Moto X

Now that Google-owned Motorola has officially announced the Moto X, I’m noticing some interesting discussion around pricing and gross margin. And it has me wondering if Google is set to cause Apple and Samsung significant pain.

Moto X is getting good reviews, and it looks like a pretty cool phone. But what I’m more interested in is the price. According to reports, Motorola is selling the phone to AT&T at $350, meaning that the carrier subsidy is only $150 since the contract price is the usual $199 we see on new phones. 

Most new higher-end phones have higher average selling prices (ASP) than this. We’re all well aware that the iPhone 5, for example, commands over $600, and that a Samsung Galaxy S4 is likely in the mid $500 range.

"Selling a phone at a profit makes sense when you are a hardware company like Motorola — but throw Google into the mix and things could change."

Google has been disrupting prices on tablets for a while already, along with Amazon. They are more interested in selling tablets at cost, as evidenced by the low price tag of $229 for the latest Nexus 7. The LG-made but Google-branded Nexus 4 is also sold for as little as $299 (8 GB version), but it hasn’t been very disruptive to the market because it is not widely distributed through carriers.

Now we have the Moto X. It’s going to be widely distributed through five U.S. carriers and if they're paying $350 for the phone (and it's likely they're not all paying the same thing), carriers are making way more money promoting this phone because of lower subsidies. This leaves them with the choice of either dropping the contract pricing much closer to zero, or pushing hard on Samsung and Apple to reduce the ASP on their latest hardware.

So far Google says Motorola is being operated as a separate company. Goldman Sachs thinks that the Moto X can generate 29 percent gross margin if sold at $300. I think they are overestimating margin, but I could be wrong. I do think at $350 there is a reasonable profit on the phone. Selling a phone at a profit makes sense when you are a hardware company like Motorola. But, eventually, I suspect Google won’t be treating Motorola as a separately run company. And if Google doesn’t need to make money on hardware, it could really set the pricing bar low, making it very difficult for other manufacturers to earn as much as they’ve been used to.

"Can Apple keep up the sort of margins it has in the past? It's doubtful."

The more I think about it, the more I believe we’re quickly going to approach a scenario where Apple’s iPhone brings in maybe 30 percent gross margin, not the 60-ish percent  we’re used to. Apple has the brand power and tight software integration to justify that kind of still-respectable margin. But does Samsung? Yeah, they’ve got excellent brand power. But they aren’t really differentiated on software integration like Apple is. If Google continues on its aggressive path, will Samsung be able to make the kind of money shareholders are used to seeing? 

Personally, I think there is a lot more risk in owning Samsung than Apple these days, and for that matter Google also. That’s not to knock Samsung's own excellent products ... but I’d rather own shares of Google and Apple (and I do).

There are 80 comments

Mac58 says:

Wait..but y is google not selling moto x unlocked to consumer for 350?

hbar98 says:

Or not on all carriers at the same time?

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PaulKinslow1 says:

The real question is whether they can sell enough of them at this high price when competitor's phones have specs that are so much better for the same price. Are there really enough of us that want this device at those prices? Time will tell.

still1 says:

you were concerned about not selling it to you for 350?? Seriously??? All smart phones which only cost less than $200 to make sells higher priced via carrier. this has been going on for years. iPhone,S4,HTC One and all the thousands of phone but now you are concerned????
Now do you understand why people are buying Nexus 4???

Mac58 says:

I don't think you understood my comment. What most phone manufacturers do they sell the phone outright to carriers for a certain price. Carries do not make money off of phone they make money off of contract so the fact that Google is telling Moto X to carriers for only $350 and the carriers are making extra money off the price on the phone is a bit odd. for example Apple sells unlock iPhones to each carrier for set price which is the price that you pay if you buy an unlocked phone from a carrier the same thing goes for HTC One or a samsung galaxy s4

kingjames924 says:

Wholesale is wholesale and retail is retail. Yes AT&T and Verizon make money off of the contract, but they also make money by negotiating good wholesale deals to buy phones in bulk. If you thinks AT&T pays retail, non-contract price for any phone you are sadly mistaken.

still1 says:

I totally understand your comment but you don't understand my comments.

let me explain you!!! you heard that Motorola is selling Motox to carriers(Verizon,ATT,T Mobile,Sprint etc) for $350 so you are asking why isnt Motorola/Google not selling it to consumers for the same price???

