These numbers are for iPhones sold before the price drop.

That explains the whole negative attitude toward unlocked iphones, it's most of their profit on the phone.

@scarab:

Good point. Also, this article doesn't discuss if they are talking about "new" or "existing" customers. I can't imagine AT&T giving up revenue on an existing subscription just because they bought an iPhone.

If they are new customers, Apple reported selling 1.1 million iPhones last quarter. 40% or 440,000 were classified as new customers. It would take make to figure out just how much they made on new or existing customers

@Tank:Umm, lets see: $831-$432=$399. Well, those numbers are post price drop. Cost of manufacturing likely hasn't gone down...or up for that matter. Looks good to me.

It's been the modus operandi of Apple since inception to do things like this. The original Macintosh in 1984 had a 55% net profit.

Yet another reason not to get an ipod.

It doesn't matter guys, because this just proves that Apple is making bunch of money on the iPhones, and that pretty much proves that Apple is EVIL EVIL EVIL!

See what I mean ;-) Major-General chimed in even before I finished posting!

A product is not worth buying unless the manufacturer is making a bare minimum profit on it ;-p

"With cost analysis's putting the price of iPhone components at around $250, that means that Apple is pulling in around $580 in profit on each iPhone. Yeah, I know, they need to pay their designers and their advertisers and their rent and all the business overhead that comes with running a gigantic electronics company,"

Of course building and maintaining the iPhone OS and all parts of the ecosystem (integration with iTunes, iTunes Music Store, etc.) don't really cost Apple anything.

In addition to product specs, Gizmodo needs to publish profit margins on products the parent company was selling 23 years ago.

How else are we as consumers to make informed decisions?

@dearhaw:

See... That's what he's a General and you're not. :)

@Major-General: I don't know if "Because the manufacturer makes a good profit" is a sound reason not to buy an iPod. Certainly functionality, quality of sound reproduction, and wide compatibility are much better.

"Because the manufacturer makes a good profit" is about as naive and juvenile as it gets.

As to the report that Apple gets a cut of AT&T subscriber scratch, it's believable and correlates with AT&T anti-unlocker stance. An unlocked iPhone prevents monopolizing and monetizing the third-party application market because it opens a back door for the user to install his/her own application without going through Apple. And, for the people going to T-Mobile with unlocked iPhones, it denies that much more revenue to Apple from that iPhone.

Perhaps a reason Apple has done very well under Steve Jobs' resumed stewardship is because Apple current management is very good at maximizing returns and retaining that revenue.

I think that this would also include existing AT&T customers, at least to some degree. I was already on AT&T, but my contract was over, and I had to re-up for 2 years with the iPhone Data Plan.

Another thought: normally the carrier provides a large subsidy on the phone when the customer signs the contract, but here the customer has already bought the phone at full cost (and then some), so the $ that would otherwise cover the cost of the initial phone subsidy is instead going to Apple.

@omg-ponies: i think the reason is because apple has done a good job of maintaining the "zomg look how pretty" crowd over the years. why add functionality to a product when you can add shininess?

Every company in the world is out to make a profit, that's a given. This company in particular though is pretending to be soft and fuzzy and nice while at the same time fleecing it's customers of money they shouldn't be spending on electronics other companies can make just as good or better just because it's got an Apple logo on it.

That much of a markup is highway robbery. If Apple sold about 1.4 million iPhones and 250,000 of them were unlocked that leaves 1.15 million. Assuming they still made a profit of at least 399-250=149 on the unlocked ones, that's a total profit somewhere in the ballpark of $704,250,000.00. In profit. Please tell me they are re-investing this money somehow or donating like half of it to charities worldwide or something. Hell, if they did that, I'd even go buy an iPhone.

Come on. Apple is full of themselves to charge as much as they do for their stuff and a lot of Apple customers are people that care more about how pretty their products are and how cool people will think they are if they get one. It makes me sick.

@fsusmithc2:

"Please tell me they are re-investing this money somehow"

Are you absolutely shittin' me? Where do you think Apple gets the R&D money to develop all their stuff? Out of Steve Jobs's ass?

"That much of a markup is highway robbery"

Why the FUCK should you, as the consumer, be worried about how much Apple gets from AT&T?? The money AT&T is paying Apple is what AT&T decided was what the 5 year exclusive contract was worth. That's solely between Apple and AT&T.

@fsusmithc2: That's not "highway robbery"; it's a sound price point. If the price was egregiously high, people would not buy it because it would be too much of a sacrifice. If the price was too low, it would lose its cachet as an aspirational good and people would not buy it.

