R-E-S-P-E-C-T - Page 3

[quote]Originally posted by Junkyard Dawg:
<strong>I don't understand why it's so hard for Apple to figure out that if they cut prices to expand their sales volume, and marketshare, that their profits will remain the same or even grow. Sure, MAYBE it wouldn't work, but Apple won't even TRY it! All they need to do is release a "test balloon, a cheaper mac, and see what it's sales are like. If it's a bust, then can it. The Cube COULD have been such an experiment, but Apple got greedy and blew it.</strong><hr></blockquote>

They do have a cheap computer. It's the $799 iMac. Or do you mean a good computer for a cheap price?

[ 12-06-2001: Message edited by: EmAn ]</p>

[quote]Originally posted by Dave K.:
<strong>The iPod is way over-priced. [...]It must be the FireWire port that adds $150.00 to the cost of the unit. Because it sure isn't the harddrive.</strong><hr></blockquote>

All I would have to do is transfer the 10 GB of MP3s once and I would be pulling that extra $150 out of my pocket in an instant.

If you ask me, the FireWire, and the ease of synching with iTunes, is completely worth $150.

an LCD iMac with a fast (800+mhz) processor starting under 1000 dollars.

A 1 Ghz+ PowerMac at 1500 or so.

Oh, an apollo-based PowerBook with combo drive and 1440x960 screen res, 32 mb GPU

and an iBook with a faster processor and decent GPU &gt;16 meg vram

[quote]Originally posted by murbot:
<strong>
If you ask me, the FireWire, and the ease of synching with iTunes, is completely worth $150.</strong><hr></blockquote>

That's how I feel too. At first I think it wasn't worth it at all but after thinking about it the iPod really is a great little thing. Now if only I could get one...

[quote]Originally posted by Junkyard Dawg:
<strong>

The idea is that Apple is loosing sales because of their high prices. If they lowered their prices then we think that their sales may go up. With higher volume, a business can make the same profit with lower margins.

-snip-

I don't understand why it's so hard for Apple to figure out that if they cut prices to expand their sales volume, and marketshare, that their profits will remain the same or even grow. </strong><hr></blockquote>

I'm pretty sure Fred Anderson (and others at Apple) understand the sliding scale of price vs. demand in play here.

The problem that comes up again and again on these forums, though, is that people lack understanding of the basic math involved in making such decisions. Often people say some variation on this argument: "The entry level desktop Mac is too expensive at $1699. Apple should cut the price to $1199 or so and they'd sell so many more that they'd come out way ahead."

Let's do a quick analysis of these numbers. Let's say that Apple's margin on this machine is 30% or so. That means their cost is $1189. Obviously selling at $1199 looks like a stupid idea right off the bat, but just for the sake of argument I'll allow that costs go down a bit (eventually) due to increased volume. In other words, if Apple is going to sell 800,000 of these instead of 200,000, they would have more clout with component manufacturers, and economies of scale would dictate that they can make some of the components slightly cheaper. So let's say Apple's cost goes down to $1100. That's extremely unlikely, and I think an unrealistic assumption in this example, but what the heck. More likely, though, if Apple trims margins to 8%, sales volumes go up less than double instead of quadruple as anticipated.

So in the current scenario, Apple sells 200,000 Powermacs for $1699 each (cost of $1189) for a total revenue of $339,800,000. Their cost of $1189 each comes to $237,800,000 and they earn a 30% margin of $102 million on these sales.

In the "cut price, earn market share" scenario, Apple sells 800,000 Powermacs for $1199 each (cost of $1100) for $959,200,000 revenue, backing out costs of $880,000,000 for a roughly 8% margin of $79 million on these sales.

That's right -- less gross margin on quadruple the sales.

Furthermore, "gross margin" is not the bottom line, not even close. Apple has other costs like research & product development and sales/admin which, if anything, would go up (on a total basis, if not a per-revenue basis) with increased sales volume. History is replete with stories of once-successful companies dead on the rocks because they tried to shoot the moon and grab market share at the expense of making a safe profit on each item sold.

