The Profit Margin on the iPod nano 246
Ant writes "BusinessWeek Online reports that researcher iSuppli took a look inside the iPod Nano to find out how much Apple is making off it, and who supplies its parts. From the article: 'Apple has sold some 16 million iPods in the first nine months of fiscal 2005, and 21 million since its inception. Thus far in fiscal 2005, the iPod has brought in $2.6 billion in revenue, accounting for about 25% of Apple's total.'"
Tooling? Investment? (Score:5, Insightful)
It costs Apple $90.18 in materials to build the unit and $8 to assemble it, leaving a profit margin before marketing and distribution costs of about 50%.
The article is light on details. I hope they took account of amortization of any tooling or plant investment. It's this sort fo thing that stops the small players, hobbyists and enthusiasts producing anything similar for reasonable money.
Too bad that's so simplified (Score:5, Insightful)
Of course, R&D costs nothing, fabrication is free, paying employees for design and support is volunteer based, and filing the patents and copyrights by lawyers are all pro bono.
How is this useful? So now we know how much the pure hardware costs for the Nano? Big deal. It's probably on par with pretty much any MP3 player, especially flash based ones. Is this supposed to convince people that "Oh noes, look, Apple really DOES make money on its hardware!"
Duh. We know Apple makes money on its hardware. So does every other company that makes hardware. But this says nothing for the actual cost to Apple of the device, without consideration for, you know, actually designing and creating the thing.
Sad. (Score:5, Insightful)
In other news, houses are free (Score:4, Insightful)
Re:Get a look at Apple's misdeeds & mischief (Score:4, Insightful)
ROFL! because bundling a driver with the hardware SHOULD BE BANNED.
retards.
Re:Tooling? Investment? (Score:5, Insightful)
Those costs would be included in Overhead, which is below the gross margin line on the P&L so they are likely not included. There's a lot in between gross margin and net margin.
Re:Tooling? Investment? (Score:3, Insightful)
Engineering costs? (Score:5, Insightful)
I'm not saying marketing and distribution are legitimate costs, just that they seem to have overlooked a major one.
In the meanwhile... (Score:5, Insightful)
I could understand (evil as it may be) Apple wanting to control distribution if they were the top dog in the computer business, but as it stands i think Apple would do well to play friendly with everyone who wants to push Apple products to the masses (iPods excluded, they're all over the place).
Mod article -5 Troll (Score:4, Insightful)
Re:Necessary to be an innovator (Score:2, Insightful)
I'm wondering if Apple will go the way of Sony. Innovating firms have a tendency to be eaten up by firms who copy and then sell for a lower price. The only way to stop copiers is to create a closed format - basically kill competition before it happens - or to keep innovating to stay ahead of the copiers - easier said than done.
Let's see - the way of Sony. With a gigantic consumer electronics business, which used to make great stuff, but unfortunately is now reigned by a bunch of IDIOTS in the music and film units that have forced Sony to become pretty much irrelevant in the digital media sphere. Why? Persistently trying to push proprietary, crippled crap (ATRACKS, anyone?) - and then being surprised that nobody wants to buy it. Sony should be the one behind the iPod - it's a logical step from the walkman and discman history.
Sony is run by a bunch of idiots. I'm surprised the shareholders have not revolted a long time ago.
I'm guessing Steve Jobs understands this perfectly, and I'm pretty happy that Apple doesn't actually own any content business. Pixar is a totally separate company. As long as that stays the case, I don't see Apple become irrelevant the way Sony did anytime soon.
Re:The part of the article that applies (Score:4, Insightful)
Re:Sad. (Score:3, Insightful)
Choice (1): move out of the niche market for bundled proprietary hardware+OS, and sell unbundled OS, and try to grow the PC product line. Risky. Bet the company stuff.
Choice (2): stay in the niche, keep hardware+OS bundled, and diversify into different product areas for growth.
They chose the second. This meant their PC market share will probably now never rise above 5%, the PC product line whatever its merits will not be a source of much growth. But the new business areas, as long as they can keep inventing them and exploiting them, and as long as they pick high margin areas, may deliver earnings growth. As the correlation of stock price movement and iPod introduction shows.
Not sad, just a business decision. You can see the attractions in the stock price. They'll end up as a consumer electronics company rather than a computer company, if it works.
Software development (Score:5, Insightful)
As a software professional, I've never been able to calculate real profit margin of any product that contains any kind of a software. Especially in a big company, you got different software modules from different products linked together. For example if software module A costs $500,000 to develop and it's sold with $1000 per license. Then you have a software module B that cost $2,000,000 to develop, and sold $100 per license. Both of those modules are sold separately, but then you decide to use both of their technology to develop a product C. It costs additional $100,000. All of those modules continue to sell separately. What is profit margin of product C? Do you count in only the $100,000 or that part of A and B, which haven't been covered by license sales? What about company's administration costs, marketing costs, etc.