iPhone is sold to carriers(Verizon,ATT,T Mobile,Sprint etc) for $400. Why isnt't Apple selling it to consumers for $400?? but sell it for $700

Galaxy S4 is sold to carriers(Verizon,ATT,T Mobile,Sprint etc) for $350-$380. Why isn't Samsung selling it to consumers for $350-$380?? but sell it for $650

the above concept is applicable to all phones sold in US via carrier.

so moto is selling it for $599 without contract.


thats why people go prepaid and but a Nexus 4

I think he understood your comment but failed to understand carriers don't buy phones from any manufacturers at retail. Carriers not only make money off the contract but also off selling phones to you at retail when they're paying much less for them.

NoNexus says:

Yeah, but if Google was not footing the bill themselves, what would the N4 cost? The same $5-600. The only reason they are doing that is to treat it as a loss leader. If you do not know, that means they are willing to take the hit on the frontend, to get it back somewhere else (ads, advertising for Android). They are also using it as "teaching" tool.

Google has very good reasons for doing what they do, but make no mistake, they are getting something out of the deal.

Why does T-Mobile sell the n4 for over $400 when the same phone is only $350 from the play store?

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NoNexus says:

distribution costs. T-Mobile gets them from Google at a central warehouse, then has to pay to handle and transport them to the individual stores.

udazavlanje says:

It's partially true. T-Mobile does have to deal with the transport but also with packaging and a few branding jobs on the device itself - tiny software enginering (few apps and setting tweaks), rafio testing, logo print. Still, it doesn't justify, for selling the same phone for 100-150$ more. Idk if you remember, but upon release, 16gb model was sold for around 500 $ off contract and 199$ on contract. Every sane person would have ordered it directly from the play store, but the problem was (and Carrier's advantage) that the phone was out of stock for unknown period so they had absolute freedom w pricing.

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NoNexus says:

This all is true, I suppose I oversimplified things a bit. There is still one thing to add in, T-mo wants something for their time and efforts so some of it is "for profit"

yfan says:

Why are you buying the N4 from T-Mobile rather than directly from the Play Store?

NoNexus says:

Some didn't know any better
Some didn't have much choice
Some didn't want to wait

All of the above didn't care all that much

raino says:

Doesn't the GP version not have Wi-Fi calling that the TMO version does? Personally, for me as a TMO customer, that's the biggest drawback to not buying phones from TMO: they don't release Wi-Fi calling to compatible AWS phones bought elsewhere. Don't blame them though, pretty smart business decision.

mwara244 says:

Back in or around Feb The N4 sold out (again) at the play store but T-Mobile just started selling them in stores and if you wanted one then you had to get it from T-mo because they were the only ones who had it.

Personally I think it is tragic the way the N4's were produced and LG really F-ed up the production of the N4 last year. There was such a high demand for the N4 that it could of sold millions like the Galaxy Nexus. The Galaxy Nexus was a huge hit for a nexus device and was the most sold nexus device till the N7. But LG dropped the N4 to make its own flagship phone because it couldn't handle the large production of several devices like the was Samsung and Moto can. I was shocked to hear LG was ,officially, already in negotiations this past February for another Nexus Phone.

_X_ says:

Because some folks don't have $300 to drop. Buying it from T-Mobile they can finance it. Not saying that is smart but it is reality.

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jhazey says:

A) 0% interest financing
B) Device Insurance
C) In reality only $80 difference for 16GB over the length of the financing
D) Same day availability

pixelslave says:

I have a hard time believing that an iPhone costs only $400 to the carriers and a S4 only costs $350 to $380. I mean, I don't know about the carriers, but to the big electronic stores, I think they are willing to die if they can make a 15% margin from an iPhone -- that's like about $600. $400? I think Best Buy's CEO will be willing to jump down from the Willis Tower with a parachute if Apple sells an iPhone to them for that price.

kingjames924 says:

its actually very true.

I was an authorized dealer for Sprint and T-Mobile, and even as an independent dealer we were getting the iPhones for about $450-$475. But the carriers would still pay about $250 to $300 per line for every 2 year contract we got signed, which offsets the cost.

rabidhunter says:

Willis Tower, what's that. Always has been, always will be SEARS Tower for life baby!

