• Enjoy the freedom to innovate and grow your business

    [ad] With Microsoft Azure you have hybrid cloud flexibility, allowing your platform to span your cloud and on premise data centre. Learn more at microsoftcloud.com.

  • IT Admin: No Time to Save Time?

    [ad] Do you spend too much time patching machines or cleaning up after virus attacks? With automation controlled from a central IT management console accessible anytime, anywhere – you can save time for bigger tasks. Try simple IT management from GFI Cloud and start saving time today!

  • Free Forrester analysis of CRM solutions

    [ad] In this 25 page report, independent analyst house Forrester evaluates 18 significant products in the customer relationship management space from a broad range of vendors, detailing its findings on how CRM suites measure up and plotting where they stand in relation to each other. Download it for free now.

  • Great articles on other sites
  • RSS Great articles on other sites

  • Reader giveaway: Google Nexus 5

    We’re big fans of Google’s Nexus line-up in general at Delimiter towers. Nexus 4, Nexus 7, Nexus 10 … we love pretty much anything Nexus. Because of this we've kicked off a new competition to give away one of Google’s new Nexus 5 smartphones to a lucky reader. Click here to enter.

  • Analysis, Gadgets - Written by on Friday, September 20, 2013 14:04 - 6 Comments

    In the game of iPhone pricing, consumers are the losers


    This article is by Jason Downs, associate lecturer in Strategic Management for the School of Management at RMIT University. It originally appeared on The Conversation.

    analysis Game theory is a branch of strategic decision making that tries to predict how players in any strategic game are likely to act. It can be applied in many situations and it can also help to explain what is going on with the hoopla around the release of the new iPhone today.

    5S pricing was released by all carriers last night. Not surprisingly, there are no deep discounts on the handsets. (The variations in pricing seen on websites this morning are mostly based on variable pricing of the data plan components.)

    However up until this morning the telcos were only offering the pricing structures for the iPhone 5C. Why not the 5S? It turns out that they are playing a strategic game of cat-and-mouse with each other. Here’s how.

    A couple of versions of the iPhone have been released: the 5C and the 5S. Each version will come with different capacity to store data (apps, music, photos etc) but otherwise the functional differences are relatively small. Buyers choose either the cheap looking one (the 5C) or the fancy looking one (the 5S). When the product doesn’t have much functional differentiation, the suppliers don’t have much power to split out pricing in a way to divide the market.

    The next thing to understand is the relative standing of the networks when it comes to handset subscriber marketshare. Telstra is the front-runner with the largest share, Optus occupies second position (but are not far behind) and Vodafone bring up the rear with some clear water between them and the other two.

    Vodafone has had significant problems with their network in the past and as a result subscribers have been bleeding away and going to the other providers. One of the ways Vodafone could reverse this would be to offer subsidised handsets and win back marketshare. Is this likely? No.

    The reason is because the big telcos are acting rationally and have an eye on overall, long-term profitability of the game rather than trying to make a quick buck on this release. Each of the players in the game have now developed an understanding of the (tacit) rules of that game because they have each participated in previous releases. It’s rational to assume that each player wants to maximise their returns.

    The telcos are betting a large portion of the Australian market will upgrade to the iPhone 5S, rather than the 5C. They figure the Australian economy has done reasonably well and that most Australians who are in a position to buy a new iPhone would rather be seen with one that conveys a positive signal of their personal wealth and standing than one that conveys a less positive status-signal via the cheaper (although functionally equivalent) model.

    So now the game is set.

    Telstra and Vodafone moved first by releasing their pricing on the cheaper 5C model. This was the safest move because they figure that proportionally less people will opt for this phone due to status-symbol factors. The real game is in the 5S category for which most consumers are likely to opt. The reason why it was important to release the 5C early is it enables each telco to gauge what the likely move of each other is going to be when it comes to releasing the 5S.

    If Vodafone had released pricing that indicated it was prepared to offer deep subsidies in an effort to grab marketshare, it could potentially be read by the other telcos that they would do the same with the 5S release. The likely response from the other telcos would be to equally heavily subsidise handsets. The net result would be that the overall profitability of all telcos would be lessened (although the consumers would benefit because they get cheaper handsets).

    By releasing pricing of the 5C early and showing that neither is prepared to offer discounts, all players in the game might read that as when it comes to the more valuable 5S market that if they all behave in the same way (no deep subsidies), everyone wins (except the poor consumer, that is).

    If Vodafone are desperate enough, it might be a good strategy to advertise that they are not going to subsidise handsets with the 5C and then when they release their pricing on the 5S change strategy, grab a huge part of the market and repair some of the damage that has been recently done in a dastardly double-cross.

    There are two main reasons that this is unlikely: First, pricing can start high but be changed quickly. It is likely that Telstra would be able to outlast Vodafone and Optus in a protracted price war. Secondly, this release of the iPhone will not be the last. There will be iPhone6 and iPhone7 and iPhone_N_ – the game has many more future rounds to go. If discounting begins now, the incentive will be for telcos to discount in future rounds too – dooming all players to poor profitability levels.

    So what does this mean for the consumers? Vodafone or Optus might offer subsidised handsets for the 5S but that wouldn’t be rational behaviour. They’d ultimately lose in a price war.

    So, don’t expect a subsidised iPhone 5S and for that matter don’t expect subsidised iPhones in any other later release either. The Australian consumer is unfortunately caught in the middle of a strategic game in which they have very little power to influence the outcome.

