Why 16GB Smartphones Are the Biggest Rip-off in Tech

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The other day, I hit a huge wall with my iPhone — a wall so big I couldn’t upgrade to the latest version of iOS. My device told me I needed 1.4GB of room when I had only 492MB worth of storage space left. So I had to delete a bunch of apps (some of which I liked) to free up room. True, I cheaped out and bought the lowest-capacity 16GB iPhone 5s last September, but at the time, I didn’t want to spend an extra $100 for the 32GB model.

Want to know how much smartphone makers pay for that 16GB worth of extra capacity? Just $8, according to Michael Yang, a senior principal analyst for market research firm IHS. That’s the biggest rip-off in tech.

Before you accuse me of picking on the iPhone, note that the 16GB Samsung Galaxy S5 comes with only 10.7GB of usable storage out of the box, compared to 12.9GB for the iPhone 5s. You’ll also probably want to remove at least some carrier bloatware from the S5, which the iPhone lacks. However, the Galaxy lets you expand its memory via its microSD card slot; a 32GB card costs just $20.

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But back to the maddening rip-off. Yang said smartphone manufacturers pay a measly 50 cents per gigabyte for smartphone storage. So, increasing the standard storage from 16GB to 32GB would cost just $16 per phone. Some flagship phones have already gone this route, but why not all of them? 

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“Smartphone manufacturers continue to do this because they make a lot of money,” Yang told me. “From our teardowns, we can tell you that the profit margin is much higher on a 32GB smartphone versus 16GB.”

No kidding. How could Apple, Samsung and the wireless carriers feel right about charging $100 for $8 worth of storage? (Apple and Samsung did not comment for this story when reached.)

Part of the reason why 16GB is no longer a realistic baseline amount is that we use smartphones for a lot more things now. We take photos with higher-resolution cameras, capture full-HD video and download apps that eat up a whole gigabyte or more. For instance, the Sonic Transformed game I had to delete to upgrade my iPhone OS takes up 1.1GB.

A quick survey of the top 15 free apps in the Google Play and Apple App stores revealed that the Google Play marketplace averages 31.6MB per app. Apple’s average is about twice as high, at 65 MB per app.

“From the consumer perspective, we see the need to go up in storage capacity as camera megapixels go up, and we create more content and put our entire media libraries on our phones,” Yang noted.

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As one carrier executive I spoke to (who requested to remain anonymous) pointed out, the rise of higher-speed 4G LTE networks and the power of the cloud somewhat mitigates the need for additional storage. In other words, you don’t need extra gigabytes to stream Pandora, Spotify or Netflix. “The speed of the network makes a really big difference,” the exec told me. “It’s just as easy to stream content as it is to store it on your phone.”

MORE: 5 Ways to Free Up Storage on Your iPhone

Just keep in mind that streaming counts against your data plan if you’re not using a Wi-Fi network. (T-Mobile is the lone exception, but only music streaming is free.)

Apple will be taking a step forward with iOS 8 by offering 20GB of storage for a very affordable 99 cents per month. Today, 10GB costs $20 monthly. 5GB will remain free.

Still, while the cloud ostensibly makes extra onboard storage unnecessary, the fact remains that smartphones are transitioning from content-consumption devices to content-creation devices, and the industry isn’t keeping up with that reality. How’s this for stagnation: The iPhone has shipped with 16GB standard since the 3GS — in 2009.

The good news is that some companies are getting the message. The HTC One M8, LG G3 and Amazon Fire phone are just three flagships that sport 32GB of storage standard. The LG also features a microSD card slot, letting you add up to an additional 128GB of storage ($114). Amazon, for its part, lets you store an unlimited number of photos in the cloud, too.

“That baseline density is going to go up,” Yang predicted. “We expect the next wave of smartphones to see at least one step up, and shoppers are going to look for 32GB or skip to 64GB.” The same wireless executive I spoke to agrees that the baseline storage will increase for premium smartphones.

Nevertheless, assuming smartphone makers continue to charge $100 to go from one tier to the next, you’ll be paying a $84 premium to jump from 32GB to 64GB. I guess that’s better than today’s $92 gouging fee to increase from 16GB to 32GB.

