This only shows how Apple makes their products too expensive.
If they were too expensive, there would be little or no profit, as the market would reject them. Since they do make such profits, they seem to have priced the products well.
Their responsibility in this area (profitability) is to their stockholders, to maximize profits, not to you or me
Without reading through all the I hate Apple and I love Apple comments, I'd just like to point out that as far as this article goes, I could add "If my aunt had balls, she'd be my uncle!"
Anyone else bothered by how made up all these numbers are??? A lot of assumptions and speculations. Wasted article and wasted cyberspace.
What about the operating systems? I am sure that HP is having to pay for Windows where as Apple is including the operating system for free.
That's not how it works. It depends on whether the Software Group is treated as a Cost Center or a Profit Center. In either case, I assure you that the Software Development Group has to pay it's own way and therefore the computer has to absorb the software cost. Nothing is " free " .
HP is giving away computers so it can get its profit from selling services, accessories, software, and inks and toners.
Apple get high margin from hardware but gives out free software and services like iCloud for free or at minimum cost.
nicely put. my thoughts exactly. this is what I hate when people break down the cost of the components that go into an apple product and say how overpriced it is. what they don't realize is that it's a lot more than just the hardware that contributes to the cost. aside from the R&D, which i'm sure is substantial, there are all the included "free" products such as ilife and icloud as well as the service you get from apple stores/genius bars/etc. And now the next major release of Mac OS (Lion) is only $30. I'm sure they spent more than that developing the OS, but they sell it for cheap in order to push their hardware.
I read that the itunes store operates at cost and doesn't return a profit. why? because it sells hardware. apple has done a good job building an eco-system that makes using their technology easy. Yes, apple still makes a healthy profit, but I doubt is as dramatic as people make it out to me.
If they were too expensive, there would be little or no profit, as the market would reject them. Since they do make such profits, they seem to have priced the products well.
Their responsibility in this area (profitability) is to their stockholders, to maximize profits, not to you or me
Sadly, many readers here have zero understanding of what it means to run a business.
The few who do are often AAPL shareholders as well as Apple customers.
DELL can higher their products price anyime BUT you guys wonder why they don't?
Because their stuff is complete trash and no one would pay higher prices for them, while Apple's stuff has actual worth and therefore people will pay more for something they deem more valuable?
It all boils down to a focused product line, mass purchasing skills, superb marketing and tight operating costs. Using its billions to buy vast quantities of parts and resources and then carefully managing inventory..... all result in great profit margins to be envied by all.
Classic example is the iPad..... extremely price competitive.
MacBook Air is going to be a another classic, just as all the other portable products. For the money equally equipped PC's are more expensive.....
The race to the bottom on price is killing the PC makers one at a time.
Next up is software.... I would not want to compete with Apple on price in that arena... Microsoft is about to be crushed.... it will not be pretty... ask Nokia or RIM in the telephone space and you will better understand the Apple way to conquering a market.... next up will be Apple TV, which is a saturated market about to be blown out of the water and if you were a cable service, I'd be shaking in my boots at what lies ahead.
In this industry I would pick profit over volume every time!
I would think after a certain point, more volume becomes more a burden. More volume leaves you less flexible, less responsive and more fragile to unexpected shifts ? like the sudden introduction of a new phenom device. Volume can buy you only so much leverage, but profit can pump right back into development and innovation.
Just because they sell these things (with like a 9% market share) does not mean they are fairly priced. They are expensive, and that is reflected in the market share.
I'm continually baffled by this argument and keep coming back to the conclusion that our 'entitlement' mentality is now influencing most thought. There is no such thing as a 'fair' price. How would it ever by defined? A person has no real idea of the COGS (costs of goods sold) of a product but they do know what it's value is to them. This is a good thing as COGS is only 1 component of the value of a product or service. Design is one component that is not (usually) in COGS but contributes mightily to the value of a product. Customer service is another. The comparison in this article well demonstrates that there are contributors to value other than COGS.
