I really don't understand this at all. According to iSuppli[1], Apple pays $229.35 in parts and labor to make the low-end iPad. They develop their own operating system, buy incredible amounts of ads, and yet they still have massive profit margins selling iPads for $500.
Meanwhile, Motorola and Samsung and other manufacturers get a free operating system and get cellphone carriers to give them a bunch of money to sell the device with a data plan. Yet their devices are $600-$1000, they often have smaller screens, and are (probably) loaded up with crapware. I fail to see why anyone would ever buy something like this, and I fail to see why anyone thinks someone will buy one.
Even if no company has a supply chain as good as Apple's (which I have trouble believing, considering how many components are manufactured by Toshiba and Samsung, for instance) and they need to pay an additional 20% for parts, they could still make the same device, sell it for slightly less and still make plenty of money.
Wow, that makes it really interesting. The huge problem with GPS is height information. My GPS devices have commonly 10-15 m practical error in height on cities (urban canyon effect).
This could be very interesting for tunnel inertial navigation as makes the inertial problem a 2d issue from 3d.
But the most expensive parts (processor, lcd, batteries, ram, flash memory) are for the most part commodity items. I would imagine Apple has some negotiating power buying huge volumes, but getting them 50-75% cheaper than Samsung?
Apple paid $500M in cash to Toshiba for flash memory in 2009. They invested $3.9B this year in some unspecified manufacturer, reportedly buying them manufacturing equipment and tooling. I'm pretty sure that those cash payments will enable the manufacturers to cut prices because they in turn can pay cash to their suppliers. Without the up-front cash and volume that Apple provides, even Samsung itself probably can't give themselves the same price without losing money. And if they do that, my guess is that Apple might take their business elsewhere, and for Samsung the math should be pretty easy on that one.
Commodity items are not immune to mass production prices. Today Apple is the #1 flash memory user in the world thanks to the ipods,iphones and macbooks airs.
It is not only "negotiating power", it is as simple as making 10 million iPad processors make them more than 10 times less expensive than those that have not sold even a million. Having a semiconductors line(processor, LCDs...) are roughly the same fixed cost if you make 1 unit or a million.
Samsung is one of the few companies that could compete with Apple as the processor design is theirs, have great LCD and ram tech, but they have not a single product that compete with Apple in numbers.
I am pretty sur iSuppli's numbers are not accurate. Apple has the money to buy in quantity that Mortorola cannot match. I also think that Apple's COO has overseen the building of a world-class supply chain. Plus having a successful retail chain that can feature your product is a huge advantage. The iPod experience shoul show that price is not going to be an easy thing to beat Apple in for consumer electronics.
Actually, this is correct. In many electronics companies the divisions internally can operate as profit centers, wherein they are incentivized by making the largest profits for themselves. If Apple can offer more for flash to the Samsung flash division than the phone division at Samsung, then business goes to Apple.
The numbers check out.
Related readings
"Using transfer pricing in decision making - Nuts and Bolts of Business": http://bit.ly/f0xBb0
Exactly. In large asian corporations which have their hands in a lot of different industries and spaces, different divisions often act and negotiate independently. This is so that no one division can bring the whole company down and other companies can maintain a level of trust with that division as a supplier, regardless of whether another division might be competing with those companies.
Failure to respect these divisions is one reason Sony failed in the consumer electronics space against the iPod. It allowed the entertainment and media side of the company to impose ATRAC copy protection and other kinds of DRM on the consumer electronics division of the company, which resulted in a much less compelling (compared to the iPod and other music players which used less draconian DRM measures) network walkman line of products.
I doubt Samsung is that screwed up but I do know one company where outside vendors got a better price then one of their own divisions. The CPU is not the only component.
Though "designed" might give you the impression that they're materially different from the hummingbird based hardware that Samsung make for themselves and others when in reality the differences are slight and probably more like making a choice from a menu (e.g. selecting a different GPU) than stepping into the kitchen yourself.
If it was possible to get a good tablet (of any size) to consumers cheaper than Apple, someone would have. Maybe this project started out with your assumptions and ended up with (possibly unsellable) $800 device.