Obviously my example above is pretty fast & loose, but it's also too generous about both the anticipated increase in sales volumes following a price cut, and the anticipated cost savings in increased manufacturing volumes. Too often people suggesting big price cuts are thinking "cut prices by less than half, sales will double, and the company comes out ahead," but that's way off.

[quote]1) I admitted like four posts ago that my initial figures were probably off. AND, AGAIN, I never said it costs only $150 to make an iPod...NEVER<hr></blockquote>

you quote a price of 150 for the drive which is just insane.

[quote]WTF ever, dude. It might cost US that much....it probably costs them $150.00.<hr></blockquote>

[quote]I also later said perhaps 299 for a retail price of the ipod was more reasonable.....<hr></blockquote>

only after I showed you how dum your original figures were.

later you go onto say that the drive could possibly cost 200. so you're saying that with the added cost of all the other components, packaging, etc that Apple would be fine with a margin of 20-30 bucks!?

[quote]What I AM saying is that I still don't think they paid what you think they did.<hr></blockquote>

that's nice. but what the hell does that mean?

[quote]I could be wrong, but I think Apple has huge mark-ups in general....don't you?<hr></blockquote>

keyword= general. is it so impossible for you to think that there could be exceptions?

[quote]And anyway, I never actually claimed to definitely know what they paid.<hr></blockquote>

yes, but you sure stick to your guns on what you think even when shown that your numbers are unrealistic.
[quote]It doesn't cost them that much. No ****ing way. Maybe $250.<hr></blockquote>

[quote]you are the one who is sticking like GLUE to your assertion that Apple is paying a high price for the drive, based on nothing but retail prices<hr></blockquote>

I think you are missing the point I am making with the comparison to the retail drives. You think Apple could sell them the iPod, drive and all for 299 with suitable margins. that would be less in the retail market than the drive alone retails for. Now cost aside. How could Apple sell the iPod for less than the drive?! You still have not answered that. With your theory, Toshiba would have to have AT LEAST 50% margins on the 5GB drive. come on, you know that isn't true.

[quote]1) I don't think they make as little as you think they do on the iPod. <hr></blockquote>

great but there is better support for the smaller margins than your predicted margins.

[quote]2) I think it is possible that the drive goes for one hell of a lot less than the retail price. Now, I ask you...do YOU honestly believe that it is NOT POSSIBLE that they paid $200 for the drive? Because until I find out for sure I think that is at least reasonable number....or at least possible. <hr></blockquote>

no, I don't think that is possible. not at all. The drive retails for $399. I don't know what normal hard drive margins are but if Apple is buying the drive for 200 themselves that would mean that Toshiba has larger than 50% margins on the drive. and would be selling it too cheap to make a significant profit off the Apple deal.

That I think is the best point against your claim.

[quote]
And for your comments: "think a little" and "what you can't comprehend", well I seem to have been able to to think enough and comprehend enough to hold down a full time teaching position, get a college degree with honors, and be accepted in graduate school. <hr></blockquote>

it's amazing what money can get you through.

I hope you don't teach economics.

<img src="graemlins/bugeye.gif" border="0" alt="[Skeptical]" />

[quote]
My numbers aren't that far off becuase if you think that Apple doesn't make near 30% on a PM then you are more naive then I thought. <hr></blockquote>

who knows what they make. I would sertainly think it was close to 30 but who knows. dual 800 Mhz G4 processors cost something close to 600 bucks each in quantities of 2000 when they were first released. I think some people underestimate the cost of some components. But yea, the PowerMacs are way overpriced. Not sure how to fix it though

[quote]One more thing applenut: You remember our "age doesn't matter argument"? Well, I think it DOES matter. It is not that I don't respect your opinion, or that your not entitled...it is just that you refuse to acknowledge I have been dealing with the world for 10 more years than you have been. I have bought cars, computers, sold a house and settled an estate as an executor of a will. I know a little more about how things operate in the world than you do.....it is not that I think I'm better, I just think you fail to recognize that experience does count for something.<hr></blockquote>

and that has what to do with anything? congrats on the car. I'm buying one in the next month or 2. congrats on the computer, I've bought 2 with my own money already in my "young life". can't say I've sold a house or settled an estate but I hope you made some money on em because you certainly woudn't make any if you were in charge of Apple.


it doesn't seem like you are considering anything I say. it's a shame. you might actually see my point.

