Settles With States Over Data Breach
- Dog Lovers Warned About Online Puppy Scam
4. The Latest Personal Tech Blog Posts:
- Doing the iPhone Shuffle
- Are Carriers Delaying The S60 Mobile Version Of Skype?
- Jobs Says EDGE Is Fast: Has The Reality Distortion Field Hit The iPhone?
- Top Five Reasons The Palm Foleo Makes No Sense
5. Job Listings From TechCareers
6. White Papers
- Good Mobile Messaging For Executives And Professional Field Forces
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Quote of the day:
"The only way not to think about money is to have a great deal of it." -- Edith Wharton
1. Editor's Note: The Razor-Blade Strategy
Have you heard about the razor-blade strategy (also called, according to Wikipedia, the "bait and hook model")? The idea is that a company sells you a razor for next to nothing -- or gives it away free. Great deal, right? You get the razor, and the manufacturer gets to sell you high-cost razor blades for the next few years (or, at least, for as long as you use the razor), making a lot more than was invested in the initial device. Now, how many tech products can you count that follow that same marketing strategy?
The first -- and most obvious -- answer is printers. The price of laser and inkjet printers has taken a huge dive in the last few years, to the point that several PC manufacturers (such as Dell) are giving away basic printers as incentives. However, the cost of supplying those printers with ink or toner cartridges has remained high -- and so profitable that printer manufacturers have dragged would-be third-party suppliers through the courts for years, trying to maintain a semi-monopoly on the cartridge supply. They are slowly being forced to share the field (check out our special report on The Cartridge Wars), and as a result, consumers are now being offered legitimate third-party cartridges and
But it was a long fight.
OK, what else? Give up? How about your cell phone?
My colleague Eric Zeman has already commented in his blog on the study by J.D. Powers that says that Americans are opting for less expensive cell phones and holding on to them longer. They're able to do this because phone manufacturers are subsidizing the cost of the phones in order to get people to purchase long-term contracts -- and as a result, many of us are using older models with less snazzy features. "People won't know what to do with themselves if they have to actually fork over some cash for their phones," he concludes.
He's right -- if I had to pay the full retail value for my basic cell phone, I'd be a bit peeved. But it wouldn't be because I'm not used to forking over cash to the phone companies. Anyone who owns a cell phone that isn't supplied by their employer knows that, no matter what kind of monthly fee you contracted your service for, it will go up steadily month by month through the use of increased taxes, surcharges, added fees, and dozens of other little unannounced costs. So I strongly suspect -- and I'm sure many other consumers do likewise -- that no matter how subsidized that little phone is, the company that supplied it makes up the difference one way or another by the time that two-year contract is over. Another razor sold.
Take my own case. My low-cost, older-model cell phone took an inadvertent (and fatal) dip in the Atlantic Ocean over the Memorial Day weekend -- about three months before my two-year contract was up. Am I running out to buy a market-price $600 Treo so that I can make calls, check my e-mail, surf the Web, and contribute to the health of the economy? In my dreams, sure. But what I'm actually doing is buying my old model on eBay for about $25 so that I can afford something a little better once September rolls around.
What do you think? Is the subsidized cell phone an example of the razor-blade strategy or just bad planning by the phone companies? How do you choose which cell phone to buy -- according to what you need, what you want, or what you can afford? Leave a comment at the InformationWeek Blog and let us know.
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