Apple’s prices are often higher than their competition, though if you ask them for more aggressive pricing (as an analyst or two did on yesterday’s conference call), they’ll tell you that with the kind of sales figures they’re racking up, they don’t believe they have a pricing problem. And then Tim Cook will eat you. I’m kidding—Tim’s a lovely guy. Anyway, despite the fact that people complain that Apple’s prices are high, it doesn’t stop most of them from buying an iPod.
There’s always the question of how much it costs Apple to make their products: the raw cost of materials and manufacturing. Analysis firm iSuppli has estimated that the Bill of Materials (plus additional costs for licensing and the like) for the iPhone are $245.83 and $280.83 for the $499 4GB and $599 8GB models respectively. That’s quite a profit margin, though, of course, money from that also goes into marketing, packaging, etc.
For a music player, 4GB is a decent amount, but add in operating systems, programs, and—most of all—video and 4GB starts to look pretty scant. 8GB is a little bit better, but it’s far short of iPod video capacities. But here’s my real question: why does it cost $100 extra for a mere extra 4GB of storage? Especially when (if iSuppli’s estimates and the flash memory market are to be believed) it only costs Apple thirty odd dollars to make the bump.
Let’s take Apple’s iPod line as an example (not to compare iPods and iPhones). For the nanos, a 4GB player runs $199 and an 8GB costs $249. We then jump $50 to reach The same price gets you 30GB of storage in the iPod with video. Another $50 $100 to $349 nets you 80GB of storage, before we jump another $150 to reach the iPhone.
I’d guess a large part of the pricing structure as a whole is to avoid cannibalization of iPod sales by the iPhone; Apple is effectively pushing them into different price brackets, which, given the difference in features, makes sense. As for the difference in prices between the two iPhone models, I’d speculate that $100 is about as much as consumers are willing to pay for that bump in storage. Cross the $100 line for a mere 4GB of space, and fewer people will be willing to shell out.
I’m aware that this environment is slightly skewed, but let’s put this theory to the test anyway: how many of you are a) planning on buying a 4GB iPhone? b) planning on buying an 8GB iPhone? c) planning on laughing at all those people who shell out for Apple’s latest product? And then, for those of you planning on buying the 8GB version, how many of you would refuse if it were priced $50 more ($649); how many of you 4GB buyers would have made the jump if it were $50 less ($549)? Let the madness begin!
Upodate: Packaging is included. The full breakdown can be found here.
Update 2: As MacGeek points out below, the 30GB iPod with video costs $249, not $299, making it a) the same price as the 8GB nano, and b) $100 cheaper than the 80GB iPod with video.
Personally, I'd rather opt with the 8gb model, especially with video involved.
I wouldn't shell out an extra $50 in addition to the $100 premium, though, however.
Honestly, though...I may just wait a year or two until another revision comes out. I'm fine enough just using my phone (compatible with iSync) and iPod nano (video would be nice, but the nano was free, so I can't complain).
At first, I was all willing to jump on it. Then after much of the hype has died down, I think I still want both devices separate.
When I travel, I would like to watch a movie, but I would be afraid that the batteries will die down on a 5 hr flight and I can't call my limo service when I get back to the airport.
I'm a little anxious. I guess I stepped out of Steve's reality distortion field.
I still lust the iPhone, its beautiful. But man, the price and my gripe above has me thinking much.
I think 8GB is ridiculous. Apple should have offered 20 and 40 GB models...
There's no way that screen costs $34. Absolutely no way.
I will definitely buy the 4 GB model, and would pay the $100 to get the bump in storage if I thought I needed it. As of now, I don't have plans to store any amount of video. I don't plan on watching any movies except for showing off. Maybe last night's episode of Lost or something you know? I am never in any situation that would make me want to watch a video on a small device such as this. I do however, have the need for the iPod.
