Monthly Archives: June 2009

Why I Don’t Have a Palm Pre Yet

June 6th was the launch date for the Palm Pre, the heavily hyped new smartphone from Palm and Sprint.  What I really want in a phone is something that matches the elegance and simplicity of the user interface on Apple’s iPhone, but still includes a physical keyboard and multitasking capabilities.  The Pre appears to be a very close fit, almost certainly much better than the Windows-mobile based HTC Touch Pro that I bought last year.

I definitely tend to be an early-adopter on new gadgets, so it certainly wouldn’t have been surprising if I had run out to buy a Pre last weekend.  In fact, I would have very much liked to have made that purchase.  Unfortunately, I’m already a Sprint customer and, as I mentioned earlier, I purchased a new phone last year.  Because of this, I am not currently eligible for upgrade pricing, which means that any phone purchased now would cost me considerably higher than the new or upgrade eligible customer pricing, which, of course, is the pricing that Sprint and Palm are advertising publicly.

I am, of course, under a 2-year contract with Sprint that was a necessary condition for the purchase of my last phone.  I completely recognize the validity and legality of that contract and that it is the underlying reason why I am not eligible for upgrading without a price penalty.  My purpose in this post is not to argue that my situation is somehow unfair or that I am being denied an entitlement.  I never had any expectation of being able to upgrade early and I don’t believe that there is anything unethical, much less illegal, about the system.

What I do question pretty strongly is whether or not the current business model used by the cell phone industry is a correct one in today’s marketplace.  Particularly since Apple has turned the smartphone into a much more mainstream product with the iPhone, the industry has entered a phase of extremely rapid growth and enhanced competition with frequent introduction of new models with desirable new features.  I strongly question whether customers are going to continue to be willing to accept a system that requires a 2 year wait between upgrades.

I had initially started thinking about this as subject for a blog post after getting into a Twitter discussion of it during the day of the Pre launch.  I got busy with other things and didn’t find time to start working on it until later.  In the meantime, this became a very hot subject generating a lot of coverage both in blogs and the mainstream press after Apple announced the third-generation version of the iPhone and AT&T revealed that the lower pricing would not be available to current iPhone owners that are still under contract.  This is a change from the approach taken with the last version of the iPhone, which was offered at the new-customer price to owners of the previous version, regardless of contract status.

The central idea behind current business model used by the cell phone industry is that the carriers subsidize a portion of the purchase price for the phone in exchange for the customer committing to a service contract, generally for 2 years.  If the customer chooses to switch carriers before the contract is up, he/she is obligated to pay a fairly substantial fee to buy out the contract.  Most carriers offer the customer the option of a smaller discount on an a new phone half way through the contract.  After the contract expires, the customer is generally eligible to again get the same subsidy offered to a new subscriber.

The contract system eliminates a lot of the need for carriers to expend much effort in customer retention, outside of the discounted phones offered at the end of the contract.  This likely saves the companies a lot of money, but is also almost certainly the biggest contributor to the industry’s reputation for poor customer service.  I have found that no matter which of the big cell phone carriers is mentioned, it doesn’t take long for someone to start telling stories about their horrible experiences.

It is in the best interest of the cellular carriers for most phones to have non-subsidized prices that are prohibitively high for most people since, otherwise, it is a safe bet that most people would forgo the contract.  This would make it much easier for customers to switch carriers at will and, thus, would greatly increase the cost and effort that the companies would have to expend towards retention.  I have little doubt that this would dramatically improve the quality of the customer experience, but it might or might not have a negative impact on profitability.

The big question is whether or not the non-subsidized prices really reflect the true cost of a cell phone or if they are kept artificially inflated by the cell phone manufacturers as a result of the subsidy-based sales model.  I admit that I have no direct knowledge, but my educated speculation is that the subsidized prices are probably more realistic.  The non-subsidized prices for phones (especially smartphones) simply seem way out of proportion with the pricing for other portable electronics.  In most cases, those prices are pretty close to what you would pay for a full-featured laptop computer and considerably higher than netbooks, stand-alone PDAs, or portable media players, any of which would seem more comparable technology.

The most obvious direct comparison would really be between the iPhone and the iPod Touch, which is basically an iPhone without the cellular radio or camera.  The pricing information for the 16GB version of the new iPhone 3GS has indicated that it costs $199 fully-subsidized (the price widely advertised), $399 for customers 1-year into their 2-year contract, or $599 un-subsidized.  The suggested retail price of the 16GB iPod Touch is $299 and it can be found in the $260-$275 range if you shop around.  I can certainly see where the added features of the iPhone would justify a higher price, but does it really make sense that they would double it?