Apple products carry extra value, for a segment of the market, that increases significantly their 'fair price' (i.e. the price someone is willing to pay) for that segment. This leads to the industry leading margins that Apple produces. This is what the graph basically shows.
A company's goal is not to maximize market share, but profit. Only to the extent the market share is required to maximize profit is it important. In the PC industry for GP computing, once your market share is large enough to support a vibrant developer community increasing market share at the expense of direct profit, is no long critical. At that point you want to make sure you price matches the value you provide to your customers. If you lower you price you may (probably will) attract more customers but maybe not enough to make up for the lost margin.
Apples financial again and again show they understand this almost perfectly.
Bright future for the young guy who crunched these numbers.
But something that has been overlooked is that Apple found a second way to win while "losing" the PC wars. Don't fight them, go around them. The iPad is the new PC.
This only shows how Apple makes their products too expensive.
That's a valid personal opinion, but it's obviously not backed up by the market. If they were too expensive, people would not buy them. If they were ridiculously overpriced, they would be punished in sales. Compared against any other single hardware manufacturer (not "all of Windows"), they are doing quite well. Unit sales are in the same ballpark, with profit significantly higher.
I agree that their price is higher than the dirt-cheap $300, $500 machines you can get. But they're also worth more IMO.
That's not how it works. It depends on whether the Software Group is treated as a Cost Center or a Profit Center. In either case, I assure you that the Software Development Group has to pay it's own way and therefore the computer has to absorb the software cost. Nothing is " free " .
Internally yes, but these numbers are being created by an analyst from consolidated results, so they will certainly include the share from OS-X - there's simply no way for an analyst to separate the OS profits from the hardware profits.
Anyone else bothered by how made up all these numbers are??? A lot of assumptions and speculations. Wasted article and wasted cyberspace.
Since none of these companies reveal detailed costs per individual product, one needs to make a few assumptions anyhow.
What's notable here is the young author's fairly conservative and reasonable analysis, which exceeds the efforts and logic of many professional analysts (e.g., Wu, Munster, Huberty, Gartner).
In any case, one makes many assumptions and speculations in life, whether it's selecting a dish off a restaurant menu, buying a movie ticket, applying for a job, or asking someone to marry you.
There is no way to analyze anything down to the last molecule.
I'm continually baffled by this argument and keep coming back to the conclusion that our 'entitlement' mentality is now influencing most thought. There is no such thing as a 'fair' price. How would it ever by defined? A person has no real idea of the COGS (costs of goods sold) of a product but they do know what it's value is to them. This is a good thing as COGS is only 1 component of the value of a product or service. Design is one component that is not (usually) in COGS but contributes mightily to the value of a product. Customer service is another. The comparison in this article well demonstrates that there are contributors to value other than COGS.
Agree for the most part, except with your assertion that COGS is a component of value. It's not. Value, like beauty, is in the eye of the beholder and has nothing to do with how hard the maker had to work to create something.
People seems to forget that Apple makes loads of money from their money "in the bank". The 70 billion Apple have loose.
Apples gross profit without money is 22%. With money it is 32%.
Other companies have larger gross profit then Apple: Marvel, Intel and so on.
And of course, there are companies whit less gross profit: AMD, HP and so on.
To many incompetent expert that forget that Apple have 70 billion in the bank that generates large profits. If Apple closed everything today they would still make about 15 billion just from their cash.
Expensive is dictated by the market. Apple has tripled its sales in the last five years. It clearly is moving product. Further, if you compare similar equipped models, Apple's prices are very competitive.
This type of comparison also assumes it costs Apple and HP the same amount of money to make a computer. It probably costs Apple less. First, Apple doesn't have to pay for a Windows license as Apple makes the OS. Second, Apple probably pays less then companies like HP does for marketing cost to move a PC. Third, I wouldn't be surprised if Apple pays less for parts as it often prepays and can use its leverage from buying parts for iPods and iPhones to get better prices for Mac related parts.
Further, Apple never engaged in the race to the bottom strategy Dell and HP have. Those companies in their struggle to gain market share have cut margins to the point of being unhealthy.
