Smartphones Want to Be Free

NEW YORK (TheStreet) -- The big job of technology leadership is always to suck up the abundance of Moore's Law.

Back in the 20th century, this was Microsoft's (MSFT) job. I called Windows "bloatware" but it had a purpose. By creating great new things for PCs to do, it stimulated demand for new, faster PCs.

Unfortunately, a sort of natural limit was reached. Once you can stream live video, interacting with TV pictures as just another file format, the desire for more diminishes. You can make it smaller, less power-hungry, and more reliable, but now you're slowing the replacement cycle. So the product gets cheap, margins get wafer-thin, and the channel dries up.

In the 21st century, Apple (AAPL) has taken the role of Microsoft, first with the iPod, then with the iPhone, now with the iPad. The goal in this has always been to hold a retail price point starting at $500. Apple needs to do that to justify the expense of the Apple Store.

When prices get too low, the product gets dumped. As the original iPod design has been dumped, hard drives replaced by chips and the user interface matched to that of the iPhone, so why not just get an iPhone?

You can add more memory. You can add a retina display. But great products attract competition, and this makes it ever-harder to maintain the price point on which the market depends.

So Apple has created "planned obsolescence," phones and computers that can't be fixed. This isn't very green but it does assure that "real" product won't be showing up in some Third World repairman's shed for $8.95. Sure, you may lose some government contracts, but it's all about consumer cachet.

The latest iPhone is a fashion accessory, like a tie, and you don't wear last year's model.

Unfortunately, there are a limited number of things an iPhone, or something like it, can do. We've already reached the point where they can stream live video. If you don't need the Retina display, if just good enough is good enough, Amazon.com (AMZN) and Google (GOOG) have another business model for you.

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