Episode 586: How Stuff Gets Cheaper

Jul 5, 2017

Note: This episode originally ran in 2014.

We tend to get obsessed with things that get more expensive over time — college tuition, say, or health care. But lots of things have actually gotten cheaper in real terms. Things made by machines. Things like consumer electronics.

Some new gadget comes out with a $1,000 price tag. Two years later it costs $500. There's no law of nature that says this must be so. And yet it happens year after year.

Today on the show, we visit a company called Monoprice. And we go into a room where people sit all day and try to make stuff get cheaper.

Music: "Amber Lights" and "Slide by Slide." Find us: Twitter/ Facebook.

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JACOB GOLDSTEIN, HOST:

Hey, just a quick note - today's show is a rerun. It originally ran in 2014.

(SOUNDBITE OF ARCHIVED BROADCAST)

ROBERT SMITH, HOST:

A while back, I got this big flat-screen TV for my bedroom. It was a banner day. Took it out of the box, set it up over there in the corner. You know what it doesn't come with? It doesn't come with the cables you need to connect it to all your other stuff. So I go to Best Buy, like, hey, I got this new TV. And he's like, yeah, you're going to need an HDMI cable. And bad news, they're $45 - $45 for some wires and plastic. And I paid it. I paid it because otherwise, my TV was just a big thousand-dollar black painting on the wall.

GOLDSTEIN: Robert, today, you can go online and buy that exact cable that you paid - whatever, 45 bucks for - today, you can buy it for $3.61.

SMITH: Yeah, I should have waited. Now, we take it for granted that things get cheaper, that there is competition in technological items. There's technological advancement. But we became interested. How does this exactly happen? How does something that used to cost $45, that I was willing to pay $45 for, how does that now cost three or $4?

GOLDSTEIN: And there's this one particular company that got famous for selling cheap HDMI cables. The company is called Monoprice. And when they emerged a few years ago, they started out as sort of this cult secret among nerds who loved buying cheap cables. But pretty soon, other companies started noticing as well. Bernard Luthi used to work for one of those companies.

BERNARD LUTHI: And I remember. I remember sitting in a room with our CEO, and he asked us, have you heard of this company Monoprice? And he said, they're eating our shorts in - around the cable business.

GOLDSTEIN: Eating our shorts.

LUTHI: Eating our shorts in the cable business. Is that a term - eating our shorts?

(LAUGHTER)

LUTHI: No. Well, maybe they were eating our shorts.

GOLDSTEIN: Luthi was so impressed by Monoprice he went to work there. He's now the president of the company.

SMITH: The story of the HDMI cable is something that Monoprice does over and over again, and not just with cables but with speakers and cameras, electric guitars, literally thousands of other things. And for all that gear, the basic idea is the same. Take something that's popular, take something that people love, and figure out how to sell it for less.

(SOUNDBITE OF MUSIC)

SMITH: Hello, and welcome back to PLANET MONEY. I'm Robert Smith.

GOLDSTEIN: And I'm Jacob Goldstein. Today on the show, we figure out why some stuff gets cheaper, like, say, consumer electronics. There's no law that says they have to get cheaper. And yet, year after year, decade after decade, they do.

SMITH: Today, we visit a company where people make this happen.

GOLDSTEIN: I went out to Monoprice a few weeks ago. Their headquarters is in this super generic office park in the awesomely named Rancho Cucamonga, Calif. It's at the base of the foothills just outside of LA, and they've got their offices there and this big warehouse.

UNIDENTIFIED MAN: It's probably about 174,000 square feet in size.

GOLDSTEIN: I feel like everybody always says how many football fields, something like that is.

UNIDENTIFIED MAN: I'm not sure how many football fields that is.

GOLDSTEIN: I looked it up. You could fit three football fields in the Monoprice warehouse. And cables, it turns out, still a big deal at Monoprice.

UNIDENTIFIED MAN: Here are some cables, more cables, 1,000-foot, 500,000-foot cables. We've got cables everywhere.

GOLDSTEIN: What's the biggest seller?

UNIDENTIFIED MAN: 3992, or a 6-foot HDMI cable. A 6-foot HDMI cables is product number 3992, and it sells like crazy.

GOLDSTEIN: You have, like, a trophy on your wall that says 3992 on it?

UNIDENTIFIED MAN: No, but everyone knows that number. Everybody in this building knows that PID number.

SMITH: Monoprice doesn't just buy cheap stuff from other companies. They don't just find little things in markets in China and then sell it at retail. They design stuff. They tweak it. They put the Monoprice name right on it.