[quote]So who is the stubborn one now? <hr></blockquote>

uh... you

[ 12-06-2001: Message edited by: applenut ]

[ 12-06-2001: Message edited by: applenut ]</p>

[quote]Originally posted by Dave K.:
<strong>The iPod is way over-priced. Check out the Treo 10 found here:

<a href="http://www.edigital-store.com/treo10.html" target="_blank">http://www.edigital-store.com/treo10.html</a>

It must be the FireWire port that adds $150.00 to the cost of the unit. Because it sure isn't the harddrive.</strong><hr></blockquote>

uh... perhaps it would be a better comparison if they used... um.... the SAME hard drive.

plus, hate to be bias here but from the looks of it it looks like the iPod is much higher quality all around.


sizzle chest

thanks for that post. learned quite a bit. So, with that said how would Apple go about cutting prices. they did it on the powerbook and iBook and survived. Why is i not practical for the desktops?

Thanks Sizzle Chest, that was a good explanation. I still think Apple should be working towards the goal of cheaper computers.

Also, I have trouble believing that the Powermac costs so much to build. How could it cost Apple more to build a powermac that it costs a consumer to buy a comparable PC? I don't believe it. I think Apple's cost on a tower is more like 600-800, if that.

[quote]They do have a cheap computer. It's the $799 iMac. Or do you mean a good computer for a cheap price? <hr></blockquote>

Well the 799 iMac is great for it's price. What I'm talking about is, what if someone want's an iMac, but with a larger display? In other words, a non-expandable computer with a 17" CRT or even LCD?

If a 15" CRT iMac sells for 1300, then one should be able to buy a 17" iMac for about 1500. But in Apple's current lineup, if one wants a mac system with a display larger than 15" CRT, they must spend over $2000!!! This drives off many customers, and it's not even an issue about profit margins. Apple can keep their profit margins, it's just that they need something between the 1299 iMac and the $2000 powermac w/ display. Apple needs a computer that sells for about $1600-$1800 with a large display, that is non-expandable, or maybe just a video card.

The cube was the perfect answer, but Apple fu[ked it up. All they had to do was sell a cube for $1100-1300.

With display, it would have been:

$1600
$1800

And that's assuming a $500 display! That could get someone a 19" CRT! This is what consumers want....they are willing to spend more than an iMac for more computer, but they are NOT willing to spend over $2000 on a Powermac that they don't need.

Apple has this silly idea that "consumers" only want toy-like computers with zero upgradeability and tiny displays. Thus the iMac. iMacs are fine if someone is a midget, but if you dig a nice display then forget it, the iMac is useless!!

Like I already said, I know of 4 people who wanted to buy Macs, but refused to buy an iMac because of the small display. They could afford an iMac, but they could not afford to spend $2200 for a Powermac system. So they bought a Wintel.

Apple's deskop lineup has a huge, gaping hole in it, and the cube was designed to perfectly fill it, except that it was priced HIGHER than a tower!! That was so stupid I"m still reeling from the shock. If Apple had only.....ahhh, nevermind. Water under the bridge.

[quote]Originally posted by applenut:
<strong>

sizzle chest

thanks for that post. learned quite a bit. So, with that said how would Apple go about cutting prices. they did it on the powerbook and iBook and survived. Why is i not practical for the desktops?</strong><hr></blockquote>


The same thing goes for desktops, laptops, iPods, whatever. When Apple cuts prices it's because time has passed and components become cheaper. In other words, Apple can cut the retail price of the low-end TiBook from $2599 to $2199 because in the time elapsed, the hard drive has gotten cheaper, the RAM has gotten cheaper, the CPU has gotten cheaper, the LCD has gotten cheaper. Also

So this kind of price is different from my example in that margins remain steady because SALE PRICE FOLLOWS THE COST DOWNWARD. In fact, if Apple is smart they might even be able to lower the price by LESS than the decrease in cost, and actually make margins higher than when the product was introduced. People jump all over a marked-down product and Apple makes out.