In all fairness, my instinct looking at those numbers is that the $399 price offered after 1-year is probably the most realistic one.  While I suspect the price on the iPod Touch is also a bit inflated (it doesn’t really have direct competitors), it really does look like the $199 price probably brings in a pretty thin profit margin, if there is any at all.  The same is probably true with the similarly priced Palm Pre, although it does also have somewhat lighter specs, including only 8GB of memory. Even if the subsidies do push the prices down below the actual cost of the phone, I can still see justification for why the carriers might want to subsidize even for existing customers still under contract in order to prolong their contract and help to ensure loyalty.

I think that they might want to look to the satellite TV business as a possible example.  I’ve been a DirecTV customer for a number of years and they also use a system of contracts and subsidized equipment.  The big difference from the cellular business, though, is that DirecTV lets current customers upgrade their equipment (such as going to a DVR or hi-definition) at the fully subsidized price no matter how far they are into a contract.  The one catch is that doing so will reset their contractual start date to the date of the upgrade.  This helps to accommodate any need that the customer might have to move up to something better or different, while also pushing further back the date at which he/she might be able to switch to a competitor.

I do imagine that the cellular industry would probably prefer to stick with the current fairly customer-unfriendly system for as long as possible, but I do seem some recent signs that they may very well be changing their approach.  The recent publicity over AT&T’s prices for iPhone upgrades hasn’t been very good for them, even if they are pretty clearly within their rights.  A fan base as loyal as the more vocal iPhone owners, particularly when they are so willing to spend more money to make sure they have the latest and greatest, really does need to be cultivated and protected.  Policies that seem to directly target those loyal customers may not be in the company’s best interest, even if they appear to be the most financially prudent on the surface.

Another interesting development is Sprint’s recent introduction of the Sprint Premier loyalty program.  Customers that have achieved high longevity (10 years or more) or have one of the higher-end service plans (priced over $69.99/month, a fairly common price point for a smartphone with both a voice and data plan) are automatically enrolled in that program.  While the program offers a number of smaller benefits, the big one is that those customers are eligible for the fully-subsidized upgrade price at the end of the first year of a 2-year contract.  While Sprint’s recent issues with customer retention probably made this more necessary for them, it still is a pretty clear acknowledgement that higher-end customers are increasingly unwilling to wait 2 years between upgrades.

Jay Leno’s Last Tonight Show

This last Friday, Jay Leno hosted his last The Tonight Show episode before his move to a 10pm Monday-Friday primetime variety show in the Fall.  I watched the show and realized that it was the first time in several years that I had watched one of his shows all the way through, although I had seen an occasional segment or two when someone of interest was a guest on the show.

I have really never been a fan of Leno’s version of The Tonight Show, which came as both a surprise and a disappointment to me.  I pretty regularly watched the show when he was the permanent guest host for Johnny Carson and usually enjoyed it quite a bit.  In fact, I had felt that Carson had kind of started to phone in the show during his last few years and I frequently found Leno’s shows to be more engaging.  Leno had also been a very frequent guest on Late Night With David Letterman and was consistently very funny during those shows.

I was going to college in Milwaukee during the late 1980s when Leno was most frequently guest-hosting for Carson.  Twice during that time, Leno brought his touring stand-up comedy concert to town and I went to see him both times.  I can’t really think of many, if any, other shows that have made me laugh harder and more consistently than those two shows.  As a concert stand-up comic, Leno was (probably still is) absolutely hilarious.  I resisted for quite a while buying a ticket for the second concert (which was about a year or so after the first), but my memory of how funny that first one had been eventually got the better of me.  The second time was just as funny and I recall being pretty stunned at how little repetition there was between the two shows.

With all that, I was surprised that I never could warm up at all to Leno’s version of “The Tonight Show”.  I watched the show quite a bit during its first year or so and have continued sampling it periodically over the years, but I have always found the show to be bland and generally not too funny.  I recall liking him much better when guest-hosting for Carson, so much of the problem may come from his own shaping of the show’s style and format.  While I found Leno to be both ingratiating and tremendously funny as a concert stand-up comedian, I generally found him fairly smarmy and even a bit irritating as a talk show host.

The interview segments that I’ve seen have been particularly weak, with Leno allowing way too much latitude for the guests to plug whatever project they are on to promote.  He didn’t seem to be very effective at providing support to guests that were less than comfortable with the format, either.  Last year, I watched his interview with Harrison Ford when he was on the show to promote the new Indiana Jones film.  Ford is notoriously uncomfortable in interviews and has a real tendency to become almost painfully silly unless the interviewer works hard to steer the conversation.  His interview with Leno was borderline embarrassing and a rather stark contrast compared to the segment Ford did with David Letterman the following week.

While I’m sure that Friday night’s final show wasn’t really a representative sample, I still didn’t really see much improvement.  Leno’s monologue wasn’t bad (stand-up is obviously his true calling), although the material seemed a bit thin and Leno kind of over-sold it.  The only interview segment was with Conan O’Brien, the new host of The Tonight Show.  Not surprisingly, it was really more of a passing of the baton than a real interview.  The musical guest was James Taylor, who was apparently a Leno favorite, but is not that dynamic a performer.