Compare it to the Freakonomics example of Magnolia Bakery in the West Village. Magnolia sells cupcakes for a couple bucks a pop. They're decent cupcakes, but each one only costs a quarter to make. They were featured in an episode of "Sex & The City", were written up in the New York times, and mentioned in a popular SNL short. As a result, at any given time, there is a line out the door for Magnolia cupcakes.

Logic says that Magnolia can raise the price even higher because there are people willing to wait 1/2 an hour for a cupcake at that price. Theoretically, there is excess demand. However, by raising the price, fewer people will be willing to wait in line. The line adds to the cachet of the product. If they lowered the price, the cupcake would become a bargain and lose its cachet. It would not be a distinctive product.

It's about finding a balance. The buyer should feel a bit of sting in the wallet to convince him/her that s/he is getting value for the money. Too much and it becomes too painful. People shouldn't worry about their rent payment to buy the iPhone; let them charge the cost and pay it off over 10 years time. By the same token, you don't want every schmo to be able to get one because then the iPhone loses its distinction.

Consumerism isn't driven by a desire to conform; it's driven by a desire to be different.

@omg-ponies: Thank you for adding a thoughtful post that didn't involve bitching at Apple or bitching at people bitching at Apple. Why even have comments if so few people actually contribute something worthwhile to the discussion/original post.

remember when the ATT guys were like "yeah we totally didn't have to give up anything in order to have this deal with Apple".

Apparently their own testicles and the reproductive organs of their children don't count as "anything", because dayum, someone is getting screwed.

Of course I know R&D money has to come from somewhere but it doesn't take a rocket scientist to figure out that they're overcharging people and are making more profit than is reasonable.

Why should I be worried how much Apple gets from AT&T? Well it's the basis for this article for one thing. Secondly, if I was a potential iPhone customer and I saw that price tag, I'd be a little curious where my money is going.

Companies can charge whatever they want for their products and all people have to do to change that is not buy it. I know how supply and demand works. It just shocks me how many of Apple's loyal fans aren't even tech-savvy people and have no idea what they're really buying other than it has an Apple logo on it, the letter "i" in front of it, and is shiny with round corners. Hell, I wish I could come up with an idea half as good.

Contribute something worthwile? And thanking someone for meeting your personal qualifications of "worthwile" is also worthwile? This is an open forum and I'm voicing my dislike of Apple making boatloads more cash than is reasonable on the iPhone. Sounds pretty relevant to me.

Free market. If you don't like the price, buy something else. Premium products command premium pricing. Go get a RAZR if you want to support an unprofitable product. Does anyone care about Prada's profit margin when they sell a purse? I bet it's astronomical. Don't need it? Don't buy it.

So when can we buy unlocked versions for $831?

@omg-ponies: Great post. Now if only Sony was making as much profit for every PS3 sold... Think it still counts as an aspirational cachet too?

So that's why they didn't blink an eye when giving all the early adopts a $100 rebate. They could have given back all $200 and still be sitting pretty.

It's not exactly accurate to prorate the value of the contract as an up-front benefit to Apple. Keep in mind that those cash flows are subject to:

* Payment risk
- Also, in the event of nonpayment, what's Apple's remedy? Is it cost-free to seek payment from defaulters? Is AT&T paying up front and shouldering the payment risk?

* Time Value of Money calculations
- the total value at time-of-purchase over a two-year contract's life discounted at a risk-free market rate of 4.5% is $260.92, not $432.00; for those of you who may dispute this by a few cents, keep in mind that the first payment on the plan is 1 month from time of purchase (not sure if there's another thing to account for like a prepayment of a month at ToP or a two-month hit at first payment). Given inflation and market conditions, you should probably be discounting more aggressively and in a nonlinear fashion, but at least perform a baseline calc.

* Other costs at time of purchase
- You mention other costs dismissively, but this a profit-per-unit calculation. Your conclusion that the iPhone produces more profit than is in the MSRP seems ridiculous, and it is; only subtracting an "analyst estimate" of materials cost is remarkably limited. The pro-rated per-unit cost of support, website maintenance, point-of-sale labor, etc. is nontrivial. It's okay to conclude that the iPhone is probably pretty profitable, but it's not okay to present this as a complete analysis by any stretch.

Lazy work, guys. Analyze features, you're not equipped to analyze the business.

@omg-ponies: I was with you right up until the last sentence. I believe that Consumerism is driven by the need to fit in. People buy what they don't need or what they think they need to keep up with the joneses. I wonder how many people buy things like Treos or iPhones or any other extravagant gadget because they need all the features in it, or because they want "new new shiny shiny" to impress their friends and give them perceived social status. My money's on the latter.

