Phoneyness

How much to you think a new iPhone costs? Let's say 32 gb, the middle level. $299, right? Wrong! A 32gb iPhone 4S costs $749. You can get one for $299 from your cell phone provider, but only in exchange for your signing a 2 year contract, obligating you to a monthly service fee which ranges, depending on your service level, from $70 to around $250 per month.

In other words, the cell phone companies make so much money off your monthly service fee that they consider it smart to discount your phone by $450. That's nearly $40 per mont over the 2 years.

So-called loss leaders are nothing new. A big discount on a popular item or two to lure people into a store? Classic retail sales technique. The first company to make big money off selling equipment for less than cost was Polaroid, which is no longer around.

Polaroid made the first instant cameras. Most cameras took pictures on film that had to be carried or mailed to a processing lab for developing and printing. This took anywhere from a few hours to several days. But a guy named Edwin Land invented a camera whose film contained its own developing chemicals, allowing pictures to appear within a minute or so. This was a one-of-a-kind thing and amazing, but expensive. But because Land and his company Polaroid made both the cameras and the film, they hit on the idea of selling the camera for less than what it cost to make and then making their money off the film. So lots of little profits instead of one big one.

Polaroid's out of business because digital camera technology made it obsolete, but they were very profitable for a long time. The most prevalent example of this strategy today is ink-jet printers. The printers themselves are sold at a price below cost, and the money is made on the ink. That's why they tell you not to refill the cartridges.

Cell phone subsidies, as they're called, are a similar tactic and here's how absurd it gets. Someone in my family has a phone that's a lemon. It's never worked right, the battery dies quickly, it's lousy. But it's not due for upgrade until next March and we just can't live with it anymore. So I went to the Verizon web site and saw that the phone cost $749 and was not pleased. So today I went to the Verizon store and I learned something. It's cheaper to get a whole new phone line and pay for 2 years of service with the discounted phone than it is to just buy the damned phone. Not just cheaper, more than $200 cheaper. How about that?

So now I have an extra phone line, which I don't even know the number for. It just seems wrong. What if someone calls? Should I pick up?