Also, Apple might be willing to make lower margins temporarily to clear out inventory because they're going to introduce a new line. It's better to move a bunch of TiBook 400 models at a lesser margin, than get stuck with them when the Ti 550 models arrive.

[quote]Originally posted by Junkyard Dawg:
<strong>Thanks Sizzle Chest, that was a good explanation. I still think Apple should be working towards the goal of cheaper computers.

Also, I have trouble believing that the Powermac costs so much to build. How could it cost Apple more to build a powermac that it costs a consumer to buy a comparable PC? I don't believe it. I think Apple's cost on a tower is more like 600-800, if that.
</strong><hr></blockquote>

If Apple's cost on a Powermac is $800 then why isn't their margin 50 percent? Look at their financial statements, their margin really IS 30%.

Look, saying "How could it cost more to make a Powermac than a generic PC?" only makes sense if the Powermac and the generic PC are the same. Do they look the same to you? I can tell the difference between a generic beige mini-tower and the graphite or quicksilver Powermac cases. Have you ever opened up a Powermac G4 to add RAM or a hard drive? And if so, have you ever opened up a generic PC to add something? Did you notice anything different about the design and the build quality?

Did that generic PC come with gigabit ethernet, firewire?

Remember, many of Apple's components are proprietary. You can't slap an Intel motherboard into a Powermac and plug a G4 chip into it -- doesn't work. Apple (wisely) started using more standard hard drives and RAM, which helped, but they still use non-standard cases, power supplies, motherboards, etc.

Also remember that most PC companies truly ARE operating on margins like the hypothetical 8% in my earlier example. They really ARE selling the stuff for just barely more than it costs them to buy and assemble it. Why do you think a juggernaut like Compaq or Gateway can end up in such trouble?

I wonder if Porsche or Mercedes enthusiasts get together on porscheinsider.com or mercedesinsider.com's message forums and ask "How can it cost Porsche $65 grand to make a car when I can buy four Hondas for that price?"

iMac 999 1299 1599
iBook 1299 1599

PowerMac 1599 2299 2999
PowerBook 2199 2999

displays: 15" 399 17" 699 19" 1099 22(24?)" 1999(2499)

SDW2100-

Please tell me why we "have to assume 30% margins" cause I don't know.

[quote] I wonder if Porsche or Mercedes enthusiasts get together on porscheinsider.com or mercedesinsider.com's message forums and ask "How can it cost Porsche $65 grand to make a car when I can buy four Hondas for that price?" <hr></blockquote>

That's a flawed analogy. First off, a Honda is a very high quality car, they last forever...so for the sake of argument, we'll replace it with a volkswagon.

But the analogy is still flawed. A porsche or mercedes is BETTER than a volkswagon in every measurable way. It's faster. It's higher quality, better materials, the list goes on.

A Powermac is SLOWER than a PC. It has a slower bus, slower RAM, slower I/O, the list goes on. Save for Firewire and Gigabit, the Powermac uses CHEAPER components than a mid/high-end PC. The Mac is less expandable, having no extra drive bays.

And yet the Mac still costs more.

Make no mistake--most mac users choose Macs for the software: the OS, the apps. I can think of nobody who buys a Powermac because of the hardware.

When is the last time you heard someone say, "I wish I could run Windows on a Powermac...Windows would SCREAM on a G4!"

LOL, nobody would ever do this, because the powermac is inferior hardware.

To return to your car analogy, I think a better comparison would be Dodge Viper vs. Ford Mustang. But the price is different than reality:

Porche 911: 100000
Pontiac Firebird: 375000

The viper is faster, better quality, better engine, more advanced technology, the list goes on, but the Firebird costs more (but damn it has such fancy styling). Doesn't make much sense, does it?