    Jason owns an iPhone 4S and will probably upgrade to a more advanced model with the next release. Unfortunately he is caught in the middle of a much larger game and will probably have to pay heavily for the privilege. This article was originally published at The Conversation. Read the original article. Image credit: Apple

    The Conversation

    submit to reddit


    You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

    1. stoffs
      Posted 20/09/2013 at 3:25 pm | Permalink |


    2. Daniel
      Posted 21/09/2013 at 7:35 am | Permalink |

      Go Android. Nobody’s forcing you to be played by Apple and the telecos.

    3. Markie
      Posted 21/09/2013 at 10:58 am | Permalink |

      Had use of a quite big Samsung Android recently – it was quite impressive…

    4. Kevin Cobley
      Posted 21/09/2013 at 1:42 pm | Permalink |

      Apple’s new product development is slowly dwindling away, their always overpriced gimmicky products are starting to be seriously out competed by much cheaper offerings from new companies and existing large Asian electronics giants.
      It’s a good time to sell Apple stock, the company is only headed one way and that’s down.

    5. Timothy Walters
      Posted 23/09/2013 at 9:51 am | Permalink |

      Greedy telcos set high prices on a new popular phone release, and all you guys can do is bash the maker of the phone and promote your pet brand?

      I look forward to reading your comments when they price your favourite version of Android hardware too high, will you likewise tell people to buy Microsoft or Apple phones?

      My guess: you’ll all become hypocrites, feel free to prove me wrong.

    6. Daniel
      Posted 23/09/2013 at 10:00 am | Permalink |

      Timothy, there is a big difference: There is huge competition among multiple manufacturers for Android phones which prevents collusion between telecos and manufacturers and/or inflated prices based on monopoly of supply.

      There is true free-market competition for Android phones and you can choose from hundreds of different phones whose prices are not influenced by the telecos or a single manufacturer.

    Get our 'Best of the Week' newsletter on Fridays

    Just the most important stories, one email a week.

    Email address:

  • Most Popular Content

  • Six smart secrets for nurturing customer relationships
    [ad] Today, we are experiencing a world where behind every app, every device, and every connection, is a customer. Your customers will demand you to be where they and managing customer relationship is the key to your business’s growth. The question is where do you start? Click here to download six free whitepapers to help you connect with your customers in a whole new way.
  • Enterprise IT stories

    • WA Health told: Hire a goddamn CIO already doctor

      A state parliamentary committee has told Western Australia’s Department of Health to end four years of acting appointments and hire a permanent CIO, in the wake of news that the lack of such an executive role in the department contributed directly to the fiasco at the state’s new Fiona Stanley Hospital, much of which has revolved around poorly delivered IT systems.

    • Former whole of Qld Govt CIO Grant resigns petergrant

      High-flying IT executive Peter Grant has left his senior position in the Queensland State Government, a year after the state demoted him from the whole of government chief information officer role he had held for the second time.

    • Hills dumped $18m ERP/CRM rollout for Salesforce.com hills

      According to a blog post published by Salesforce.com today, one of Ted Pretty’s first moves upon taking up managing director role at iconic Australian brand Hills in 2012 was to halt an expensive traditional business software project and call Salesforce.com instead.

    • Dropbox opens Sydney office koalabox

      Cloud computing storage player Dropbox has announced it is opening an office in Sydney, as competition in the local enterprise cloud storage market accelerates.

    • Heartbleed, internal outages: CBA’s horror 24 hours commbankatm

      The Commonwealth Bank’s IT division has suffered something of a nightmare 24 hours, with a catastrophic internal IT outage taking down multiple systems and resulting in physical branches being offline, and the bank separately suffering public opprobrium stemming from contradictory statements it made with respect to potential vulnerabilities stemming from the Heartbleed OpenSSL bug.

    • Android in the enterprise: Three Aussie examples from Samsung androidapple

      Forget iOS and Windows. Today we present three decently sized deployments of Android in the Australian market on Samsung’s hardware, which the Korean vendor has dug up from its archives over the past several years for us after a little prompting :)

    • Businesslink cancelled Office 365 rollout cancelled

      Microsoft has been on a bit of a tear recently in Australia with its cloud-based Office 365 platform, signing up major customers such as the Queensland Government, Qantas, V8 Supercars and rental chain Mr Rental. And it’s not hard to see why, with the platform’s hybrid cloud/traditional deployment model giving customers substantial options. However, as iTNews reported last week, it hasn’t been all plain sailing for Redmond in this arena.

    • Qld Govt inks $26.5m deal for Office 365 walker

      The Queensland State Government yesterday announced it had signed a $26.5 million deal with Microsoft which will gain the state access to Microsoft’s Office 365 software and services platform. However, with the deal not covering operating system licences and not being mandatory for departments and agencies, it remains unclear what its impact will be.

    • Hospital IT booking system ‘putting lives at risk’ doctor

      A new IT booking platform at the Austin Hospital and Olivia Newton-John Cancer and Wellness Centre in Melbourne is reportedly placing the welfare of patients with serious conditions at risk.

    • Bailey quits Macquarie for non-profit COO role marc-bailey

      Long-time Macquarie University chief information officer Marc Bailey has left the educational institution to join non-profit group Intersect, which focuses on applying advanced ICT technologies to the practice of research.

  • Enterprise IT, Featured, News - Apr 16, 2014 16:49 - 0 Comments

    WA Health told: Hire a goddamn CIO already

    More In Enterprise IT

    News, Telecommunications - Apr 16, 2014 11:46 - 65 Comments

    CBN FTTN test shows speeds of 105Mbps

    More In Telecommunications

    Industry, News - Apr 15, 2014 15:54 - 3 Comments

    Hackett takes 40 percent UltraServe stake

    More In Industry

    Analysis, Digital Rights - Apr 14, 2014 9:40 - 7 Comments

    NAB’s Bitcoin ban a symptom of the digital currency threat

    More In Digital Rights