iLounge

1

Dear BusinessWeek,

Please read-up on the XBOX360, Playstation3, ect, ect.

Many companies will see at, near or yes even below cost to bulid a market.

Thank you.

Posted by JNTaylor63 on June 6, 2007 at 2:10 PM (PST)

2

It’s almost like iPod in reverse. iTunes barely makes money but sells iPods. Apple TV barely makes money but sells content?

Posted by Japester on June 6, 2007 at 3:31 PM (PST)

3

While we’re talking about production costs, read this:
Apple iPhone to Generate Nearly 50 Percent Margin.

Makes you question Steve Jobs’ “$299 smartphone + $199 iPod Nano = $499 iPhone” arithmetic, no?

Posted by Jeremy on June 6, 2007 at 4:17 PM (PST)

4

Looking at raw production costs is an oversimplification and not an accurate example of the whole picture, however.

The iPhone is probably the best example…  The production costs may be only 50% of the retail price of the device, but somebody still has to pay for the two and a half years of research and development that went into producing the device.

Further, there are then marketing costs, distribution costs, packaging costs, and support costs to be considered.

Then, on top of all of that, Apple has to keep the lights on, pay its administrative staff, pay rent on its office and retail facilities, pay corporate taxes, and deal with the myriad of other overhead expenses to running a company.

In fact, the slim margins on the Apple TV are either evidence that this truly is a hobby of sorts for Apple and they don’t expect to invest a lot of R&D into it, or that they really are selling it at a low price to increase its market share (ala xbox et al).

But for devices like the iPod and iPhone, if Apple were to actually sell these at only 10% above production costs, they would probably be the last such devices you’d ever see them produce, since even if they could survive as a company on those margins, they certainly wouldn’t have much to invest in research and development for the next generation of devices.

Posted by Jesse Hollington in Toronto on June 6, 2007 at 7:55 PM (PST)

5

In fact, the slim margins on the Apple TV are either evidence that this truly is a hobby of sorts for Apple and they don’t expect to invest a lot of R&D into it, or that they really are selling it at a low price to increase its market share (ala xbox et al).

Your points concerning development, engineering and marketing costs are indeed valid.

Considering how much clout Apple has, I would guess that they probably are getting a better price than $237 per unit on hardware that iSuppli is purporting. If not, then all of those Apple TV units that are being sold by Costco and other retailers are REALLY eating into that residual margin, because those outlets are certainly not doing this for free or as some favor to Cupertino.

Despite being flush with cash, it seems so un-Apple for them to cut their margins so close, even if the idea is to try to corner the market with their idea of the ‘perfect’ media delivery system (still don’t know anyone personally who actually has one). The loss-leader Xbox/Sony PS2/3 marketing strategy runs counter with all past retailing models that Apple has put forth, even when they really could’ve used a sales shot in the arm with some of the non-iPod products.

Posted by flatline response on June 7, 2007 at 12:37 AM (PST)