AFAIK, Apple's supply chain is not only legendary, but they'll commit huge amounts of capital to new hardware products in advance. This allows them to more or less own the output of a given supplier's factory, forcing other companies to pay spot prices for their follow-on products.
Not contradicting you at all, but those of us who have been Apple customers for decades now (cripes) have to smile wryly whenever Apple's supply chain is described as "legendary". Back in the bad old days they never could seem to get supply and demand to match up, so whenever they had a hit, they couldn't capitalize on it as well as they should have.
Everybody knows that Steve restored vision to Apple when he came back, and that Jonathan Ive revolutionized its design language, but fewer people seem to know how much of what makes Apple 2.0 great boils down to the incredibly stable and responsive delivery platform that Tim Cook has built.
You're right that they should stop trying to copy Apple, and instead try to make something better. To me, Android is only more open and flexible, but it's not better. It might be good enough, though, just like Windows was good enough and more "open" than MacOS.
But without the right product, no amount of marketing is going to get you any real volume. And without volume, no amount of supply-side management is going to get the great product margins.
But, iphones have been out for a while. Long enough for new factories to be set up, old factories to increase capacity, contracts to run out... Should be long enough for things to catch up. Why are iphone's best competitors still about the same price or more?
Logistics isn't just the factories. Buying power, relationships, knowledge, and engineer / material expertise are all factors. Having your own retail chain doesn't hurt either (so you don't have to agree to no cell contract = no WiFi nonsense). Motorola doesn't have the combo.
Since your comment boils down to "Android tablets are crap and should be priced accordingly" it's probably a good thing that they're setting expectations with a high price.
I don't see any part of your comment that doesn't apply to Android phones, and they clearly started at the high-end before they working their way down the value chain. This strategy worked well enough to save Motorola, I don't see why they should change now before your bold prediction of zero sales of their tablet offering is proved one way or the other.
The iPad with comparable specs (3G, 32 gigs) is $729, has a smaller screen, and lacks cameras, not to mention barometer. Comparing to the 16gig iPad with only wifi isn't exactly fair. Apple happens to make a lower-end version, that's all, it's not inherently cheaper.
I think the products that compete with iphones and ipads point to a fundamental shift in how Apple do things these days: Apple now compete on price.
I'm not saying they've given up on their high margins on everything policy. Like other commenters have said, they probably use purchasing power to make up the difference, but they are using price nonetheless.
We're so used to Apple being the premium option that we keep on being surprised that they aren't being beaten on price and then assume it's temporary. Well, it's several years into iphone and they aren't the macbooks off mobile phones yet. You actually need to pay for a non Apple alternative.
They still feel like the premium option though so it seems just silly to pay a $100 premium for the non-apple alternative, like paying a premium for an ipod knock-off.
It's quite a strategy. Build a company around products need to command a premium. Then remove the constraint. It's like having a runner run with stones in his pocket all his life then suddenly remove them.
I think what we're seeing is that Apple always did compete on price. We just didn't know it until we saw competitors trying and failing to match their prices.
I'm not a hardware expert, but I don't think so. There are two ways to think about this:
a- What would it cost to build a more or less exact hardware replica?
b- What would it cost to build a decent substitute?
I don't even think they were competing on price in the 'a' sense.
But either way, 'b,' is, I think, the important one and Apple certainly weren't competing on price in that sense pre-iphone. You could always get a decent mp3 player or laptop roughly as good as but different to an Apple for a big discount. Still can. If you want to run Windows or Linux, you can do it without hassle on 1/2 - 3/4 of the budget. If you want a music player for jogging, an ipod nano knockoff will do the trick just fine.
If you want an android tablet or phone, you seem to need to pay more for (arguably) less.
You can get Tegra2 tablets running Android for half the price of the cheapest iPad for roughly the same techie mucking around effort as putting Linux on a netbook right now.
I personally wouldn't buy one till it was confirmed you'd be able to get Honeycomb on it, but they've been out there for a few months now, mostly held back by Google's lack of approval for shipping with the Android Market unless you're selling a phone. I believe that policy's about to change though.
To amplify this point, remember that when the iPod was first released, it was relatively expensive at $399 for the 5 GB model. Today they have entries at every price point, starting from the $49 iPod Shuffle up to the $399 64 GB iPod Touch.