@fsusmithc2: And you have chosen "not buying Apple products" as your chosen method of being different. Once again, consumerism is about distinguishing oneself from everyone else.

One method is buying a product that costs more (statement - "I'm richer"); another is buying the alternative to the dominant product ("I'm smarter than everyone". One can buy goods only available in foreign markets ("I'm better traveled/connected"), ones that are brand new ("I'm on the bleeding edge"), bottom-of-the-line ("I'm more in tune to my needs"), etc. Rationalize it how you will but there's nothing subversive, countercultural, or alternative about what you're saying. Moreover, you have failed to factor the intangible value of brand into your equation of the price.

It's not that people are stupid for buying something just because it has a logo on it; people are buying it for the logo because that is the central idea to consumer goods. People have been buying branded goods since the time of mass production. I can buy a Hanes tee-shirt or I can buy a Gap tee shirt. Both do the same thing and to a large extent are of identical quality. The price difference comes from the brand. The brand, in theory, makes a statement and there is value in that statement.

Obviously, you're welcome to vote with your wallet but please be intellectually honest enough to admit that even if you disagree with the moral implications of the price (to the extent any moral implications exist), the market data show that Apple has properly priced the iPhone.

I hate to tell you this, guys, but if you buy Apple part of what you're paying for is branding and image. I'm not saying that's good or bad, that's just fact.

If you break down the cost of a Coach bag, you will find the profit is much more that than the cost of the ingredients.

There's a reason iPods cost more than other MP3 players that have the same guts. Part of that reason is brand awareness.

Coke vs. No Frills, Starbucks vs. McDonalds (coffee), Lexus vs. Toyota.

@DeeJayQueue: Re: "keeping up with the Jones'es"

If people wanted to conform, one wouldn't need to keep up with the Jones family. The Jones would be happy to be the same. Instead, the Jones want to be different (i.e. better), lowering your station by comparison. As a result, you try not to even the playing field, but to leapfrog the Joneses, who then repeat the cycle in kind.

Consumerism is like an arms race - every wants the upper hand, not an even playing field. Like I said, it's about distinguishing oneself, not conforming.

My 59,900 cents' worth: the iPhone is fantastic. If AT&T is getting less out of this brilliant invention than I am, too damn bad.

You can all debate whether or not to abstain from buying Apple products--I'll continue to enjoy their consistently superb merchandise.

@razordu30: Isn't Lexus just Toyota's "Luxury" brand? (like Acura is to Honda and Inifiniti is to Nissan) See? Even Toyota feels a need to distinguish low-end Corollas from their high-end flagships with a brand name swap in the fickle US market (all Lexus cars are Toyota-branded in Japan).

Long story short: corporations are not under an obligation to be nice to you. They're under an obligation (to their shareholders) to MAKE MONEY.

Every time you buy an iPhone, God kills a kitten.

Luckily I don't care too much for cats...

@fsusmithc2:
"Of course I know R&D money has to come from somewhere but it doesn't take a rocket scientist to figure out that they're overcharging people and are making more profit than is reasonable."

It's none of your damn business what they charge people! No one has to buy an iPod or an iPhone or any other product. If you'd invented the iPhone, you'd be charging people out the wazoo for it too. Who are you to determine what amount of profit is reasonable for a company?

All of you people out there like fsusmithc2 need a nice big cup of conservatism to wash out this liberal, socialistic diarrhea from your systems.

@nachobel:

Talk about moron. Did you even attempt to work the numbers on the AT&T data plans or are you that stupid?

AT&T is making alot of money off this deal.

@razordu30: Oops, I made a boo-boo. I forgot that Toyota actually launched the Lexus brand in Japan back in 2005. See? Now they need to distinguish low from high-end cars even on their home turf!
And @IMPLIEDSURPRISE: It's also known that Steve Jobs adopts a puppy every time an iPhone is sold. They were last seen out-sprinting the Wildfires near Cupertino.

Instead of whining on this from the sidelines, get on the bandwagon - buy apple stock

@omg-ponies:

Your example isn't quite adequate for this situation. Consider this:
You buy an HDTV and full HD service from your cable company. Months later, when other cable companies come out with the ability to send 1080p signals to your house, your cable company is still stuck at 720p and 1080i. Why? Because your cable company is sending 25% of their monthly fees to your new TV manufacturer. Your cable company chose to push the latest greatest TVs for its customers, but in doing so it had to sacrifice its own profit - therein limiting its own R&D and expansion at a later date.

