You’re paying too much to get a little more space on your iPad and iPhone

http://www.slate.com/articles/technology/technology/2012/07/apple_profit_margins_you_re_paying_way_way_too_much_to_get_a_little_more_space_on_your_ipad_and_iphone_.single.html

by Kenan • 14 years ago

16 26 14 years ago

slate.com

lukifer2• 14 years ago

I can't stand the "breakdowns" from iSuppli: as if raw components were the only cost! There are the massive teams of software engineers, not only to write the software, but to maintain it over time. There are shipping costs, labor for manufacturing and quality control, advertising, marketing, R&D for all the unshipped iterations, legal and compliance issues (for every single country), data centers, overhead, infrastructure, and more. Sure, some of these are fixed costs, and some can be absorbed by revenues from other product lines, but it's not like you can just subtract components and arrive at the take-home profit.

All that said, I'm sure that Apple still takes in a good profit on every low-end unit. But I don't see their overpriced storage as a gouge (or at least, an unreasonable one). Rather, it also acts as a subsidy: all the people who can afford a 64GB/3G iPad make up the difference profit-wise for the 16GB/WiFi, allowing them to offer it at a lower margin, both to entice users in and then up-sell, and also to grow the market share. Other industries do this kind of thing all the time, for cars, game consoles, etc.

Is Apple overcharging you on storage? Most certainly. But I don't think it's anything worthy of outrage. If it's not a good value proposition for you, don't buy it. There are plenty of alternate tablets which include micro-SD slots.

ars6• 14 years ago

So because of that your takeaway is that the breakdowns are useless?

Take that data for what it is and don't expect from it what it isn't.

And they do estimate manufacturing costs BTW, plus boxing costs - basically all the costs of making the widget. They don't claim to, and don't, estimate other costs, that's just not what they do.

janardanyri• 14 years ago

It's a healthy dash of guilt by association; these iSuppli reports unfortunately lend themselves to sloppy reporting. This article is a typically wonderful specimen, which crosses lines freely with nonsense sentences like these:

"On the high-end Wi-Fi model, which offers you 64GB of space for $699, Apple’s non-manufacturing profit margin shoots up to 48 percent."

As though you get to handwave away non-manufacturing costs and then call it a "non-manufacturing profit margin."

reedlaw• 14 years ago

Most of the costs you mention are amortized over the lifetime of a product. Not only that, but their true costs are nearly impossible for outsiders to discern. Manufacturing costs are a good indicator of what margin is possible in a mass-produced product and so useful to other businesses considering competing in that market.

zdw2• 14 years ago

Do these stats take into account device density? I wonder if the higher density flash chips are more expensive.

About a year ago 4GB DDR3 SODIMM's were about $50/each but 8GB versions which required twice as dense chips were around $500/each - there was a huge premium on the dense chips.

Now the prices have dropped to roughly $30 and $70 respectively, which is much closer to a linear price/size curve.

Does anyone know if flash pricing follows a similar curve?

ars6• 14 years ago

Usually you leave an empty space on the board to be filled with extra memory for the higher version. (And for some devices there are services that will solder in a chip for you in that spot.)

It's not typical to use different density chips since then you have to tune the rest of the system to match, and that's more complicated.

zdw2• 14 years ago

If SSD logic boards are any indication, devices with fewer chips frequently have lower read/write speeds, as they're not using all the lanes on the controller.

I'm thinking this would be the case as well on a tablet, unless the flash is in a bus topology already.

MrFoof• 14 years ago

Regardless, people tend to make purchases based on the perceived value, not based on component cost.

I mean, is Slate going to do a car comparison and create an argument for consider horsepower per dollar (or cubic feet of storage per dollar, or seats per dollar, or whatever metric you fancy most) when purchasing a vehicle? I mean, does it really cost thousands of dollars more to produce a 6-cylinder engine over a 4-cylinder, plus a beefier transmission and driveline components? Of course not.

ars6• 14 years ago

This is simply called segmented prices http://en.wikipedia.org/wiki/Price_discrimination

By all accounts it's a good thing, since it lets those with lower budgets still get the device, and yet still allows the manufacturer to make a profit.

You want to make a device for every price point your customers are willing to pay.

Cars do it too - those extras you can pay for don't cost anywhere near as much as you pay, they are simply there to make extra profit.

That's why you have the high/mid/low models of virtually every device, and the price difference is not anywhere near the performance difference (look at intel CPUs for example).