McIrish says:

I was thinking the same thing.

Mac58 says:

Then what is the point of the above article? Because he is saying that by selling the moto x at 350 to carriers, Google/Motorola are doing something that hasn't been done by HTC Samsung or apple? I don't think undercutting competition by $50 would be much to write home about...

NoNexus says:

it certainly isnt, especially since Motorola has to do something like this. They are a top tier company, but the bottom of that top tier. Kinda like being the worst team in MLB. Your still one of the best teams in the country but you are still ranked lower than other MLB teams

frettfreak says:

Unless you know something NO ONE else does (the retail selling price of the phone NOT through a carrier) then you dont know that they WONT be selling it for $350. I would say even $400 would be a KILLER price for an unlocked, unsubsidised, custom made phone.

NoNexus says:

No everyone knows this, they just refuse to acknowledge it because "google owns motorola"

Google CANNOT legally make/have Motorola sell the handset at a cheaper price. Motorola might, but what would be their incentive to sell it at break even when they running in the negative? They have none.

This is a company. Like every other company they need/want to make money. This is BASIC stuff.

Grahaman27 says:

I wondered the same thing then I read something that really makes sense:

Motorola is promoting this phone as a premium device and says its just as premium as apples iphone or the HTC one. So, they are selling it at the same "premium" price because that's just how the system is set up to be right now. A premium device is supposed to sell for $199 otherwise people think its cheap.

So for right now its $199 on contract until the moto x gets momentum. Once it has some momentum as a premium device they SLASH the prices and all hell breaks loose! Consumers would then see it as a premium device sold at a low price point rather than a low-cost product meant to just grab more of the market.

And we have already heard a low cost version is coming, we just have to watch the strategy play out.

Mac58 says:

so then carriers are selling the Moto X at a Premium cost and not Motorola?

Motorola/Google have a lot of power of how much the phone will be sold for on contract.

NoNexus says:

Wholesale vs retail.

motorola pays a price to build it, carriers buy it at that price then tack on their own bit for costs and profit.

This is not a new concept. Not to mention you do this with EVERYTHING you buy.

frettfreak says:

Not true really. The carriers lose money (upfront at least) on the handset. Which is exactly what the article says.

ATT buys it for $350 then sells it at a "loss" to you for $199. We all know there is a $15-$25 subsidy that is added into every carriers bill (except TMO).

NoNexus says:

ok then, it isnt at a loss that they are selling it to you. They are letting you take it for a down payment knowing that you will pay the rest off over the next two years. They lose no money at all in the deal, as a matter of fact, they make it hand over fist because of this.

Same thing as buying on credit, they give it to you knowing they are making full price and then some down the line.

DenverRalphy says:

I haven't seen the Google/Moto price yet. All I've seen advertised so far are a couple carrier prices and Best Buy.

NoNexus says:

you won't either unless it is the GPe or developer model and guess what, it is going to be the same price as the One or SGS4 editions

kingjames924 says:

The answer is very simple, young man. Carriers are buying in bulk. 100,000 to 200,000 units per carrier if not more. If Moto were to do it, they would have to sell it for around $429-$499. Which is feasible, but imagine if something goes wrong with your phone, what do you do then? Google doesn't want to go through that mess dealing with warranty services. Leave it to the carriers to handle.

eahinrichsen says:

"Carriers are buying in bulk."

That is what all of this boils down to. Moto sells phones to AT&T for cheaper than they sell them to consumers for the same reason that any company sells large numbers of their products to big stores for less than they'd charge an individual for just one product.

bainsbonds says:

Just chill out a bit, pricing for the Google Play edition of the Moto X hasn't even been announced yet. That $500-$600 price is what AT&T will sell it to you for. The GPE edition could be much cheaper. We don't know yet....

movielover76 says:

They are expected to offer an unlocked version direct to customer's eventually.

Mac58 says:

that also means that AT&T is making extra couple hundred dollars off of selling the phone unlocked (I believe they were selling it for $530) if they're only getting it for $350 and if this is so then AT&T needs a kick in the butt!

AT&T probably paid a good amount of money for that Motor Maker exclusivity.

