Monday, November 30, 2009

Doing things the expensive way

This article talks about how the Motorola Droid Android phone has sold well. But it seems insane to me to incur that kind of cost-per-customer. That high cost has to be reflected somewhere. One place I expect it to be reflected is in continuing high prices for mobile data plans. Also maybe it means they can't afford to prevent or fix simple problems, like the battery cover falling off. I have had a similar problem with the back of the myTouch Android phone--the back cover seems very prone to fall off.

However, the success of the Droid is coming at a cost to Verizon. They are spending in excess of $100 million on one of the largest marketing campaigns I have ever witnessed. Over the past month I have seen non-stop television, radio, internet, billboard, and print ads. Verizon also has about a $350 subsidy on each phone ($549-199).

When you add up the advertising costs and subsidy, Verizon is paying almost $450 to acquire each Droid customer. I guess when you are the largest United States carrier, you can afford to do that. Verizon also knows that each Android phone is attached to a data plan so the influx of customers should help increase their ARPU (average revenue per user). In an order to offset the high subsidy costs, Verizon recently raised (doubled) their early termination fee to $350.

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