Wednesday, April 7, 2010

Soiled iPad

When the Apple iPad was announced there was some interesting remarks from people "in the know" that the $499 starting prices was actually higher than the rumored launch price. With that in mind, check out this article about how much it actually costs Apple to build the iPad. It costs Apple less than $300 to build that $499 device.

Yes, I know that doesn't take into account the R&D costs and advertisement costs for the device but those arguments are total bullshit. First, Apple doesn't need to advertise any of their consumer electronics. The media gives them huge amounts of free coverage which is far more effective than any ad campaign that Apple could ever devise themselves. Apple has become the absolute masters of manipulating the media with their product secrecy and launch strategies. Second, exactly how much could the R&D for the iPad have really cost? The software is identical to that already running on the iPhone and iPod Touch so little work was required to port that to the iPad hardware. The hardware itself is evolutionary not revolutionary so that cost is probably really low as well.

So Apple probably makes a minimum of $100 profit off of each iPad they sell which has to be the absolute envy of every consumer electronics company out there. Take Sony for example, they still lose money on every PlayStation 3 sold today and it's been on the market for more than three years. Sony can do that because they make up the loss on the licensing and sale of content(games,Blu-ray,etc).

Considering that last point, Apple's profit on the hardware should REALLY piss you off. The iPad is a content consumption device and Apple is making about 30% off of every app, song, video and book that you buy on your iPad. That should also scare the living shit out of all of Apple's competitors because If they really wanted to they could drop the entry level iPad's price all the way down to $250 and they would still make bucket-fulls of money off of it. Owning the content delivery channel gives them the the ability to subsidize the price of the device to a level that no competitor could manage without taking a huge loss on every device sold.

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