Originally Posted by drobforever
You're really making this up. $150-$200 to break even is a myth. Like I said, the parts cost at most $50 for a dual-core 8GB tablet. All those "R&D, ....." costs, really is nothing, because, when you're going for a $99 retail price tablet, you'll definitely sell in 10s of millions, so the average cost on those you mentioned would be spread and will be pretty low per device. Plus, e.g. marketing cost will be very low because, just the fact you're selling such device will create a lot of buzz and that's self-marketing.
You can say it'll be a low quality device and you won't buy it even if it's free, that's fine, some people here will think that way and they're free to make their choices. But I'm talking about profitability, not quality, you want quality device you go buy higher-priced devices. $99 device, consumer will have lower expectations and they'll be ok with e.g. cheap shell or lower battery life (I still expect 7-8 hours because it's ez to do for 7").
1) R&D... Have you done R&D? while it amortizes out, it's there, and it also needs to feed 'the next round' of R&D. pretty low is probably <$5 a device for the first year, but people have to be funded and fed, and that's this years budget.
$99 Retail usually means 30% to channel costs. Best buy/Staples/Target don't work for free. Google doesn't have a store, right? Oh, and you think Amazon is going to sell this for a lower cut? hardly.
2) no marketing? how will you know where to buy the thing? Where is this google store... is it next to walmart? What carriers will sell it... oh, none. If anything, Marketing will be higher as you don't have a hook to sell it and you will definitely need to continually present it as a Kindle/Nook/iPad option. this isn't kickstarter;-) We're in it to win it, and therefore it has to have mindshare before you get marketshare.
3) I forgot Licensing... android isn't free. you need to budget $10 for Microsoft royalties, at least.
4) I didn't say it was low quality. you did (you used the term 'cheap'). I never said people won't buy it (others on the thread did). and I'm talking about profitability. If a consumer has lower expectations, then they will use it less (it's not strategic), and google's model is to pay for it via 'use' If I break it dropping it on the floor, is that 'acceptable'? (cheap shell), cost of returns? 7" is 'easy' to maintain a 7 hour battery for surfing all the time over wifi? (remember, use is what pays for it, not reading books from storage).
5) interesting you didn't touch the fixed unit costs (assembly/labor,shipping, packaging, taxes) That's at least 10 bucks ($5 to assemble, $1 ship, $1 packaging, and if you plan on making a profit, lets say 20% across all nations on that... so if you make $10 profit, that's $2 tax).
6) My read on people with a $99 'expectation' They expect to be as good as a Kindle. If it fails that, it's a negative brand experience and it will never be bought again.... at any price, except by techies (0.00001% of the market).
And on Profitability...With your numbers: You go to Best buy, who sells at $99, who take 30% for their time and effort ($29), which means Google will make $1 (50 for parts, 10 for license, 9 for Marketing, taxes, shipping, assembly, QA, loss, insurance, supply chain management) unit. at 50Million units a year (the best selling android tablet ever!) , that 50Million profit, on 3.5Billion on cost (assuming your $70).
You get the same eyeballs (or less, these are the low surfers), so net net, you're not winning anything here. So... you're Sergey... you just committed 3.5Billion of your company's money, or 25% of last years profits for 1.6% ROI. Great, except Google is currently making 25% Net (after tax) Profits. That's hardly good return on investment... using YOUR numbers. I think you need to revisit your profitability model.
Edited by TheOtherGeoff - 9/27/12 at 11:19am