Posted via Android Central App

*Moto Maker

Dawn SwiftKey

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eahinrichsen says:

I love the irony of an autocorrect error while cursing an autocorrect error.

still1 says:

exactly!!!! thats my actual point made above

benhmadison says:

So basically Moto needs to sell this device unlocked for about 400 bucks instead of forcing the people who want to purchase outright to purchase through their carrier and give even more of their hard earned money to the crappy carriers.

NoNexus says:

Never happen because you would be cutting your own throat with the carriers. You still have 10 other phones you would like them to carry at some point, if you undercut them, they can just as easily say fark you we arent buying anymore. Motorola is not the best/only game in town.

kingjames924 says:

Remember that Google is pumping $500 Million into advertising by itself. Cutting the wholesale cost was going to be part 2. If the reports are true that the phone costs $249 to build, Googl-Rola makes their $100 per phone and are set.

Trollolol says:

That's what you pay for "Made in US"

Belatukadro says:

I really think its interesting that we haven't heard official off-contract prices, official information regarding Verizon's prices, or anything at all about developer editions.

Were I Motorola, I'd let the carriers show their hand on pricing, then swoop in behind them with a great off-contract price for "standard" black and white devices, and have a $50-75 upcharge for basic customization and $150 for "premium", special edition, wood, etc. customizations. They would make a truckload.

All the pieces are almost in place....

jwyche007 says:

What is the source on the article saying the phone is $350?

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Linebarrel86 says:

There are so e comments here that clearly show that some have absolutely no business sense.

Some are so concerned with why they can't get the phone for cheap that they can't see anything else.

ne0ne says:

I bet we see this device In the play store for 429 for the 32gig at some point. Maybe even 499.

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NoNexus says:

I am positively stunned at the comments.

Do you people really not know how capitalism works?

Nothing you buy is bought at wholesale, you are paying something of a mark up or they are using it to get you to spend your money, on them, later or somewhere.

kingjames924 says:

I think the expectation is that since the Nexus 4, which is manufactured by LG, has such a low price point that the Moto X would be similar in price because it IS a Google owned company. I made the same mistake a while back thinking that way in the "Hands on with Moto X" thread.

And then I looked at the big picture.

What has always been the Nexus line's biggest complaints? Supply chain issues and customer service for device issues. By focusing on manufacturing and having carriers handle supplying stores and handling device issues, they can focus on marketing, advertising, and quality.

And by undercutting the other manufacturers by giving carriers a great wholesale price, it gives stores more incentive to keep good stock of the phone. And it helps by selling AT&T some exclusivity on Moto Maker, because you know they owed them from back in the day because of the Motorola Backflip (god i hated that phone)

NoNexus says:

I get that the expectation is that Google will pick up some of the tab with Motorola phones, but I come back to Motorola is a for profit company. They are not google, they are a subsidy of Google. They still have to make money to even just justify the purchase of them at this point.

Then I come back the simple fact that Google cannot give Motorola an unfair advantage in the phone marketplace. This is really something that the original article should have covered by the way.

The carriers can only buy so many phones, and only so many of the ones that they choose. They place an initial order for, say 50000. If they sell out, they may buy another 10000 depending on trends. They are not playing things by ear, what they bought is what they are going to buy unless the phone absolutely explodes. Undercutting other manufactures will do almost nothing, the carriers still have to maintain a relationship with all the other OEMs out there.

kingjames924 says:

Correct on all counts.

Motorola knows they have an uphill battle, so even $50 less than your competition means $500,000 less if your company is buying 10,000 units of said X phone. We will know in 21 days after launch whether X was a success or a failure. but until then, all google will do is sit back, observe, and market the hell out of it.

Amir47 says:

So the other OEMs can lower their prices....

NoNexus says:

Why? So everyone can make less money? Yes, that is exactly how capitalism work, he who makes the least wins.

Ant34 says:

It is to an extent. Corporations are always trying to maximize profits by keeping costs low (i.e., diminishing wages for employees).

NoNexus says:

The point is maximize profits. You do not lower the price and the costs, you lower the costs to keep more of the price

Posted via anything but a Nexus phone.

brendilon says:

Not quite.
Long term, yes. Short term I suspect that Motorola is more concerned with mind share and getting their devices into users hands. If you undercut the other manufacturers, taking less profit yourself in the short term, then the retailers can sell it for higher profit margins and will be inclined to push the devices. Many wireless store employees work on commission, if they're incentivized to push one device over another, then they absolutely will.
Regain market/mind share and the higher profits will come.

jlo8720 says:

great, insightful post. please bring more of these.

hodan says:

Is it ethical for a journalist to own stock in companies he/she gets paid to write about?

illdini says:

If they disclose that they own stock in that company, yes.