When you go to a car wash do you really think that extra shine/wax/whatever spray really costs that much? It doesn't, it's simply a way to make a little extra from those who are willing to spend it.

jbarham• 14 years ago

IMO this article is spot on. I've ordered the Nexus 7 and wondered if 8 GB would be enough, but then checked how much of the 16 GB on my Nexus phone I was using, and it's only a couple of GB.

In contrast, the PCWorld review of the Nexus 7 (http://www.pcworld.com/article/258772/google_nexus_7_tablet_...) starts by harping on and on about the supposed storage constraints of the 8GB model.

Too many mainstream reviewers are still obsessed with specs. Normal people don't know or care about specs; they only care about the overall experience, which is why Apple is where it is.

IMO Android has caught up to iOS in terms of everyday usability but the hardware is generally much cheaper than Apple and improves faster. I think the Nexus 7 will mark a turning point in the Android ecosystem.

jarek3• 14 years ago

I don't know. The original 2010 7" Galaxy Tab came in 16 GB and 32 GB models. The lowest iPhone 4S model is a 16 GB. The smallest capacity iPad has been a 16 GB since the first one in 2010.

Personally, I'm using practically all of the 8 GB SD card that's in my Nexus One at the moment. (Much of it is music - I listen to fairly obscure stuff not readily available on streaming services.) I'm about to move up to a 16 GB card. Most people probably won't have 8 GB of music but 8 GB of video is very possible. Then there's downloadable content for media apps for the tablet.

I'm not going to buy a non-upgradeable device with storage space that's limited since yesterday, and paying a premium for what should be baseline kinda stinks. More than $15 for the 8 to 16 GB upgrade is just bad, as is no 32 GB option.

ars6• 14 years ago

8 GB of music is several days worth at least. I guess it's easier to just leave it all there, but it wouldn't be that hard to cycle it every day or so.

Maybe setup a streaming server on your own PC and download and cache a days worth each time you have wifi access.

brennenHN• 14 years ago

While this is a totally valid point, the article is missing a fundamental piece of the equation. There is no way to upgrade an iPad for cheaper. If I need 64GB on my iPad, it's not possible for me to circumvent Apple's fees.

The necessity of going through Apple, who is charging too much, is what makes this a valid point of complaint and Slate totally misses that, which makes them look dumb.

zaroth• 14 years ago

It's a technically easy way to create product differentiation and start capturing consumer surplus. It's also easy for their salespeople to explain the added value to a wide audience - "you can take more pictures and video, and run more apps on this version." Easy to do and easy to sell is a product manager's dream.

Production cost is irrelevant. People don't buy things based on how much they cost to make. It's all about value, and Apple knows how to sell it. I would be interested to see a breakdown of how much of Apple's profits have come from selling Flash upgrades. I'm sure it has proven to be a brilliant pricing strategy earning them untold billions.

anusinha• 14 years ago

This is a strong reason to pick devices that let you use a microSD (or similar, hopefully non-proprietary) card for extra storage. I will never run out of memory on my smartphone for that reason, since most "bulk data" that I encounter is music, photos, etc.

jarek3• 14 years ago

This is a strong reason why manufacturers have been increasingly removing microSD slots from mobile devices. No microSD on Nexus devices since 2010, can't get an HTC One model with both microSD and NFC...

gamble• 14 years ago

How much storage do you really need on a mobile device these days? I had the 64GB iPad 2, but with the new iPad I didn't feel the need to go beyond 32GB. I don't even fill that up. With iTunes Match and so many other streaming services, local storage with all its syncing issues isn't as relevant anymore.

alanh• 14 years ago

I really find the extra space useful (for podcasts, audiobooks, music, and a movie or two for that long flight). I wish the upgrades were cheaper. I know why Apple does it, but I don’t like it; and contrary to Slate’s POV, I’m not a sucker, I am just getting a raw deal on the upgrade.

Nursie• 14 years ago

This is why I like devices to have a micro SDXC slot. My Galaxy Note 'only' came with 16GB built it, but I bumped it up to 80GB for a total of $70.

Flash memory of various types is not expensive these days, and it is small and low on power requirements. It's been easy to spot the price-gouging for a few years now.

lnanek2• 14 years ago

Good, the people willing to pay through the nose for the premium model can fund research into more products, heck, they can even make or break the success of the product as a whole. Meanwhile, if the lower spec options works for you, you are getting a deal.

GertG• 14 years ago

"Modern gadgets are meant to be disposable machines, not eternal repositories of all your stuff. "

I think that would be a better subject to get worked up about than the feeling you're getting conned because the profit margins on one (optional!) part of your gadget are higher.

You’re paying too much to get a little more space on your iPad and iPhone

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