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The Profit Margin on the iPod nano
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.'"
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.
Ydco co
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.
Apple is currently the most innovative computer company around, with an operating system that makes the current market leader look like a dinosaur. The fact that a quarter of their profit comes from a damn mp3 player is just sad.
In a related story, researches have discovered that new home construction costs practically nothing at all, as the wood was taken from trees that were growing there anyway. Wood costs nothing to fabricate, as mother nature provides it for free (given enough time). The foundation is poured from concrete, which is just rocks, sand, and water, all of which are freely available. Thus, new home construction is 100% profit.
Like woodworking? Build your own picture frames.
> A class-action suit was filed against Apple over the illegal bundling of iTunes with iPod. This practice is anti-competitive.
ROFL! because bundling a driver with the hardware SHOULD BE BANNED.
retards.
RST
What about the engineering costs? That hardware doesn't design itself. The software updates don't write themselves.
I'm not saying marketing and distribution are legitimate costs, just that they seem to have overlooked a major one.
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).
Will wank off Linus Torvalds for fame.
It doesn't say anything about the profit Apple is making with the iPod nano. It only shows the price of the used components. This could be interesting for any competitors in the MP3-player market. You'd still need developers, marketing and all that other stuff used to get a product to market ...
Hold on, what about R&D costs? What about advertising? What about support, warranty, and RMA costs? I bet that 50% over manufacturing costs doesn't actually go all that far...
You see? You see? Your stupid minds! Stupid! Stupid!
With that formula Windows' profit margin is about 99.9%, because CD only costs 10c to make.
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.)
For your illustration to work, you have to assume the iPod only works with iTunes. I won't list them here, but there are several other third party apps that people can use to transfer stuff to their iPod with.
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.
Duct tape is like the Force. It has a light side, a dark side, and it holds the universe together.
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.
Someone else might put the parts together, but Apple designed it. The design is what makes it an iPod, not who put it together.
Apple does a whole lot more than distribution and marketing. The iPod is not an OEM device like a thumb drive.