What a bunch of boring comments here. Who cares about the costs? Simple question, why is it this much etc etc. Blah.

steveb24 says:

What a boring comment ...

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fechhelm says:

Someone correct me if I'm wrong but doesn't Apple have an agreement with all retailers on what price to sell their products for. I know that's how iPods work. BB, Wal-Mart, Target, etc. all sell them for identical prices because they're forced to.

NoNexus says:

I am sure that they all do to some extent otherwise one would undercut the others knowing that they would make it up on the back end with the contracts. Instant marketshare.

kingjames924 says:

When it comes to cell phones, the carriers tell the retailers what they can sell the phone for. When I had my own store, we used to get an email every 2 weeks with planograms and a newsletter detailing how much every phone should be. If a big box retailer wants to do a sale, they have to prove that they aren't able to move product at a certain cost, and approval takes about 2-3 weeks.

Now how the carriers work with the manufacturer is a whole 'nother ball game.....

Ant34 says:

It only makes good business sense if the phone sells well. The LG G2 with its top of the line specs and probable boat load of features will sell for a similar price point. Who in their right mind would buy the Moto X over the G2?

edr1983 says:


Lanzeelus says:

People with average sized hands? Hell, I wouldn't be too surprised if the Moto X had a better real life performance than the G2, so that "Quad Core" mumbo jumbo wouldn't even matter to some people. There are lots of reasons I could see people picking up the Moto X. The Moto X likely has more features that are genuinely useful, and LG's interface is visually unappealing, and a cluttered nightmare (look at the notification shade). Plus the Moto X may feel way more comfortable in the hand, and the battery life is likely far better. Plus, let's not forget the customizations. Plus, there's a simple fact that Motorola is a much bigger name than LG. Lots of reasons why perfectly sane people would buy a Moto X instead.

Joey Klatzko says:

I think it's possible that Motorola would sell the unlocked version at a lower cost. Motorola is not a public company, meaning they don't have to answer to shareholders, they only have to answer to Google.

The main feature being advertised is always-listening GOOGLE search. This phone is just as beneficial to Google as the Nexus 4. There is a precedent set here. The Nexus 4 cost more off contract from T-Mobile than it did from the Play Store.

I find it interesting that they haven't announced pricing for the Play Store/T-Mobile model yet. Could it be because they didn't want to undercut the carriers at launch? I probably shouldn't get my hopes up, but we can dream, can't we?

NoNexus says:

Google cannot give preferential treatment in regards to Anything that might give Motorola an edge for the next 4 years.

The GPe edition will be the same price as the one and the sgs4

Posted via anything but a Nexus phone.

Statement 2 does not necessarily follow from statement 1. If phones are not the same price from the carriers off-contract, there's no preferential treatment if the Google editions are also different prices.

clay gerry says:

I'm cheering for Motorola/Google. I just got my nexus 4, however nothing like a little healthy competition!

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keithz says:

$199 price tag and sales largely limited to the USA is why this thing is going to be a piddling success at best.

I was hoping that Google would be smart and use Motorola to attack hardware margins elsewhere.

Imagine Google selling this thing for $50-$100 on contract. The carriers would still have had lower subsidy costs than usual. But now, we have carriers passing on the costs to customers and keep the savings for themselves. Motorola will suffer for that.

ackthbbft says:

What's really sad here is that the carriers are not passing the same savings on the original device to the consumers. The specs on the phone, regardless of the new whizbang features, do not warrant a $199 contract price. The carriers would easily still come out way ahead even if they increased their subsidy a bit and dropped the contract price to $149 or even $99, particularly after generating higher sales.

This being the case, I think I would just as soon buy an unlocked version and tell the carriers to go frak themselves on the contract.

ryandawkins says:

This phone isn't about specs...

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As stated in your article the pricing for the Moto X to be @ $350. I checked with big red and they list the Droid Ultra @ $599.99, Droid Maxx @ $699.99, and Droid Mini for $499.99. Can you confirm?

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