GOLDSTEIN: I visited this room at the company's headquarters where a lot of this work happens. It's called the Test Lab. And the first thing to say about the Test Lab is it is not a lab. Picture more like a rec room for somebody who is super into electronics. One side of the room is, like, speaker-land.

ALBERT CARDENAS: This is my neck of the woods here. This is my little audio corner.

GOLDSTEIN: Albert Cardenas is Monoprice's speaker guy.

What is that on the wall?

CARDENAS: Basically, it's foam. Kind of looks like a padded cell.

(LAUGHTER)

GOLDSTEIN: There's speaker parts, speaker boxes, speaker wires. Albert starts taking apart a speaker to show me his work.

CARDENAS: And the grille removes. And you get a aluminum mid-range and a three-quarter-inch aluminum tweeter.

SMITH: The guys in this room are tinkerers. There's no brand-new concepts. No one's coming up with inventions that no one has ever seen before. The form of progress at Monoprice is to take, like, a little piece of metal in an already existing speaker and just make it a little bit thinner.

CARDENAS: So basically, I redesign what's called the faceplate here.

GOLDSTEIN: He says this made the sound clearer. He gives me a little demonstration. He puts his hand in front of his mouth.

CARDENAS: So this would have been the before. This would have been the after. One more time. This is the before. This is the after.

GOLDSTEIN: Another corner of the Test Lab belongs to a guy named Chris Aplin (ph). There's this big fancy monitor sitting on a desk in that corner of the room. Pro-tip - if you want to sound like a savvy tech expert, don't call a monitor a monitor. Call it a display. That's what Chris does.

CHRIS APLIN: This is our newest 4K display, utilizing some of the fanciest things on the market right now. I should turn it on for you.

SMITH: Chris and Albert's job is to be on the hunt at all times, looking for popular stuff that they can figure out how to sell at a discount. And to be clear about this, there is a lot of popular stuff that Monoprice doesn't sell at all because they take a look at it, and it's already so cheap.

GOLDSTEIN: One really striking example of this is flat-screen TVs. If you walk into a store and buy a TV, almost any TV, you are probably paying about what it costs to make that TV and get it to you. You're probably getting a good deal when you buy a flat-screen TV. So Monoprice does not sell flat-screen TVs because there's no way they could sell them at a discount and make a profit.

SMITH: So a lot of what happens at Monoprice is essentially detective work - seeing an object and saying, could we make money off of that? And this can take months or even years.

GOLDSTEIN: And as it happens, the story of this fancy monitor that Chris just turned on is actually a really good example of the kind of detective work these guys go through to figure this stuff out. That story of the monitor, it starts about four years ago when Chris was walking through a Best Buy. He goes there sometimes to check out the competition. And also, he needed some random thing that Monoprice didn't carry.

APLIN: So I was walking by, and the images of honeybees buzzing around on the screen caught my eye.

GOLDSTEIN: Chris was way off to the side of the monitor. He wasn't looking straight at it. He was maybe 10 feet away. But even so, he says, it blew his mind. It was better than any monitor he had ever seen.

APLIN: I could see the pollen on their abdomen. And I could see every fluttering detail as the wings flapped. It was spectacular.

SMITH: And what did you think or feel when you saw it?

APLIN: I got to have it (laughter). But unfortunately, I saw the price tag shortly thereafter. And their first introduction was over $1,000.

SMITH: The monitor was, of course, made by Apple, a Cinema Display.

GOLDSTEIN: Cinema. Chris, in his own words, is a PC fanboy. So what he really wants is a monitor like this one he's staring at in Best Buy, but one that's cheaper and one that's made for a PC. For Chris, a monitor like this would be, and I'm quoting him here, "a white unicorn."

APLIN: It was something I dreamed of. It was not available on the market. It was something I so wanted to give to my friends, my - you know, my customers and myself but had no way of getting it. That really was my, like, mythical creature.

SMITH: Standing there staring at this thing in Best Buy, Chris starts to think, why is this so expensive? Why does it cost a thousand bucks? Now, it could just be the Apple brand. People are willing to pay a lot of extra money for that logo. Or it could be that only Apple is able to manufacture this monitor. Perhaps they were the first ones to go to some factory in Asia and say, this is exactly what we want. Make this thing. In other words, maybe it's so expensive because there's no competition.

GOLDSTEIN: Chris knows he's not going to be able to get some other factory to start making a knockoff. It's just too time-consuming and too expensive for Monoprice to do that. But Chris also knows that when a hot new gadget comes out, there's usually some guy with the right connections at the factory who can get you the the online equivalent of a back-alley deal.

APLIN: My thought process was, here, there's no way - no way in hell that...

SMITH: You can say hell.

APLIN: OK.

SMITH: Go with it.

