Phil for Humanity Phil for Humanity
A Guide for the Survival of Humankind and Helping the World, Society, and Yourself.

The Price of Progress

I was talking to a friend yesterday about how fast technology was increasing and prices were decreasing, and we realized two startling things. So here goes:

In 2004, Motorola released the RAZR cellphone originally selling for $800 (US dollars) and with a two year contract. Two years later in 2006, cellphone service providers were selling newer models of the same cellphone for free with also a two year contract. Within those same two years, I think each and every competitor of Motorola had a copycat clone or a similar stylish and ultra slim cellphone targeting the same set of customers at also very low prices.

Another example is that in 2005, Apple released the iPod nano that I believe was selling for $200 or $250 (for the 2GB version). Again flash forward two years to 2007, anyone can buy the same version iPod for under $80 on ebay. Within two years of release, there were literally hundreds of cheap knockoffs available. In 2007, you can even buy a cheap mp3 player for $15 (plus shipping and handling) on Woot.

I can give you quite a few other examples that all show that about within two years of any release of a new groundbreaking technology, competitors successfully produce ultra cheap versions that cause the prices of these products to decrease at stunning speeds.

This is not just the economies of scale (i.e. mass production) causing prices to fail. If you look at the functionality of new computers, laptops, HDTV plasma televisions, and LCD monitors, you will notice that performance, size, features, and functionality are all increasing as prices dramatically decrease.

This leads me to my first realization. Manufacturers need to continuously create newer models with greater functionality, size, performance, etc. just to maintain high levels of profit. If a company stopped releasing newer and improved versions of their products for even a few months, the prices of their existing products would pummel even faster because of competition and economies of scale. Seriously, what do you think would happen to the prices of large flat televisions if even larger TVs were not going to be made and the economies of scale of all manufacturers continued to increase? I would guess profits would quickly and drastically decrease per unit. So much so, it would force some manufacturers out of business.

The next thing that we realized was the integration of products. After taking some photographs with a 2 megapixels cellphone that happened to also be a camera, it was very clear that certain products won't exist in a few years. Granted that cellphones are currently not as good as dedicated digital cameras for taking pictures; but in a few years, the quality will be identical. Furthermore, everyone carries a cellphone with them where ever they go, so the convenience of a cellphone that is also a camera is well worth the price. Actually, I don't think there is a noticeable price difference between cellphones with or without cameras.

The same thing is going to be happening to music players in a few years (maybe months). Cellphones can now play mp3s just as well as any music player, and why would anyone want to carry two or more devices. I would hate to own stock in a company that just makes digital cameras or mp3 players.. at least in the long term.

So, my second realization is that technologies are being integrated so that fewer individual products will be necessary. As cellphones become more like laptops and laptops become more like communication devices, I can't wait to see who wins that battle. Either way, I think the customers are definitely going to win.

In conclusion, my two realizations were this. First, it is not the customers demanding bigger and faster products; but rather, companies need to continuously maintain large profit margins with new and improved products. Second, all technologies are being integrated in single products, thus this will eventually eliminate entire product lines. This is the price of progress.

by Phil for Humanity
on 06/04/2007

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