The result was fairly boring, leading me to think that he really needed to bring on very strong closing guests that would have left more of a lasting impression to help lead up to his new show in the fall.  I could see a potential argument that this wasn’t really a true “farewell” show since Leno is really just moving to an earlier timeslot, but it still seems that this show was sure to get a bit more of an audience (the reports are that the ratings for Friday were double the average for the show) and it would have helped for this show to leave the viewers wanting more.  I think back to David Letterman’s final NBC show where the guests were Tom Hanks and Bruce Springsteen (making his first appearance on the show), which felt much more like an event.

Leno closed the show with a fairly sweet segment at the end where he brought out all the children that had been born to Tonight Show staff members during his tenure as host.  This was a nice ending, although naturally it would have had a lot more meaning for the staff than for the audience.  The segment also seemed a tad rushed, without any time for Leno to directly interact with any of the kids.  It also struck me as a little off that the very last part of the show was something that was directed more towards the staff and crew than the show’s audience.  My sense is that this might have been a more effective segment for the show’s midpoint, preferably with a bit more actual participation by the kids, and that he would have been better off ending the show with a “see you later” speech that was a little more squarely directed at the studio and home audiences.

Other than the monologue, there was only one major comedy segment during Friday night’s show, which was a highlights reel from Leno’s recurring “Jaywalking” segment.  I had heard references to this as Leno’s most popular comedy bit, but I don’t think I had ever seen one of these segments before.  It is a “man-on-the-street” segment where Leno would go up to people and ask them fairly simple history or current events questions.  The bit would then be edited together from incorrect responses, sometimes with Leno kind of trying to bait the respondents into either a correction or digging themselves deeper.

What struck me was that the segment not was pretty unfunny to me, but it was also surprisingly mean spirited.  It definitely felt like Leno was asking the audience to laugh at the people and not with them.  Despite the flaws with his show, I had always generally found Leno’s comedy to be pretty gentle, remaining fairly good natured even when going after political or celebrity targets.  Certainly, he has long had a reputation for being a nice guy, particularly compared to David Letterman’s more acerbic approach.  Even in the live concert performances I attended, Leno worked very clean (no profanity or significant scatological material) and his comedy was much more observational than confrontational.  The “Jaywalking” bit seemed pretty out of character.

I should acknowledge that I have been a long time David Letterman fan, extending back to before I even had heard of Jay Leno.  I initially discovered Letterman’s NBC show fairly early in its run and would watch it whenever my Junior High School schedule would allow.  Once we got a VCR (during my sophomore year of high school), the show became a usual part of my after-school ritual.  Throughout college, I watched the show as it aired most nights, helped by the fact that it came on 11:30 in Milwaukee.  I don’t watch his show nearly as often today, but we do still have our DVR set to record it each night and occasionally pick and choose an episode to watch (often based on who the guests were) when time allows.

While I was never overly impressed with Leno’s version of the show, I did at least tune it in periodically before Letterman moved his show to the same timeslot over on CBS.  If it weren’t competing with a show that I prefer by quite a bit, I suppose I might have continued to tune in a bit more.  While I don’t think that Letterman is nearly as daring as he was during his early days and his show has probably fallen into way too much of a routine, I do also think he is the top master of this form of program at this time, having now attained a skill level that rivals Carson.

Despite my admiration for Letterman’s skills, I’ve never really been in agreement with those (possibly including Letterman himself) that felt that NBC made a mistake by giving the Tonight Show job to Leno instead.  I think Letterman would likely have been overly constrained by the legacy of The Tonight Show, particularly by the likelihood that he would have succumbed to the pressure to do the show from Southern California instead of New York.  I think he has been better served by creating his own franchise without being bound to maintain someone else’s tradition or do the show from a venue that isn’t as good a fit to his style.

I also have to acknowledge that the choice of Leno over Letterman was almost certainly the best thing for NBC.  Unquestionably, there is a huge amount of subjectivity to one’s reaction to comedy and entertainment in general and there is a lot of indication that many disagree with my subjective opinion of Leno’s Tonight Show.  The show has maintained pretty consistently good ratings during Leno’s tenure (after a bumpy first couple years) and it has usually had more viewers than Letterman’s show by a pretty wide margin.  I honestly am not really sure why, but Leno’s show clearly has had quite a bit of mainstream appeal.

Despite being generally unimpressed with the show over the years, I still have very fond memories of those live shows that I saw and I guess I do still have something of a soft spot for Leno.  That is why I wanted to watch his last show and I suspect I will at least give his new show a chance this fall.  I’ve heard that it may shift more towards a comedy/variety format rather than the usual late night talk show approach, so maybe I’ll find this one to be a better fit for his talents.  I actually hope that is the case.