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Old May 10, 2006, 11:51 AM   #1
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Apple Flattening iPod License Fee

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According to Australian magazine Smarthouse, Apple has changed its iPod royalty model to a flat USD $4.00 price per unit sold to interface with Apple's dock connector.

Originally, Apple charged 1.5% of the wholesale price but when the iPod took off and Apple began making their own accessories, third party manufacturers saw the royalty escalate to 10%.

Quote:
Apple has refused to comment on the fee. The move is set to favor the manufacturers of high end iPod accessories such as Bose, Jamo, Altec Lansing and Hi Fi manufacturers who are selling iPod connector or docking stations. It's also set to please who late last year were angry with Apple over the move to increase license fees.
The move is expected to not only help third party manufacturers, but also simplify Apple's management of the program.
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Old May 10, 2006, 11:54 AM   #2
schatten
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This is good news

It's good to see Apple actually doing something in favor of third party developers instead of undercutting and/or taking advantage.

Hopefully even more wonderful 3rd party goodies will now see the light of day.
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Old May 10, 2006, 12:00 PM   #3
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Or is this going to mean that items like iTrips are going to go up $4 per unit now????
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Old May 10, 2006, 12:01 PM   #4
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going with a flat rate is a fantastic idea. This will be appealing to high-end manufacturers and third-party "crap" will be avoided.
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Old May 10, 2006, 12:04 PM   #5
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Quote:
Originally Posted by KindredMAC
Or is this going to mean that items like iTrips are going to go up $4 per unit now????
That's it, isn't it! Now a $30 car thingy is gonna have to cost more. though, i guess it's only $1 more than 10% so no big deal?
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Old May 10, 2006, 12:10 PM   #6
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I don't know if this will really translate into lower prices for the consumer. Bose, for example, has their $300 price point and probably will not waiver one iota--just enjoy their savings.
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Old May 10, 2006, 12:13 PM   #7
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Wholesale vs retail

Quote:
Originally Posted by mainstreetmark
That's it, isn't it! Now a $30 car thingy is gonna have to cost more. though, i guess it's only $1 more than 10% so no big deal?
Actually is more likely to go up in price by a greater amount. As the four dollars will be on the wholesale rather than the retail.

Using fake figures under the old system lets say Griffin sold its unit at $15.00, the money the got was $13.60 (roughly) now with the $4.00 charge, this will cost retailers $17.60.
Once again using made up figures if the retailer double up from wholesale (unlikely in electronics, but I don't know operating margins) to retail it would have been $30.00, but now is more likely to be $35.00

However, things like the Bose Sound Docks and Altec Lansing thingies, will obviously go DOWN in price!

EDIT: "Go DOWN" - in theory, that is.
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Old May 10, 2006, 12:21 PM   #8
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Quote:
Originally Posted by boncellis
I don't know if this will really translate into lower prices for the consumer. Bose, for example, has their $300 price point and probably will not waiver one iota--just enjoy their savings.
It does seem that many products are given price points that companies feel will appeal to the consumer ($49, $99, $299, etc.) instead of relating directly to operating costs.

The flat fee may not translate directly into savings for consumers, but it may contribute to more companies producing "luxury" add-ons for the iPod since they will be more profitable.
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Old May 10, 2006, 12:23 PM   #9
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Simple can be good. And after all, the dock connector IS Apple's technology to sell as they see fit.


Quote:
Originally Posted by KindredMAC
Or is this going to mean that items like iTrips are going to go up $4 per unit now????
If they go up, it won't be $4--there already was a fee before.

For most products the fee will now be less I'd say--these are docking connector products, not simple cases. Most of those seem to cost over $40 anyway.

And Apple does promote the products (Made for iPod), giving something in return for the fee. If that means higher sales volume, then the price need not increase at all.

Besides, most products are priced close to a break point, like $29. The vendor won't jump to $30, that looks bad and lowers sales.

Nor do I think prices will drop--why would they, if these items are selling well already?