Customers SHOULD be mindful of there their money is going. When I buy a Verizon phone, I know that 100% of my monthly fees will be going straight to Verizon, who will in turn improve service, provide new services, and research new technologies. When you buy an iPhone on the AT&T network, you only provide a portion of your money to improving services. The other portion of your money goes to improving Apple's phone (supposedly). However, if they do improve their phone with your money, you won't have the improvements. No, you'd have to buy their phone again to get the improvements they created with your money. Granted, this happens every time you buy a piece of hardware, but they're taking money from a service improvement that more directly affects the customer. Apple's R&D money should be budgeted directly into the cost of their product - however it wasn't, and this is why other cell providers turned down the iPhone.

I'm not saying that they're charging too much or that they're getting too much profit - I'm simply saying that they're generating profit from a source that is not directly beneficial to consumers.

I keep hearing about how AT&T is getting screwed or bent over on this deal. I decided to run the numbers from Q2 based on the information posted in this blog entry. This is assuming that Apple gets $18 for new and existing iPhone customers.
 

New and Existing Customers
 
iPhone Subscriptions - 1,100,000
Avg. Individual Plan - $79.99
Apple's iPhone Cut - $18
 
AT&T's Month Subscr. Rev. - $87.98 million
Apple's Month Subscr. Rev. - $19.8 million
 
 
New Customers Only
 
iPhone Subscriptions - 440,000
Avg. Individual Plan - $79.99
Apple's iPhone Cut - $18
 
AT&T's Month Subscr. Rev. - $35.20 million
Apple's Month Subscr. Rev. - $7.92 million
 
*Note: This is last quarter's numbers only. Also, this does not include what Apple and AT&T makes selling each iPhone device.
 

As you can see, AT&T is making a killing off this iPhone deal too. :)

@Tommasta: Profit doesn't have to benefit the customer. As far as luxury goods are concerned, I'm a neoliberal - let the market dictate the price.

The market has determined that the price of the iPhone is proper. Moreover, the particulars of Apple's deal with AT&T is a between those two companies. There is no duty to the customer whatsoever. As long as the deal is made with sound business judgment, whom it benefits is largely irrelevant unless you're judging the profitability of the judgment, in which case, it appears to have been a very good business deal for Apple.

Finally, if you don't like the direction of Apple, vote your voting shares (to the extent you own voting shares). Apple's allocation of capital is a matter for shareholders, not customers.

So for those that didn't make the connection - establishing a new, and substantial repeating revenue stream for Apple, is going to allow them to accelerate their product development across the board.

Not just on iPhones, but on everything.

So expect an accelerated deployment of products and software, and a significant closing of the gap with other computer manufacturers.

Diversification into first iPod and then iPhone is proving to be a cash cow for Apple, that will allow them to innovate and deliver new computing platforms, and that's going to be very hard for the likes of HP/Dell/AN Other PC Company to match.

Great position to be in!

@hughjass:

Why people like you can't come on here and have an intellegent, civil conversation like omg-ponies, tommasta, etc., without swearing or throwing a political spin on it is beyond me. If you want to badmouth people because you perceive them to be of a different political lean than yourself, go somewhere more appropriate than a gadget blog.

Since I'm tired of this slugfest, I'll finish by conceeding that the iPhone does seem to be correctly priced in a pure supply/demand sense. It was simply my opinion that they are charging too much and reaping too much profit. They kinda have a history of doing that and people still buy their stuff so it must be working.

It is all of my business what they charge people. Especially if I wanted to go buy one. Then it would definately be my business since it's what they're charging me. Since I won't go buy one, it's still my business because some little part of me feels bad for the people out there that can't really afford it but buy it anyway because they think it makes them look cool.

I'm not going to hide though. I'll admit that I do the same thing sometimes, just not with Apple stuff. It's a problem with perceptions and status what we place value on and I just think it sucks all around.

That's it. Enough of this topic.

Apple isn't really price gauging people, AT&T is just sharing some of their profits with them. When the 59.99 unlimited data plan came out a lot of people thought it was very reasonable and I know of some people who switched to the iPhone BECAUSE they were going to save money on their monthly plan.

It's not like people are getting a $60 bill every month from AT&T and then Apple sends you a bill for $18. That bill for $18 is getting sent to AT&T.

You can argue that AT&T is happy to do this in part because they are getting new customers and also because they never had to recoup subsidized phone costs by selling the phone at a loss, e.g. a $100 iPhone with a two year contract.