 

AUTHOR BIO
Mark Spoonauer
Mark Spoonauer
Responsible for the editorial vision for Laptop Mag and Tom's Guide, Mark Spoonauer has been Editor in Chief of LAPTOP since 2003 and has covered technology for nearly 15 years. Mark speaks at key tech industry events and makes regular media appearances on CNBC, Fox and CNN. Mark was previously reviews editor at Mobile Computing, and his work has appeared in Wired, Popular Science and Inc.
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  1. Oliver Max Says:

    This really doesn’t surprise me. This is just democracy. Smartphones and tech is not the only industry that high markups. I work in a Pharmacy. Meds that costs $1 or $2 dollars a pill are priced $20 or $25 to insurance companies and consumers. Same thing with restaurants and grocery stores.

  2. Frank Says:

    Nice write-up! The headline, as so often happens, is off-base, though!

    If the internal flash RAM costs them so little, the it’s the 32GB for $100 more that’s the bigger rip-off compared to the 16GB!!

    32GB should be the base–with another 32GB for no more than $50!

    By the way, if someone has modest needs and doesn’t play a lot of games or store videos, 16GB could well be more than enough. We’re still happily using 16GB iPhone 4′s.

  3. Matt Says:

    Correction to Apple’s current iCloud pricing scheme. That 20$ is for a year subscription on an extra 10Gb.

  4. Brian Says:

    This is stupid. If you don’t want the extra memory, don’t pay for it, and get the phone with tiny memory–it suits you.

    Or, be a real genius and get some pathetic Roid with flash memory sticks running about 1/10 the speed of the iPhone 5s with none of the same apps and all the fit and finish of an AMC Gremlin.

  5. Brett Says:

    I wholly agree with your main point about the onboard flash storage being underwhelming, and I understand you use an iphone, but did you even look into what the comparable options were from google?

    First, there is only a 50$ upcharge to go from the 16GB Nexus5 to the 32GB Nexus5, which is still almost pure profit, but at least a little less insulting to consumers, and conflicts with your closing statement about mandatory 100$ tiers.

    Second, you talk about the ios8 taking a step forward with 20GB of cloud space for 0.99$, but did you know that Google Drive offers 15+GB for free (you start with 15 but can earn more. I have 25GB free because of bonuses I was awarded)? Additionally, you can store photos for free in google drive, just like amazon’s offering, if you upload them using google’s photo-syncing app (and store them at <4MP, higher resolution photos can be stored but count against your storage cap). Moreover, google offers a plan of 100GB for 1.99$/month; 5 times the storage for only 2 times the price of apple's option. Further, there are many other cloud storage apps that are worth looking into with free options.

    I think if you are going to contradict one of your own main points about the need for more storage, you should at least present to most appealing alternatives. Google Drive is available for ios as well and Android.

  6. Jessica Says:

    I rocked a 32GB iPhone 4 for 3 years until I was given a hand me down iPhone 5 from my brother who upgraded to the iPhone 5s. The iPhone 5 whilst much better spec/camera wise was a set down in capacity as it was 16GB and boy did I feel it! On my 32GB iPhone 4 – I never had to delete stuff and never had to manage my space so much. With the iPhone 5, I am constantly deleting photos, apps etc just to keep some space always. I recently deleted Real Racing 3 – a game I love and play constantly, solely because it took up 1.9GB of space – which on 16Gb phone is a crazy amount!

    If Apple do not launch the iPhone 6 with a MINIMUM capacity of 32GB then they have lost the plot. If they launch a 128GB one, I will definitely go for that instead. All this cloud talk is all well and good, but not everyone has unlimited 3G/4G data (which is the only way to enjoy cloud services) and so accessing content online when out and about can be expensive and lets not forget there is no guarantee of 4G service quality and depending and where you are and what you want accessed, it’s not a sure thing. For this reason I still want all my consumption locally – music, video and games. Maybe in 10 years when data plans, costs, signal strength all make for more favorable terms, cloud storage might be a thing but until then just give me some decent space on my phone!

  7. sersoft Says:

    I should have read this before I bought my 8GB (4GB usable) non-expandable Moto G.

  8. Corey Says:

    You should go read the article “20 Things you have no right to complain about”. You iPhone or iPod running out of space is one of them. If you don’t have enough room on your phone to back up it is nobodies fault but your own. Buy a bigger phone

  9. marcus Says:

    Isn’t your point that the 32GB is a rip-off? If 16GB is the baseline, 32GB upsell is the rip off for incremental storage/cost.

  10. Are U Serious Says:

    Did you just compare CD flash card to the flash memory used for phones. Those 2 are completely different technologies that have completely different costs. Do your job next time and do a little research to understand what you are writing about.

  11. Are U Serious Says:

    Did you just compare SD flash card to the flash memory used for phones. Those 2 are completely different technologies that have completely different costs, performance, and usage constraints. Do your job next time and do a little research to understand what you are writing about.

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