Quote:
Originally Posted by ClemyNX
This only shows how Apple makes their products too expensive.
Comments
This only shows how Apple makes their products too expensive.
If they were too expensive, there would be little or no profit, as the market would reject them. Since they do make such profits, they seem to have priced the products well.
Their responsibility in this area (profitability) is to their stockholders, to maximize profits, not to you or me
Anyone else bothered by how made up all these numbers are??? A lot of assumptions and speculations. Wasted article and wasted cyberspace.
What about the operating systems? I am sure that HP is having to pay for Windows where as Apple is including the operating system for free.
That's not how it works. It depends on whether the Software Group is treated as a Cost Center or a Profit Center. In either case, I assure you that the Software Development Group has to pay it's own way and therefore the computer has to absorb the software cost. Nothing is " free " .
HP is giving away computers so it can get its profit from selling services, accessories, software, and inks and toners.
Apple get high margin from hardware but gives out free software and services like iCloud for free or at minimum cost.
nicely put. my thoughts exactly. this is what I hate when people break down the cost of the components that go into an apple product and say how overpriced it is. what they don't realize is that it's a lot more than just the hardware that contributes to the cost. aside from the R&D, which i'm sure is substantial, there are all the included "free" products such as ilife and icloud as well as the service you get from apple stores/genius bars/etc. And now the next major release of Mac OS (Lion) is only $30. I'm sure they spent more than that developing the OS, but they sell it for cheap in order to push their hardware.
I read that the itunes store operates at cost and doesn't return a profit. why? because it sells hardware. apple has done a good job building an eco-system that makes using their technology easy. Yes, apple still makes a healthy profit, but I doubt is as dramatic as people make it out to me.
DELL can higher their products price anyime BUT you guys wonder why they don't?
If they were too expensive, there would be little or no profit, as the market would reject them. Since they do make such profits, they seem to have priced the products well.
Their responsibility in this area (profitability) is to their stockholders, to maximize profits, not to you or me
Sadly, many readers here have zero understanding of what it means to run a business.
The few who do are often AAPL shareholders as well as Apple customers.
To those who complaining about Apple prices,
DELL can higher their products price anyime BUT you guys wonder why they don't?
Because their stuff is complete trash and no one would pay higher prices for them, while Apple's stuff has actual worth and therefore people will pay more for something they deem more valuable?
Just throwing that out there.
As a customer, I feel ripped off.
In the end, it is all about perceived value. We bought these Apple Products because we thought it was a good deal.
Classic example is the iPad..... extremely price competitive.
MacBook Air is going to be a another classic, just as all the other portable products. For the money equally equipped PC's are more expensive.....
The race to the bottom on price is killing the PC makers one at a time.
Next up is software.... I would not want to compete with Apple on price in that arena... Microsoft is about to be crushed.... it will not be pretty... ask Nokia or RIM in the telephone space and you will better understand the Apple way to conquering a market.... next up will be Apple TV, which is a saturated market about to be blown out of the water and if you were a cable service, I'd be shaking in my boots at what lies ahead.
I would think after a certain point, more volume becomes more a burden. More volume leaves you less flexible, less responsive and more fragile to unexpected shifts ? like the sudden introduction of a new phenom device. Volume can buy you only so much leverage, but profit can pump right back into development and innovation.
This only shows how Apple makes their products too expensive.
I came here for this and was far from disappointed to see this as the first comment.
Worth noting though is that while Apple has a nice healthy margin, Microsoft's margin is even higher.
Just because they sell these things (with like a 9% market share) does not mean they are fairly priced. They are expensive, and that is reflected in the market share.
I'm continually baffled by this argument and keep coming back to the conclusion that our 'entitlement' mentality is now influencing most thought. There is no such thing as a 'fair' price. How would it ever by defined? A person has no real idea of the COGS (costs of goods sold) of a product but they do know what it's value is to them. This is a good thing as COGS is only 1 component of the value of a product or service. Design is one component that is not (usually) in COGS but contributes mightily to the value of a product. Customer service is another. The comparison in this article well demonstrates that there are contributors to value other than COGS.