And that was an extremely simple example. Old company has thousands of software modules, all linked to each other in some way. You can never really point out the actual cost of a product in software business.
My point is: The only way to know the real margins of a product, is to see how good salaries are in that company (as long as it is profitable)
PS. I bet iPod family's UI design has cost ten times more to develop than any other competitor's product's. There are countless number of factors that you can't even imagine when considering those margins. (But as a software manager, I consider it an advantage. No matter how bad failure a development project is, you can always trick those business directors to believe that it actually was a success. You'll just sweep those man-months under the carpet (of some other project/product) and say you used a software module that was developed by other project.)
Because you're on slashdot (Score:2, Insightful)
Because you're on slashdot. Read through any article about software piracy or "sharing" movies and music. Look for all of the responses that talk about a "dead business model" of paying people thousands or millions of dollars to create software or digital products and, if they're good, expecting to get a profit. Copyrights and patents are evil. Blah, blah, blah. I can agree to a certain degree on some of these matters, much of the Slashdot community's negative feelings about those that actually want to make money from a product is truly amazing.
The iPod Nano was not an open source linux based product with an underground publicity campaign. If it was, everyone would be happy.
Then again, it is an Apple product, which means there will be far less criticism than if, say, it was a Dell product.
Re:Get a look at Apple's misdeeds & mischief (Score:5, Insightful)
So... it is the same as with scanners. Apple bundles their own software that they developed, but you're free to use whatever other program you find that can speak to the iPod.
Re:Engineering costs? (Score:5, Insightful)
TW
Re:Engineering costs? (Score:4, Insightful)
Re:Apple paving the way to thin consumer devices (Score:2, Insightful)
And Apple is not apt to let iPeople swap their music on the iTrain, as they are pretty big on the no piracy thing.
Re:Apple paving the way to thin consumer devices (Score:3, Insightful)
One thing I wanted to mention though, I can't really see bluetooth being a suitable replacement for the USB connector. I'm not a bluetooth expert (so someone please correct me if I'm wrong) but as far as I understand it there's two common bluetooth transfer modes: DH5/DH1 and DH5/DH5.
DH5/DH1 gives a maximum theoretical forward transfer rate of 723.2 Kb/s, with 57.6 Kb/s reverse.
DH5/DH5 gives 433.9 Kb/s both directions.
I believe the DH5/DH5 is the most commonly used mode (for obvious reasons), which gives a maximum theoretical speed of 54.125 KB/s up and down. I use bluetooth to connect my PDA to my computer, and every once in a while (if I'm too lazy to dock) I use it to transfer a couple of MP3s. I also have a handy network bandwidth meter, and I have never seen speeds higher than 45 KB/s, and it usually stays around 40. But since this could be a crappy device I bought, or interference or who knows what, let's stick with the theoretical.
Think of transferring 4 GB at that speed: It would take 21.53 hours!
As you probably know the theoretical max speed of USB 2.0 in High-Speed mode is 480 Mb/s (60 MB/s) or 1135 times faster than Bluetooth.
Using USB High-Speed the same transfer would take: 1.14 minutes.
Of course these are theoretical values. Transfer overhead in the system (both network and computer) increases the time of the USB transfer quite a bit.
Either way I think you can see that Bluetooth is not a good thing to use to replace USB
Let's not forget the warrantee savings (Score:2, Insightful)
Re:Engineering costs? (Score:5, Insightful)
- The contract manufacturer's profit
- Shipping (although sometimes the contract manufacturer pays for this)
- Marketing, advertising, sales promotions
- Warranty repairs/replacements
- Returned units
- Keeping the retail stores open and paying the people there
- Engineering costs
- Other fixed costs of running Apple (keeping the lights on at 1 Infinite Loop)
- Steve's turtlenecks don't pay for themselves
Forgot a Couple (Score:2, Insightful)
This same type of logic applies to other sectors. Just look at Gillette. They basically give their razors (Mach 3, etc.) away at cost knowing that you are going by replacement blades at some point.
Cost != Price (Score:4, Insightful)
I'm always amused to see articles like this talking about profit margins and the like, as if the cost of production and marketing was a huge factor in deciding what to charge for a product. It is a factor in deciding whether or not to make a product, and what features are included in a product, but in how much to charge? You charge what people are willing to pay (actually what will make you the most profit when you balance the number of sales you will get at a given price point). I've worked at several start-up companies and seen the same scenario. We're doing OK, and getting by, hire some marketing experts to consult and they say, "well here's your problem, you're not charging enough." We quadruple the price of the product and suddenly get loads more sales. You see many people think price is equal to quality, or you get what you pay for. If you just raise the price drastically, buyers think your product is better. A good strategy seems to be seeing what your competitors are selling for, hyping one or two things you do better than them, hyping generally how much better your product is (using unspecific terms), and setting you price 10-20% higher than theirs. Everyone assumes since your product costs more it is better and 20% isn't huge, especially if they are spending their company's money instead of theirs.
