Feeling silly for buying that $3,000 TV? "That's technology"

When Apple Inc. slashed the price of its iPhone by a third this week, just two months after releasing it, it rankled a lot of people. Hundreds of thousands of hard-core Apple faithful had shelled out hundreds of dollars for the eagerly awaited device, only to have the company cut its price by a significant margin in order to spur holiday sales. Some buyers were understandably upset; many expected a price cut eventually, but few thought it would happen so soon or so drastically.

An estimated 74 per cent of Canadians own a digital camera, with 20 per cent wanting to buy a new one by the end of the year. (CBC)

"I feel used as a test market and manipulated by the timing and severe price drop of a product and a company which I have helped to promote," one irate customer wrote on the company's web forum in a post that has since been blocked from the public's view. "It is a sad day for former Apple supporters."

Apple chief executive officer Steve Jobs was initially curt in his response to the backlash. "That's technology," he explained, only to formally apologize to customers a day later by offering them a $100 US credit.

Indeed, that is technology — gadgets that cost hundreds of dollars are seemingly obsolete almost by the time they come out of the box. Quick price cuts and the addition of new features often make consumers feel silly for not holding off on their purchase — a sentiment surely shared by many early iPhone buyers.

It's getting worse, according to Solutions Research Group, which tracks trends in consumer electronics. Falling production costs, a higher level of dependency on gadgets and a strong economy are all contributing to the accelerating pace of obsolescence.

"Five years ago, if a laptop broke down, you went and got it fixed. Now, if it breaks down you say, 'Let's get a new one,' " said Kaan Yigit, president of Solutions Research Group. "There's a big compression happening in a lot of that stuff."

The rapid rate of replacement for these goods is evident almost across the board, Yigit said. The average Canadian home computer is 2.5 years old, down from 2.7 last year, indicating that the replacement rate is speeding up.

Percentage of online Canadians who have a:

• TV: 100%
• HD-capable TV: 23%
• Laptop: 34%
• Cell phone: 74%
• Digital camera: 69%
• MP3 player/iPod: 47%

Source: Fast Forward Quarterly by Solutions Research Group, second quarter 2007

A few years ago, consumers were replacing their computers every three or four years. Now, a quarter of computer owners replace their machines every year, Yigit said, and the rate will accelerate further because laptops are a hot commodity.

The average television set is 4.6 years old. About 16 per cent of households buy a new TV annually, with the rate expected to rise to 20 per cent this year and next because of the increasing proliferation of high-definition broadcasting.

Digital cameras are also hitting an inflection point, Yigit said, where 74 per cent of Canadians have one but 20 per cent want a new one this year. The average age of a digital camera is three years.

Cellphones, meanwhile, are being replaced every 20 months on average, but most Canadians would prefer to do so once a year and are only prevented from doing so because of long-term service contracts, he said.

And what about iPods? Along with announcing the price slash on the iPhone this week, Apple unveiled a flashy new iPod with a touch screen and Wi-Fi capability, making existing players look obsolete in comparison.

Despite that, iPods may not follow the same replacement-acceleration trend, Yigit said, because consumers tend to be exceptionally happy with the device. Three of every four iPod owners say they are "very satisfied" with it. Still, the new iPod could spur more people to buy a second player.

Apple chief executive officer Steve Jobs apologized to customers this week for slashing iPhone prices, but added 'This is life in the technology lane.'

The reason for the overall acceleration in replacements, industry experts say, mainly comes down to the lowering of production costs. A device tends to be expensive on its initial release, but as production ramps up in mass numbers, the cost of components falls quickly and the gadget's retail price decreases correspondingly.

Televisions are a good example. The cost of screens has been dropping rapidly over the past few years and will continue to do so. TV prices have been dropping in line as a result — a Panasonic executive this week said prices on plasma screen televisions above 37 inches will fall by 30 per cent this year and about the same next year. That means a 42-inch Panasonic plasma screen that currently sells for $3,000 could go for about half that by the end of 2008.

The declining prices are putting higher-end gadgets within the reach of more and more people, said Darren Meister, associate professor of information systems at the University of Western Ontario's School of Business. People are also tending to buy new gadgets even though they may own older ones that still work well.

"It's become much more of a purchase that isn't one you save up for, but rather one you make because you want the extra features," he says. "You don't have to justify the fact that this other thing is now really disposable."

People are also much more dependent on their gadgets today than they were a generation ago, a fact that is also helping to fuel the replacement acceleration trend.

"Our level of dependency to digital things is much greater than it was seven or 10 years ago. Because we're more dependent, we're more likely to replace them sooner," Yigit said. "If my laptop were to die today, there's absolutely no way I'm waiting for it to get fixed in three days. I'm getting a new one and the old one, when it's fixed, will act as a secondary."

The state of the economy and the strong dollar are also helping, Meister says, with the average Canadian having more disposable income to spend on gadgets.

"I'm not sure if we were in some sort of depression or had 14 per cent unemployment that people would be switching their iPod so quickly," he said. "There are economic times when $100 is a very different story."

Industry experts agree there is little a consumer can do to avoid that feeling of foolishness that comes when a big price drop happens on an item shortly after they've purchased it. Companies do have a responsibility, however, to ensure their customers still get value from their gadget by making it compatible with future releases, Meister says.

The alternative, as Apple's Jobs pointed out in his apology to customers, is to never buy anything.

"This is life in the technology lane," he wrote on the Apple website. "If you always wait for the next price cut or to buy the new improved model, you'll never buy any technology product, because there is always something better and less expensive on the horizon."