Apple products carry extra value, for a segment of the market, that increases significantly their 'fair price' (i.e. the price someone is willing to pay) for that segment. This leads to the industry leading margins that Apple produces. This is what the graph basically shows.
A company's goal is not to maximize market share, but profit. Only to the extent the market share is required to maximize profit is it important. In the PC industry for GP computing, once your market share is large enough to support a vibrant developer community increasing market share at the expense of direct profit, is no long critical. At that point you want to make sure you price matches the value you provide to your customers. If you lower you price you may (probably will) attract more customers but maybe not enough to make up for the lost margin.
Apples financial again and again show they understand this almost perfectly.
But something that has been overlooked is that Apple found a second way to win while "losing" the PC wars. Don't fight them, go around them. The iPad is the new PC.
This only shows how Apple makes their products too expensive.
That's a valid personal opinion, but it's obviously not backed up by the market. If they were too expensive, people would not buy them. If they were ridiculously overpriced, they would be punished in sales. Compared against any other single hardware manufacturer (not "all of Windows"), they are doing quite well. Unit sales are in the same ballpark, with profit significantly higher.
I agree that their price is higher than the dirt-cheap $300, $500 machines you can get. But they're also worth more IMO.
That's not how it works. It depends on whether the Software Group is treated as a Cost Center or a Profit Center. In either case, I assure you that the Software Development Group has to pay it's own way and therefore the computer has to absorb the software cost. Nothing is " free " .
Internally yes, but these numbers are being created by an analyst from consolidated results, so they will certainly include the share from OS-X - there's simply no way for an analyst to separate the OS profits from the hardware profits.
Anyone else bothered by how made up all these numbers are??? A lot of assumptions and speculations. Wasted article and wasted cyberspace.
Since none of these companies reveal detailed costs per individual product, one needs to make a few assumptions anyhow.
What's notable here is the young author's fairly conservative and reasonable analysis, which exceeds the efforts and logic of many professional analysts (e.g., Wu, Munster, Huberty, Gartner).
In any case, one makes many assumptions and speculations in life, whether it's selecting a dish off a restaurant menu, buying a movie ticket, applying for a job, or asking someone to marry you.
There is no way to analyze anything down to the last molecule.
I'm continually baffled by this argument and keep coming back to the conclusion that our 'entitlement' mentality is now influencing most thought. There is no such thing as a 'fair' price. How would it ever by defined? A person has no real idea of the COGS (costs of goods sold) of a product but they do know what it's value is to them. This is a good thing as COGS is only 1 component of the value of a product or service. Design is one component that is not (usually) in COGS but contributes mightily to the value of a product. Customer service is another. The comparison in this article well demonstrates that there are contributors to value other than COGS.
Agree for the most part, except with your assertion that COGS is a component of value. It's not. Value, like beauty, is in the eye of the beholder and has nothing to do with how hard the maker had to work to create something.
People seems to forget that Apple makes loads of money from their money "in the bank". The 70 billion Apple have loose.
Apples gross profit without money is 22%. With money it is 32%.
Other companies have larger gross profit then Apple: Marvel, Intel and so on.
And of course, there are companies whit less gross profit: AMD, HP and so on.
To many incompetent expert that forget that Apple have 70 billion in the bank that generates large profits. If Apple closed everything today they would still make about 15 billion just from their cash.
This type of comparison also assumes it costs Apple and HP the same amount of money to make a computer. It probably costs Apple less. First, Apple doesn't have to pay for a Windows license as Apple makes the OS. Second, Apple probably pays less then companies like HP does for marketing cost to move a PC. Third, I wouldn't be surprised if Apple pays less for parts as it often prepays and can use its leverage from buying parts for iPods and iPhones to get better prices for Mac related parts.
Further, Apple never engaged in the race to the bottom strategy Dell and HP have. Those companies in their struggle to gain market share have cut margins to the point of being unhealthy.
This only shows how Apple makes their products too expensive.