At the low end $20/month plan, assuming a two year contract, that's $1280 total. Yikes.
The pricing psychology of the iPad starting at $500, then relatively small incremental updates that increase the size and give it 3G makes for a much easier sell.
The Xoom does look like nice hardware - I just wonder if they'll sell enough of them to reach economies of scale and drive the price down.
That's better, although still a bit confusing. It's supposed to be a "Google experience" device meaning no manufacturer/carrier crapware or deliberate crippling, so it's not clear how they'd prevent you from using wifi if you never sign up for data.
Motorola seems to have two big problems: price and distribution. I think this illustrates Apple's buying power for components and the pricing that results. The second is going to be a bigger problem. Having to cripple your device (tying WiFi to cell service) because you best distribution is through the cell carier is going to be painful. They need to find a channel that allows them the ability that sells a WiFi model that can get the price down. Apple has their own stores and can buy big. If an Android tablet is to be successful, they need an entry leve to compete with the $499 iPad and iPod touch.
Distribution is a huge advantage for Apple. Motorola, RIM and most of the cell manufacturers have no experience selling away from the carrier. HP knows how and Samsung knows how but Samsung's tablets are developed and sold through its smartphone division, which doesn't sell outside of the carriers.
Clearly some kind of deal was struck with Verizon. Since the initial Xoom press release said the WiFi version would come first and we have confirmation that it does exist (http://tinyurl.com/5wr82ge). Plus Verizon made a big deal about having it first at CES (http://tinyurl.com/28rqdvk)
My guess is Verizon gets the first Honeycomb tablet and Motorola gets a guarantee for a significant marketing push. I have no doubt there will be a WiFi only version the question is just how long it will be before we can buy it.
This is the practical downside of being too cozy with carriers. A cheaper wifi-only model would be great for consumers but cuts the carriers out of the loop entirely. Probably the same reason there's no 'iPod Touch killer' out there yet. All these companies are in the business of selling equipment to carriers. What the consumer wants is a secondary consideration at best.
Only in Korea. No plans for releasing it anywhere else.
Edit: Gadget blogs suck. Everyone I looked at says something different, it might be the case that the Player is also available somewhere in Europe. I can‘t buy it on amazon.de (Germany), though. To continue the theme of this discussion: The price also sucks when compared to the iPod touch (something between 200€ and 260€ for the 8GB model, you pay 230€ for the 8GB iPod touch).
It's a good point. Their end-to-end supply chain assumes carriers are the end customer. I'm guessing some of the price inflation assumes some kind of subsidy from the carrier.
This seems pretty crazy, as the comparable iPad (16GB WiFi+3G) retails for $630. It will also be difficult to build up a large install base without a cheaper, wifi-only model. And while at the moment the Xoom has some features the iPad does not (cameras, for example) the inevitable release of a new iPad in a couple months will no doubt erase that advantage, at the same (or lower, per GB) price.
I can't imagine what Motorola/Verizon were thinking. They're not going to sell more than a few of these without lowering the price drastically.
Edit: Oops, I misread the ad as saying it had 16GB storage. The more reasonable price comparison is then the 32GB iPad, which is $730. More reasonable, but still too much (especially given that you must sign up for a very expensive data plan to even use WiFi).
To be fair, it has 32 gigs of internal storage, so comparing it against the ipad with half the storage isn't quite apples to apples (no pun intended.) It would be more fair to compare it with the $730 32gb w/ 3g ipad. When you could that with a higher resolution screen, dual cameras, /and/ a built in barometer, Id say its a near even deal (http://goo.gl/OYVrd for a full comparison chart).
That being said - its still too much. I just hope they give them out at IO this year.
Even with the hardware advantage, it's software that makes the device - Honeycomb looks good, but iOS 5 should be nearly around the corner (hopefully with fixed notifications...).
