Episode 586: How Stuff Gets Cheaper : Planet Money Today on the show, we visit a company where people's job is figuring out how to make stuff get cheaper.
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Episode 586: How Stuff Gets Cheaper

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Episode 586: How Stuff Gets Cheaper

Episode 586: How Stuff Gets Cheaper

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ZOE CHACE, BYLINE: Hey, PLANET MONEY listeners. When you finish with today's episode, NPR recommends another great show, the TED Radio Hour hosted by the excellent Guy Raz. You can find the TED Radio Hour where you get all your podcasts - iTunes, Stitcher.

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. Forty-five dollars 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.

JACOB GOLDSTEIN, HOST: 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've 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 $3 or $4?

GOLDSTEIN: And there's this one particular company that got famous for selling cheap HDMI cables. The company's 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 around the cable business.

GOLDSTEIN: Eating our shorts?

LUTHI: Eating our shorts in the cable business. Is that a term - eating our shorts? No? (Laughter) Well, 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. Hello and welcome 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.

(SOUNDBITE OF SONG, "NEXT BIG THING")

CHESTER FRENCH: (Singing) It's the next big thing. It's the next big thing.

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, California. It's at the base of the foothills just outside of L.A., and they've got their offices there and this big warehouse.

UNIDENTIFIED MAN: This building's about 174,000 square feet in size.

GOLDSTEIN: I feel like everybody always says how many football fields something like that would be.

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, thousand-foot - 500 thousand-foot cables. We got cables everywhere.

GOLDSTEIN: What's the biggest seller?

UNIDENTIFIED MAN: 3992, our six-foot HDMI cable. Our six-foot HDMI cable 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 everybody 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, MONOPRICE: 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 grill removes and you get a aluminum midrange 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's 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've been the before, this would've been the after.

GOLDSTEIN: One more time.

CARDENAS: This is the before. This is the after.

GOLDSTEIN: Another corner of the test lab belongs to a guy named Chris Apland. 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 APLAND, MONOPRICE: 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 flats 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.

APLAND: So I was walking by and the images of honey bees 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 ten feet away. But even so, he says, it blew his mind. It was better than any monitor he had ever seen.

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

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

APLAND: I've got to have it. 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.

APLAND: It was something I dreamed of. It was not available on the market. It was something I so wanted to give to my friends, 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 $1,000? 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 online equivalent of a back alley deal.

APLAND: My thought process was there's no way - no way in hell that...

GOLDSTEIN: You can say hell, go with it.

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

GOLDSTEIN: So Chris goes home and starts doing some detective work.

APLAND: 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.

APLAND: So $1,400 later and almost three and a half months of waiting, my 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 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.

APLAND: There's no way we're going to go about there and by factory rejects, rebuild a monitor and be like, hey, guys, the new hotness is here. But 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 demands 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.

APLAND: Once we were able to verify that we did, in fact, have our little white unicorn, we showed up with a lot 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.

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

GOLDSTEIN: $425, and Apple's monitor using the same screen was how much?

APLAND: Double our cost at $999.

GOLDSTEIN: So you sold it for half the price?

APLAND: 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 headline poor design trumped by great screen, low price.

GOLDSTEIN: Still, Chris has done it. The monitor is 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 Apland 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 and keep getting cheaper.

GOLDSTEIN: How many people sell that monitor now?

APLAND: Samsung, BenQ, Dell - one, two, three - five. There's five factories out there now. It has definitely got 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 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 SONG, "NEXT BIG THING")

CHESTER FRENCH: (Singing) Oh, oh, oh, oh, oh, oh, oh, oh, oh, oh.

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. Your pod catcher. I'm Robert Smith.

GOLDSTEIN: And I'm Jacob Goldstein. Thanks for listening.

(SOUNDBITE OF SONG, "NEXT BIG THING")

CHESTER FRENCH: (Singing) We are the latest greatest. Wouldn't you love to date us. Oh, oh, oh, oh, oh, oh, oh. But you can't be next forever. It's the next big thing. It's the next big thing.

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