[quote] If Apple's cost on a Powermac is $800 then why isn't their margin 50 percent? Look at their financial statements, their margin really IS 30%. <hr></blockquote>

Perhaps Apple's accountants are good at "laundering" money? That's more believable to me than what Apple reports their margins to be.

[quote]Originally posted by Junkyard Dawg:
<strong>
That's a flawed analogy. First off, a Honda is a very high quality car, they last forever...so for the sake of argument, we'll replace it with a volkswagon.

But the analogy is still flawed. A porsche or mercedes is BETTER than a volkswagon in every measurable way. It's faster. It's higher quality, better materials, the list goes on.
</strong><hr></blockquote>

LOL, JD, that's more flawed than the Honda!! I have the 2000 Jetta and it kicks any Honda's ass hand down no contest. The new VW's are sweet, great materials and superb attention to detail. Mercedes may be better than a VW but I wouldn't make the competition as extremely one sided as you make it, plus the VW would whip a Honda's ass. Maybe use Hyundai as an example, it's a descent car but no where near Honda or VW.

[quote]Originally posted by Junkyard Dawg:
<strong>
Perhaps Apple's accountants are good at "laundering" money? That's more believable to me than what Apple reports their margins to be.</strong><hr></blockquote>

So you think Apple really had twice as much profit as they reported, but decided to "flush" half of it so they could report inferior results and hurt their stock price?

[quote]Originally posted by Amorph:
<strong>I poked around that Dynamism site a little, and <a href="http://www.dynamism.com/kxlcb10an/index.shtml" target="_blank">look what popped up</a>.</strong><hr></blockquote>

Nice catch, 'Morph.

[quote]Originally posted by JasonPP:
<strong>I think they should have a DVD drive accessed by flipping the keyboard up.</strong><hr></blockquote>

That actually makes a hell of a lot of sense.

[quote]Originally posted by JasonPP:
<strong>That way they won't have to wait until *someone* comes out with a 10mmm or whatever slot loading superdrive, they could offer it next month!</strong><hr></blockquote>

If you check Amorph's link carefully, you'll see that that Panasonic drive is slot-loading. His point was that the drives are apparently available NOW!

[quote]Originally posted by Junkyard Dawg:
<strong>I know for a fact several people who would have bought macs if the prices were better. The iMac's price was ok, but they wanted a decent display....and they would have even spent $1800 or so on a Mac if it were like an imac with a larger display! But Apple refuses to offer such a computer! That's just dumb. </strong><hr></blockquote>

Dearest Mr. Dawg,

Please read my above post about the techno illiterati, students, the DIY set and speed geeks.

These groups, in at least one of which your friends more than likely belong, are a very small fraction of Apple's market for high-end products. In fact, they are not Apple's target market at all for high-end G4s and TiBooks. Adjusting pricing to entertain this target market to the detriment of profits in Apple's most profitable and quite successful market segments would be a silly thing to do indeed.

Sure, selling a dual GHz G4 for $2500 and a GHz iMac for $599 might be able to improve Apple's market share in the above mentioned groups to a very healthy 10% or more, but at what cost? All that profit from the 95% of design houses would go straight down the drain.

The problem with the Cube was that Steve overestimated the size of his envisioned "B&O" segment and the growth potential in terms of market share vs. PC systems among users in that group. Apple has made no such error in its pricing of the G4 or iMac.

Look up the term "cash cow" in any marketing text. The mid- and high-end G4 systems continue to be "cash cows" for Apple because of the near-monopoly they hold in the professional design and publishing segment. They do not need to adjust G4 pricing until such a time that that statement is no longer true, or until they have a faster, better high end system to take over the role in that market. Meanwhile, they are willing to sell the very decent low-end G4s to people like you at a very reasonable price.

Double post

[ 12-07-2001: Message edited by: tonton ]</p>

Here in Denmark retailers are left a 15$ margin on the iPod. Not much I would say.