"When you could that with a higher resolution screen, dual cameras, /and/ a built in barometer, Id say its a near even deal"
Remember though that the Xoom will spend most of its life competing against the second generation iPad, so most of these feature advantages are likely to vanish. Throw onto that the fact that judging from Apple's pricing history the next iPad will either have the same or a lower price, _and_ the Xoom will require a cellular contract to use Wifi (!), the Xoom will likely compare poorly to most people.
very true. But I also guarantee that there will be price cuts almost right after release, much like the galaxy tab, let alone a few months after its release when the 2nd ipad is available.
Everybody is getting hung up on the price of this device, which I admit is high, but a comparison to the iPad's price is not fair. As stated below, the closest iPad is $730. Also the hardware is a generation and a half ahead of the iPad. The iPad doesn't even have a camera, very basic need for any kind of video conferencing (Xoom comes with 2). Please see the comparison chart [1] for more details.
But yeah, having to buy the Xoom from a carrier and paying atleast one month of data plan rate before cancelling it is kinda ridiculous.
You can’t buy a $500 Xoom. It’s just not possible. I think that matters a lot, I doubt many people will check specs.
Edit: To expand a little on this point, Apple sold 7.33 million iPads in the holiday quarter and made $4.4 billion in revenue which means that consumers paid about $600 (±$8) on average for an iPad. Considering that, I don’t think it is a wise idea to not at least have a base model that is priced at $600 or less.
Why a generation and a half ahead? Is it so that when the iPad 2 is released (in a couple months), one generation ahead of the first iPad, you'll say the Xoom is still 1/2 generation ahead of the iPad2?
You're also missing the fact that the XOOM has 1 GIGABYTE of RAM. The iPad has 256mb of ram. The XOOM also has a DUAL CORE PROCESSOR. There are so many hardware differences between the two devices :)
What about I don't want to pay for 3G, and don't want it?
Xoom is not an option... I already pay for a mobile data account (with tethering)... why pay for another account?
The main reason that the XOOM, at least at launch, will not snag the top spot is that people will look at it, and then see the more known, cheaper, and contract-less iPad.
Keep in mind, many people dont need 1gHz and 32 GB. I nearly got the 16gb myself, and only went with the 32 because I see myself flying more this year.
While you are all technically right that the iPad 32GB/wifi+3g is comparable to the Xoom, it isn't in the mind of consumers. Consumers will compare $500 v. $800. After all, Apple's $1500 laptop is not spec-wise comparable to a $500 Windows laptop but that doesn't make a difference. I am betting on Apple releasing a $300 iPad in April.
Exactly. The problem isn't the price to features ratio, its the "lowest priced version" option. And somehow, its Apple that's offering the most choice there.
I'm a huge Android fan and while I would buy a laptop from Apple I wouldn't touch an iOS device due to disagreement over how the Market is handled.
However it doesn't take an Apple fanboi to know this pricing is horrid.
This isn't a laptop. People are not going to shop around on specs. $800 vs $500 for similar functionality is fscking retarded, especially when the $500 device is from the BMW of computers.
This will bomb really badly. I am simply in awe at how far ahead of the competition Apple remains after all these years. I would have thought eventually the smartphone and especially the mp3 player market would've normalized by now but Apple is now telescoping their lead. By the time the iPad 2 ships every Android tablet not even on the market yet will be obsolete by an entire generation.
I am especially bothered by the Verizon details here. First off, how can they prohibit WiFi use? Second, it seems like the Xoom is unavailable in Canada, if it really is Verizon-locked. Ouch and ouch.
I suppose now would be a bad time to mention Viewsonic's G-Tablet which has a Tegra 2 chip (just like the XOOM), a 10" display (not quite as nice as the XOOM's), and 16 gigs of RAM for a bit under $400? :-)
No, and they probably never will...officially The official software story on the G-Tablet is a total disaster that Viewsonic will likely never fix.
However the hardware is great and 3rd party developers are supporting the device with proper software. You can currently run CyanogenMod7 (which is based on Gingerbread/2.3) on the G-Tablet, though it is fully a community project that Viewsonic has nothing to do with. I'm sure the same will be true of Honeycomb soon after it hits full ASOP status.
If you're willing to hack around with the device and not rely on the official software, the G-Tablet is great at <$400. My only complaint is the viewing angles on the LCD aren't that great (the panel is not IPS), if not for that it would be a pretty ideal Android tablet platform for people willing to install community roms.