Lately, I've abandoned my 30GB iPod in favor of my shuffle. I only keep my 3-5 star rated music on my PowerBook, and have it sync my top rated music to the shuffle. It supplies me with several days worth of repeat-less music that are my favorites. My entire library on the Powerbook is around 8 GBs, while another hard drive on my desktop contains my entire library of every song I own - 60 GB at last count, all 128 AAC or protected AAC.
Using this shuffle as an example of how I would use an iPod on the iPhone, the smaller iPhone would still be a perfect match for me. The only time I would use it would be at work, as background music, playing my highest rated songs. The only other time I use an iPod is when I'm running/jogging. I'll still use the shuffle for that.
The difference between $245 and $499 does seem great, but don't forget that Apple need to recover two and a half years of research costs on this, though locking people into a two year contract must also be quite lucrative. Face it - we'll crumble eventually. Damn them.
First off, Dan, I found an error in your price progression of iPods. The 8GB nano and the 30 GB video cost exactly the same: $249.
Second, I would buy an iPhone for several reasons: 1) I live in South Dakota. Cingular is not friendly with South Dakota. We only have Verizon and Alltel, which are CDMA networks.
2) I love my 8 GB nano, but after putting on contacts, calendars, e-mail music, and video? 8 GB of iPhone isn't enough. 8 GB of iPod nano is fine for what the iPod nano does. I'll wait until they stick at least 16 GB of flash in the iPhone.
3) Oh yeah, I have to move out of South Dakota first (which is happening in January 2009, after my fiancee graduates. I'll have my Master's done by then, too).
4) They need to increase the battery life. A lot. I want to be able to power a nuclear submarine with an iPhone. Maybe they can borrow from the Mac's power management since every Mac with Leopard is somehow going to be able to spool up a flux capacitor (and not with garbage!).
Ok, I'm done now. Go home. Eat dinner with your family.
Why nor 30 40 GB on iPhone? b/c that would require a HD (for it NOT to cost $2,000), and that would make the iPhone quite hefty for a phone.
A HD is not only physically large, but the power requirements are much larger than for flash memory - battery life would be even worse.
An unlocked phone isn't worth much to me. If I could use skype and audio iChat around wifi connections I might reconsider, but there isn't much value for me in this.
How can anyone go by these numbers when, a) The iPhone is not released yet, and b) No one outside of apple knows exactly what's inside it? Where are they getting their figures from. One item for example on their list - touch screen controller - Is that just a standard touch screen? Apple's multi touch might be considerably more expensive. That's just one example.
Hard drives are a bad idea for the iPhone for several reasons:
1) Cell phones get handled more, and are more likely to get dropped.
2) If you drop it, you lose $500-600 (or more, as a hard drive would up the price).
3) It suddenly becomes more bulky.
4) Battery life will decrease, certainly.
I wouldn't buy one with a hard drive.
I suppose we'll have to wait until flash memory technology improves...
I agree that the teardown costs are certainly not 100% accurate. But the issue I'm primarily curious about is not Apple's profit margins, but rather the differentiation between the two models. We know from questions posed during the conference call yesterday that Apple has been getting very good prices on flash memory; does a $100 increase really only translate into a 4GB improvement, or is that just what's feasible at this point in time?
It's definitely too expensive despite the cool features, plus I'm not about to switch from a carrier with whom I'm getting more reliable signal reception. And yes the limited storage space sucks. So, I'm not getting one, I'd rather wait until a better revision comes out, maybe when video phone calls are possible on a faster network. A separate device with wi-fi internet without the phone or ipod capabilities at a cheaper price would have been more attractive to me.
I love the iphone (it's even more beautiful up close), but it's far too expensive for my blood. I'd rather buy a new DSLR camera with my $600. Or, a slightly cheaper ipod/pda without phone capabilities. I don't want to switch to Cingular; in fact, I just plunked down $100 to get an EnV from Verizon (after the iphone announcement). I'll have a 2-megapixel camera and a nice QWERTY keyboard for messaging.