OVERPRICED=volkswagon,porche,audi,bwm,mercedes,vol vo etc. I can get a brand new Honda for way less,breaks down less lasts longer, and maintains its value. guess what many volkswagon,porche,audi,bwm,mercedes,volvo are sold in this country

just tell what MP3 player is cooler than the ipod anyway?

[ 12-08-2001: Message edited by: bernard ]</p>

They may have the highest margins but they also have way higher R&D than any other computer companies. period. let see Dell, compaq, H-P oh wait those two are having trouble making enuff profit to stay in business. So we will stick with Dell -they build computers and sell them thats it never did one dam thing for computers take away Dell from the world what have you got more gateways. take away apple OMG who knows. you know who has the highest profit microsoft lets see $600 for Office freaking spredsheets and wordprocessors on $3.00 worth of packaging. and people think an ipod is a rip off.

8.1% of cars sold in US in 1997 (most recent data I could find quickly) were not from Japanese or American manufactures.

297,028 from Germany
150,000 from other countries (not Japan, Germany, US, or Korea)

This is from 8,272,074 total cars sold in US in 1997.

So the cars you spoke of make up aprox 5.4% market share in the US. Yet everyone wants one deep down.. kinda like an Apple machine.

Can we put an end to this once and for all???
No matter if it cost them 200 or 300 to build the whole thing!!! They have R&D costs that have to be considered, and when a product is first released it is always overpriced no matter what to recoup some of those costs. Why do you think when Intel releases a new chip it cost 800 for the top of the line but within a month or two that very same chip only cost 600 or 500. Even if they haven't released a new faster one they always drop prices down the road. They know they can get the higher price from those who will go and buy it. Then they reduce the premium after recouping some of those R&D costs. Almost every product is released that way buy all Mfgs. The Superdrive was $999!!!! Now it's under $600, is it cheaper to make now? Not no $400 cheaper.

Do I need to keep going???

One thing I will agree with is the top of the line and middle of the line PowerMac's are overpriced, the line is not refreshed enough to justify never dropping the price before a new rev.

the difference in cost between the low end and high end is not justified in the difference in cost of components.

I think Apple can do a little better on this product.

appenut, SDW2001 is right this time. I think the best thing is just to drop it. You guys disagree that's fine. But just leave it at that.

[quote]Originally posted by SuperKoch:
<strong> :confused:
Hey tonton. I think the information provided wsa quite interesting, but honestly not very visionary. Whatever, I strongly agree with you that Apple has done well with every single of their last products. But I thought we're talkin' LONGTERM here, as we all seem to have enough respect to donate our time to here to Apple. It would be new to me that Stockmarket value alone is an indicator for any longterm development. And in your post I think you underestimate a little the FUTURE usergroups of Macintosh Computers. Who is the founder of any consultancy which still uses Apple? People who usually were there when Apple still was superior. Who is it going to be tomorrow? The guys I study with. Do they use macs? NO. Why? Bad value for money, they say. Obviously morons, agreed. BUT I can't say it often enough: Apple really shouldn't rely on their Image as it has been created 10 or 15 years ago. Apple should just think a little different from the normal tracks, and really develop products which make US truly addictive to them. At the moment, they are loosing it. I can only speak for myself, and I am surely NOT addicted to machines which cost triple the money and make me spend triple the time in front of it. And hey: Designers with MP3 players...Maybe in my spare time. I need hardcore SPEED. At a good price. After all, it's a computer, and not a religion </strong><hr></blockquote>

The mistake you're making is to think that some cheap arseholes who think PCs are "cheaper" will be making buying decisions for companies in the future.

The reality is though you can "buy" a cheaper PC than youcan a mac, over the longer term the Mac has a lower total cost of ownership.

the reasons big studios still buy Macs is because 40-50 Macs = 1 support person. 40-50 PCs = 4 or 5 support people.

Your friends with their cheap ideas will find that out the first time their printer doesn't work or their workstation doesn't boot.