I am sorry Moto, this would not fly. Too expensive. I am just pissed to think I have told everyone around to wait for it. The next iPad will have all this features at a far better price.
I have to give it to Steve Jobs. They certainly had a better iPad but decided to release something slightly basic first at an awesome price point, make loads of profit then have the ability to match the specs of the new comers who will think they can better the iPad1 specswise
Netbooks use way cheaper hard disks, instead of ssd.
Netbooks don't have touchscreens.
Netbooks don't have GPS, accelerometers, and gyros.
Netbook don't have a battery that last 9 hours.
If there is a netbook with this specs,witch they are, it is going to be as expensive as tablets.
So, there is no "equivalent netbook" with half the price. Putting a pixel qi screen to my netbook cost me $275, a touchscreen $100 plus shipping cost, plus my time, plus the risk I break my netbook(I nearly broke it when bending one of the screen connection pins).
GPS - when I can get a standalone satnav unit for $70 with its own processor, screen battery et al, that's hardly adding up to a huge extra cost. The accelerometer and gyro can be handled by a single relatively cheap chip from what I remember.
Netbooks also have keyboards, touchpads and extra interface parts such as USB and SVGA that tablets don't tend to have - not expensive components in themselves but extra parts to integrate into the design that aren't supplied with tablets. And, in a large number of cases, they come with a Windows license.
So, we're left with an SSD rather than HDD (retail, marginal cost about $70 for bigger drives than tablets use) and a touchscreen rather than a non-touchscreen (don't know the component suppliers for them to research it).
I still don't see why they're so much more expensive, beyond 'because we can' novelty value. The numbers simply don't stack up for me.
i think a big question is how much is B&N losing on each nook color sale? 7 inch IPS panel with a decent processor.
10 inch tabets over $300 don't make any sense to me. archos 70 and 101 seem like the only sane products for the casual computing market that doesnt already have an ipad.
"incredibly chintzy feel [...] the 70 and 101 look and feel very cheap. Both are primarily made of black plastic [...] We just don't have much confidence in the longevity of the device [...] In hand, the materials feel far from solid, and even after wrapping it in a scarf, we worried about keeping it safe from bumps and bruises in our bag. [...] As you'd expect, the cheap make isn't limited to the surrounding parts of the tablet -- the plastic displays on the 70 and 101 suffer from the same issues. We weren't expecting Gorilla Glass quality here, but both of them are flimsy and when pressed firmly, they start to cave in quite a bit. [...] vertical viewing angles are incredibly bad. Tilting the screens slightly off axis to about 30-degrees caused a ton of color distortion, and if you happen to be standing above the displays while they are propped up on the kickstands, it's nearly impossible to see what is on screen. [...] The VGA cameras on both tablets are incredibly sluggish, and when we finally were able to snap some stills, they came out blurry and grainy. Similarly, when we shot some video, the footage was very choppy and the audio wasn't in sync with the video at all."
And if you read the subtext of the picture carefully, it says, "To activate WiFi functionality on this device, a minimum of 1 month data subscription is required."
> "To activate WiFi functionality on this device, a minimum of 1 month data subscription is required."
I'm gobsmacked by that - is there any precedent for it? Anywhere? I've literally never heard of any manufacturer locking Wifi support. I'm almost not believing it yet until I see some kind of other confirmation - I can only think that it was meant to say "Wireless" or "3G" or something else, because locking Wifi is just ridiculous.
Meanwhile, Motorola and Samsung and other manufacturers get a free operating system and get cellphone carriers to give them a bunch of money to sell the device with a data plan. Yet their devices are $600-$1000, they often have smaller screens, and are (probably) loaded up with crapware. I fail to see why anyone would ever buy something like this, and I fail to see why anyone thinks someone will buy one.
Even if no company has a supply chain as good as Apple's (which I have trouble believing, considering how many components are manufactured by Toshiba and Samsung, for instance) and they need to pay an additional 20% for parts, they could still make the same device, sell it for slightly less and still make plenty of money.
[1] http://www.isuppli.com/Teardowns/News/Pages/Mid-RangeiPadtoG...