I also really like my Palm, which I paid $500 for (or my employer did, actually), and which has a beautiful crisp color screen, landscape view, and a wireless keyboard that I use frequently to make longer entries with. I can't imagine using the iphone touchpad for that kind of typing. Frankly, I want a simple reliable phone service and a capable PDA. I watch movies on a 27" screen, and that seems too small.
I would love to buy an iPhone, but I think i will wait instead. The 8 GB model is too small for me, and I don't really want to pay cell phone subscription fees. I hope Apple releases an iPod Touch instead, that would have a hard-drive, better battery life, but no cell phone, or monthly fees, just like this mockup at http://ipodtouch.co.nr
So nearly half of the phone's cost is profit, but yet it still requires a two year contract?
Usually, with a contract, there's somewhat of a reduction in the price of the phone, or so I've seen. (for example...free phones are a result of this)
I love the idea of the iPhone, but I think it's somewhat absurd that there's over $200 in profit on each, tacked on to an already high price, and that's even with a two year contract.
In the short run, there are large fixed costs. As someone said above, R and D. In the longer run, these fixed costs are payed for. The materials cost obviously doesn't take into account the fixed cost, and actually only take into account part of the variable cost.
Then of course there is the whole demand side, which I applaud you for trying to get a handle on.
I have a feeling the iPhone is actually underpriced; I think there will be waiting lists; I do think this is on purpose as they are going to create a dynamic demand curve. Seeing people in line for a phone makes it popular and more desirable. (not literally in line, but a waiting list is a signal that you won't be alone buying the thing.)
The isuppli guess is no surprise since the cost difference between manufacturing and retail is not only parts but where AAPL sees it needs the profit point to recoop R&D costs soonest. My SWAG why the 8gb is $100 more: Likely the $499 handset does not have the profit point AAPL desires after 3 years R&D (at time of release) is factored in. They would not want both of their products to take a year to recoup investment. The 4gb is shoe-horned into the product line-up for those with tighter fists but I'm almost positive the 4gb will be at the minimum design threshold for usability (after OS, programs, widgets). Apple feels it can survive having the 8gb at the better R&D recoup price because that is really the recommended minimum configuration.
I'm waiting to see what happens, give it a year.
I live in Oz, so we wont get it till 2008 anyway, hopefully a with a revision, i agree the 8GB seems low for the price, 16GB by rev b and im in.
For those of us used to buying (unlocked) Sony Ericsson phones, $600 is a bargain.
The iPhone does all of the stuff, for example, that my W810i does, but it does it SO much better. Feature for feature it's a better phone, a better value if these features are important to you.
At a time of
of fat bandwidth for internet users, why do people still concern themselves with keeping webpages they build under 100k??
Seems like any new site might use some flash or it will be looked at in a bad light
I think the biggest question is what will gen2 iPhones have in them, and how much will they be priced?
The obvious difference in capacities are moving versus non-moving parts. The iPhone's 4/8Gb are I'm sure, RAM based as opposed to HDrive based. Personally, I wouldn't want a moving disk in my phone, just considering the abuse my current and past ones have taked at my hands. At this point in time I think the price is steep for RAM based units above 8Gb. Example: I've seen some good deals on USB thumb drives up to 4-8Gb in the $150-$250 price point. When you get to the one or two units that are 12 & 16Gb you're looking at >$1k. Now this may be an inflated price, but there must be something to it, or else we'd already have 12, 16 or 20Gb Nanos?!?!?
I agree with everyone else 4Gb is rather constrained with OS-X and misc. add-ons; 8Gb would be the minimum. Realistically if I wanted to use it to do what it should do, consolidate music, pictures, movies, email, collaboration, and communication, 20Gb should be the starting point. I'd gladly pay $599 for that iPhone Mr. Jobs!!! ;-)
PS. Doesn't everyone wish someone would come out with one unit that does it all once and for all!!! Wishful thinking I know ... then where would all the upgrades be?!?!