I don't think we're in disagreement here - I think perhaps I didn't explain well?

razordu30

And, you know, when Microsoft makes a profit, it's just dandy.

...

iomatic

AlanIn4D

AlanIn4D

apple knows that the future is in connectivity and networking, thats why they're saving up for big big purchases.

AlanIn4D

foureight84

w00zzy

gizmo_dude

gizmo_dude

As for Apple overcharging for their product: It bugs me when people make moral judgments about how much money a company makes from non-essential products. Absolutely no one needs an iPod, so let Apple charge whatever they want for iPods. As several people have mentioned already, if you think the iPod is overprices, don't buy one.

If you want to make moral judgments, do so for companies that sell essential products and services, such as the medical, oil, housing, and insurance industries, and utility companies. These types of companies are of course entitled to make a reasonable profit (I'm not even going to go into the definition of reasonable), but not to gouge customer. For example, I can't believe for a moment that the cost of producing a gallon of gasoline has risen by more than 200% since 2000, or that my gasoline is 200% better than what I was buying in 2000. Bottom line: if you want to complain about price, complain about it for something that you actually need. Complaining that Apple makes too much on an iPhone tells me that you're just whining because (a) you can't afford one, (b) you have a personal (probably customer-service-related) grudge against Apple, or (c) you just feel the need to whine whenever you can.

bigvince1981

First of all, free-market economics (a) are a political stance and (b) are considered neoliberal, not conservative. The lead proponent of free-market theory is the Chicago School of Business, which believes in absolutely no controls on the market and advocates, to a large extent, an abolition of consumer protections.

For luxury goods like an iPhone, a Coach bag, or even a Lexus automobile, there is something to said for that theory. An iPhone is not a necessity of life and should not be subject to the same controls as would apply to a dairy farmer.

Here's what I'm getting at. I agree with your underlying point. Apple is entitled to maximize profits. Apple owes no duty to limit its profits to the customer. It's not profiteering, it's maximizing profits. It is done in the exercise of business judgment with a variety of factors, including loss of goodwill, taken into account.

I do, however, disagree with your tone and delivery. Fsusmith has a right to his opinion and a right to voice his opinion here.

This is a forum that Gizmodo opened to public discourse. Telling someone to get lost because they disagree with you is over the line.

God made the pretty girls pretty because he likes them more

Nintenboy01

And no, he was not voicing a gadget-related opinion; he said that Apple was overcharging people and making unreasonable profits. That isn't gadget related at all.

"Do attempt rational argument, as opposed to your current 'I know you are, but what am I?' tactic."
And that couldn't be more absurd either. He made a hypocritical accusation, and I pointed it out.

packetsniffer

coolfelix

hmmm.. pls dont start that they are a business and they should make money, yes they should but not profit of 100% of their revenue. That means screw the customers.

serious_sam

If you want to own an iPod, iPhone, etc. that is your business. Yes, it may be because it is trendy, it may be because you feel it's the best product out there for you, but you're doing it because it's a status thing, it's THE name brand in mp3 media devices. If Microsoft had a better product with the Zune than Apple's iPod and the media surrounding it, they would be the product everyone talks about.

As it is, most people ask for the iPod by name when referring to mp3 players because that is what they know, and in return, Apple is allowed to charge whatever price people are willing to pay for the product they specifically ask for.

GOKOR

You possibly think this profit might be used to offset costs in other departments, say, the 2+ years of R&D on the new mac OS?

Who cares how much profit they're bringing in? Jealous, much? The people who complain about shit like this are the same people who complain about gas prices - don't want the company to make that profit? DON'T BUY IT!

Niam

Mr. Black

Yossarian

You think his statement's ludicrous because he's of a different political lean than you are; that was why he referenced politics in his second post. It also has everything to do with whether or not he should care how much profit they make. He was voicing a gadget-related opinion; you were the one who chose to make it about politics - hence, your fault. Do attempt rational argument, as opposed to your current "I know you are, but what am I?" tactic.

Yossarian

Again, it's not your business how much money a company profits from its products; and it's not Apple's fault that someone buys an Apple product that they can't afford.

Regardless, you were badmouthing Apple's success because you don't approve of their capitalistic business model; you should be going somewhere more appropriate than this gadget blog yourself.

packetsniffer

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.

thinkthis

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.

fsusmithc2

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!

MINI Driver

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.

God made the pretty girls pretty because he likes them more

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. :)

yoshi

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.

Tommasta

rushabhjs

Nintenboy01

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.

yoshi

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.

packetsniffer

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

impliedsurprise

Xenobiologista

Nintenboy01

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

Curse_of_NursePornstein

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.

God made the pretty girls pretty because he likes them more

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.

razordu30

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.

God made the pretty girls pretty because he likes them more

DeeJayQueue

* 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.

ADismalScience

QWERTYthon

Nintenboy01

scarab

bandit

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.

fsusmithc2

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

nachobel

DJClayWMTS

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.

God made the pretty girls pretty because he likes them more

"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.

Dearhaw

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

Angus

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.

Canoehead

"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.

God made the pretty girls pretty because he likes them more

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

yoshi

How else are we as consumers to make informed decisions?

someToast

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.

Dearhaw

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

Dearhaw

Dearhaw

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.

Major-General

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

yoshi

scarab

Tank