Anyone who thinks the cost of producing a product has a lot to do with what it sells for is likely clueless.
Re:Apple paving the way to thin consumer devices (Score:3, Insightful)
I'm glad she is enjoying it!
Build the BlueTooth into the iPod/iNano/iVimto and you presumably don't need the USB connector anymore either!
Blue Tooth is too slow. However, there is a thing called "Wireless USB". The speeds on it approach USB 2.0 speeds and it is very similar to wired USB - I think you may be able to use the same drivers as with wired USB.
Of course, currently we charge the iPod at the same time as the songs are being transferred. Apple may be (or might not be!) relying on the power being there during the transfer. So, if you went wireless you would have to take into account the fact that the battries might die during sync. I think you might also find that blue tooth does not provide the audio quality that you might like. However, you could have wireless USB speakers and presumably a wireless USB dock in your car.
As far as the song swapping - I think there is a model for this that can work. You can subscribe to other people's playlists from iTunes. So, maybe not the swapping, but perhaps listening to the song from someone else's iPod? I doubt the iPod has enough processing power to actually decode more than one song at a time, though.
Re:Engineering costs? (Score:2, Insightful)
OK, how about quality control then?
My experience with iPods is about zero, but I have heard from a number of online places where they talk about how great XYZ MP3 player is better than an iPod because it does ABC that the iPod does not do, but then they say that it was a PITA that the device only worked a couple of months.
Ever buy a harddisk from Sun? Ever look at the cost vs the normal retail cost of a SCSI disk? Buying a disk from Sun which are/were standard Fujitsu, IBM, Seagate, or whatever drives, but they cost about 2x what the normal drive costs. Why is that? I'm assuming quality control. I've got about 2 or 300 or so Sun disks downstairs that have had an extremely low failure rate (infant mortality and long term use), and some of the drives are 5+ years old. I've had a much higher failure rate with commodity drives from other companies, especially when just buying them off the shelf from some online company (as high as 50% failure rate in 2 months of use).
Also, there is a thing called supply and demand, and the whole phrase about "pricing a product at the maximum price that the market will bear" and other stuff that I just made up.
Again, I'm not saying that iPods are any good, because I have no interest in them because they don't do what I want. But when I look at other products, I commonly see "Its better than an iPod, but its too bad it does not work" all the time. That is why I have yet to of bought a portable music player.
FWIW, I'm looking for a player with a harddisk, digital inputs that record to wav or another lossless format at least 24/96 resolution. It must be reliable, preferably with 8+ hours of battery life, and preferably with the ability to play flac files and play files gaplessly, and cost <$500, preferably <$400. I've probably got other nit pick criteria that I can't think of. The closest was the iRiver H140 or similar, but the reliability was not there. The other was the Creative Jukebox 3, but I've heard that the reliability was not there either. Oh, and both of those are not in production anymore.
Re:Necessary to be an innovator (Score:3, Insightful)
Walmart is the same way. They're not out to set trends in clothes or sell the latest high end products, their out to sell mainstream products that they can manufacture a ton of (or purchase in massive quantities) and sell them all low prices.
The original posts point was that Apple may suffer once their innovations have become established, then a competitor, like Dell, will simply copy them, sell to the growing market, and not have to pay all of the costs and accept the risk of establishing a new product/market.
Re:Apple doesn't make the iPod. Asus and Inventec (Score:3, Insightful)
Apple does a whole lot more than distribution and marketing. The iPod is not an OEM device like a thumb drive.
Probably equally important (Score:2, Insightful)
What about Aple's investment in manufacturing facilities? Do they build them themselves or contract out?
Profit, by the way, is good. It means that the market judges something as worth doing. As an Apple shareholder, for me Apple profit is very good indeed.
Re:Just a quick point (Score:3, Insightful)
Apple's PC sales growth is around double that of the rest of the industry. It's at over 40%.
Which really shouldn't be surprising. People can say all the bad they want to about only having 5% of the total market, but what that really means is that Apple has 95% to grow into. Windows at 90+% is the one with very little room to grow. The iPod is doing well in what is the new generation of portable music players, and their favored position will eventually show the same ceiling that Windows has for the OS market. The big advantage is that, by being a small player in an entrenched market at the same time they're the big player in an explosive market, they keep on doing their "beleaguered" business for decades so long as they're always willing to search out the next new market to expand into.