APLIN: No way in hell that Apple was getting these exclusively made for just them and they weren't getting out somehow.

GOLDSTEIN: Coming up in a minute, Chris goes in search of his unicorn.

So Chris sees that amazing monitor at Best Buy, and then he goes straight home and starts doing some detective work.

APLIN: First things first is I go to eBay.

GOLDSTEIN: He types in the specs for the monitor. His search results come up, and he sees that, in fact, there are a few people in Korea who are selling cheaper PC versions of these monitors on eBay. They cost $700 each, and Chris orders two. Then he waits for them to come by ship all the way from Korea.

APLIN: So $1,400 later and almost three and a half months of waiting, our monitors finally arrived. One came cracked, essentially split in half, while one was perfectly great in working order.

GOLDSTEIN: The one that worked was as beautiful as the monitor Chris had seen in Best Buy. So he does more digging, calls his contacts in Korea, searches this U.S. Customs database that tracks every product that comes into this country. And Chris figures out a few things. The panels for these monitors are being made at a single factory in Korea. And what these guys are selling on eBay is factory rejects - panels that work but that have little flaws in them, flaws that mean Apple won't sell them at retail. This means Chris and Monoprice are stuck.

APLIN: There's no way we're going to go out there, buy a factory of rejects, rebuild a monitor and be like, hey, guys, the new hotness is here; buy it for $500.

GOLDSTEIN: So for now, Apple still gets the market for this fancy new monitor all to itself.

SMITH: But about a year later, Chris starts hearing that the factory in Korea has expanded production of the panels. But demand for the fancy Apple monitor has not kept up. This means there may be a way for Chris and Monoprice to make a deal to get some of those magic panels. Chris goes to Korea to figure out whether the rumors are true or whether somebody's still trying to pass off factory rejects.

APLIN: Once we were able to verify that we did, in fact, have our little white unicorn, we showed up with a wad of cash and ordered as many panels as we could.

GOLDSTEIN: About nine months later, Monoprice started selling its first version of that fancy monitor.

APLIN: We sold it for - oh, it was $425.99 at the time. That's what it was.

GOLDSTEIN: Four hundred and twenty-five bucks. And Apple's monitor, using the same screen, was how much?

APLIN: Double our cost, at 999.

GOLDSTEIN: So you sold it for half the price.

APLIN: Yes.

SMITH: To be clear, even though the panel, the screen, is exactly the same as the screen in the Apple monitor, that doesn't mean the whole package is identical to an Apple. One review of the Monoprice monitor had the headline, poor design trumped by great screen, low price.

GOLDSTEIN: Still, Chris has done it. The monitor's a hit. Monoprice sells a ton of them. It's a happy ending. But as usually happens in the electronics business, the happy ending doesn't last for long.

SMITH: Because Chris Aplin was not the only one chasing the white-unicorn monitor. Samsung actually brought out a similar monitor around the same time. And in the two years since the monitor came out, more factories have started to make similar panels, and more companies have started selling the monitors, which, of course, keep getting better and keep getting cheaper.

GOLDSTEIN: How many people sell that monitor now?

APLIN: Samsung, BenQ, Dell - one, two, three - five - there's five factories out there now. It has definitely gotten a lot tighter than what it was.

SMITH: More companies selling the monitor means more price competition, which means these monitors are moving from that category of something that cost too much to the other category of something that's a good deal. The price of the monitor is now pretty close to the cost of production.

GOLDSTEIN: The monitor Chris and I are staring at in the Test Lab, that is already several generations beyond that first one he saw at Best Buy four years ago. And just this fall, Apple brought out a new monitor that's even better than this one. Chris, once again, is chasing after Apple. He says we can expect a Monoprice version sometime next year.

(SOUNDBITE OF BRAD LANG'S "SLIDE BY SLIDE")

SMITH: We always love to hear what you think of the show. Please email us, planetmoney@npr.org or tweet at us. We will see it - @planetmoney.

GOLDSTEIN: Robert, you tweet @radiosmith. I tweet @jacobgoldstein. I'd like to say thanks to Geoffrey Morrison, a journalist who's written about Monoprice for CNET, who talked to me for this story, also to the people at IHS who helped me understand some details about the monitor business.

SMITH: And thanks to our producer Phia Bennin. Now that you're at the end of the episode, NPR recommends that you check out the TED Radio Hour. You can find it on iTunes, Stitcher or your podcast distribution mechanism. I don't even know what to call those things. You're podcatcher (ph). I'm Robert Smith.

GOLDSTEIN: And I'm Jacob Goldstein.

SMITH: Thanks for listening. Transcript provided by NPR, Copyright NPR.