[huggyface]

The phone market is significantly warped by carriers. When people's contract are up, they walk into their carrier store and ask the salesperson what phone to buy.

The phone market is indeed significantly warped by subsidies from the carriers. If carrier subsidies didn't exist (if people didn't fall for it being subsumed into the cost of plans) the iPhone market would never have taken off (Ballmer in his original dismissal of the iPhone was actually right -- people won't pay $600 for a phone. They will, however, pay $149 and pay the rest over the contract period while acting blind to it). Those value options would decimate it.

Aside from that whole "carriers against Apple" bit (completely opposite of reality), the tablet market already is playing out like the smartphone industry. With each successive quarter Apple's share drops (while their volume increases just as in smartphones). They once had it in the bag, and now account for about 1/2 of tablets, heading ever downwards.

[DavidAdams]

Except that the original iPhone launch was gangbusters, and it did cost $600. But Apple had the advantage of absolute novelty and a dose of fanboysim back then. So Ballmer was right in general about the phone market, but he was oh so wrong about the iPhone launch in particular. Apple just needed to pivot to a carrier-subsidized model once the initial enthusiasm wave receeded.

[jad]

> The phone market is indeed significantly warped by subsidies from the carriers. If carrier subsidies didn't exist (if people didn't fall for it being subsumed into the cost of plans) the iPhone market would never have taken off.

The point I made about carriers was about Apple owning their sales channel. Most people buy their phones directly from carriers. Carriers have their own agendas. Thus Apple has less control over the phone sales channel than they do for any other product they sell. It matters. We could debate how much, but it matters. For example, if I walk into an AT&T store and ask the salesperson, "I want a smartphone", and he replies, "This Lumia 900 is our latest and greatest" and so I buy that, my opinion is that that has a real impact on the market.

Regarding your point, though, if carrier subsidies didn't exist, presumably they wouldn't exist for anyone, so who knows what the market would look like? It might favor Apple even more. Their supply chain seems to be the best in the industry. Rivals are having trouble making tablets with similar features for competitive prices, and competing PC manufacturers are having trouble selling ultrabooks for similar prices as MacBook Airs. So wouldn't it stand to reason that in a subsidy-free world, Apple could make a phone for $300 or $400 and still make a healthy profit, but Samsung or HTC or Nokia would struggle to do the same?

> They once had it in the bag, and now account for about 1/2 of tablets, heading ever downwards.

Do you have a link for this? I'm sure you're familiar with discussions of market share based on shipped vs. sold. And this is only anecdotal evidence, but just about everywhere I go -- coffee shops, airports -- all I see are iPads. I've seen maybe 2 or 3 Android tablets (including the Kindle Fire) in the wild ever. Again just anecdotal, but it was pretty clear once Android phones started to gain traction and were selling in real numbers. It doesn't seem that way at all with the tablet market.

I'm not sure that the tablet market will really settle down to look like the iPod market. There is too much money to be made and way more competition than there ever was for portable mp3 players. But I do think a lot of the market fundamentals are the same as they were with the iPod, and assuming Apple removes the price umbrella relatively soon, I think it's going to take a _significantly higher quality product_ than what we're seeing today before competitors start gaining real traction.