I think this will affect accessory vendors (sometimes helping, sometimes hurting a little) more than it affects consumers.
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Old May 10, 2006, 12:44 PM   #10
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Quote:
Originally Posted by otter-boy
It does seem that many products are given price points that companies feel will appeal to the consumer ($49, $99, $299, etc.) instead of relating directly to operating costs.

The flat fee may not translate directly into savings for consumers, but it may contribute to more companies producing "luxury" add-ons for the iPod since they will be more profitable.
The thought occurred to me as well. I know Denon had a home receiver that connected with the iPod through the dock connector, but that was really the only one I ever read about. Maybe this will entice more companies into making iPod compatible products where they didn't previously.

As far as the Nunchuk controller with the Wiimote, I noticed that it looked like a dock connector, but it's actually closer to something like a cell phone cable.
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Old May 10, 2006, 12:48 PM   #11
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Good overall, not so great for manufacturers of cheaper products though.

Also, now I realise the reasoning behind removing the remote connector on the nano and 5G. Items like the iTrip used to utilise the headphone and connector sockets, not sure if Apple charged for this too, but still likely to be lower. Now this has gone, so Griffen et al have to use the dock connector which means more royalties. May not be as much now as before, but my bet is due to sheer quantities sold, Apple won't be losing out much/at all.
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Old May 10, 2006, 01:22 PM   #12
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Ausies or Americans?

Anybody know if this is for Australians only or does this affect all 3rd party developers?
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Old May 10, 2006, 01:42 PM   #13
mnb
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This is a bad move for 3rd party devs

The flat $4.00 fee only benefits manufacturers of accessoriest costing $266.00 or more. That is because 1.5% of $266 is $4.00.

So everyone making those $50 or less handy accessories will be paying noticably more. This is the lion's share of the market most likely, so in the end, it means more revenue for Apple and higher prices for most accessories.
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Old May 10, 2006, 01:52 PM   #14
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Am I right in thinking these royalties aren't mandatory?
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Old May 10, 2006, 01:55 PM   #15
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Quote:
Originally Posted by mainstreetmark
That's it, isn't it! Now a $30 car thingy is gonna have to cost more. though, i guess it's only $1 more than 10% so no big deal?
No, It used to be 10% of _wholesale_ unit price. If you paid $30 for the gadget the wholesale price that the store paid was likey $15. (Those little gadgets are typically sold at 100% markup The store makes $15 on a $30 sale.) Apple was getting $1.50 now they will get $4.00 so wholesle sale price will go up to $17.50 and you might expectr a retail price of $35.00. That is unless the store wants to cut into their 100% margin.

I know somesome who worked at Belkin and was able to buy stuff the the company's price. It was _way_ less then half retail. things that sell for $10 at discount retailers he could buy fo $2. It's like a 500% markup on little stuff like RCA phono cables. Less markup on the bigger stuff
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Old May 10, 2006, 02:04 PM   #16
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Quote:
Originally Posted by mnb
The flat $4.00 fee only benefits manufacturers of accessoriest costing $266.00 or more. That is because 1.5% of $266 is $4.00.

So everyone making those $50 or less handy accessories will be paying noticably more. This is the lion's share of the market most likely, so in the end, it means more revenue for Apple and higher prices for most accessories.
No, the fee currently is 10% not 1.5%. Apple raised it and now has lowered it for some.
So the break even point is $40 _wholesale_ which basically means $80 retail.

So things that have an $80 price tage stuck on them will remain unchanged. Cheaper items will go up in price and items over $80 might come down. the big change will be for those selling $400 speakers (assume $200 wholesle price sothe "tax" goes down by $16) they will likely keep the retail price the same and make $16 more per unit.
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Old May 10, 2006, 02:04 PM   #17
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History of the fee:

When the dock connector was introduced, third party manufacturers had to pay 1.5% of the RETAIL price of an item as a licensing fee to use the dock connector.

Later, when Apple saw how big the 'dock connector accessory' market was becoming, they upped the license to 10% of the retail price.

Now it's becoming a flat $4.00.

Examples:

1. Cheap: If an item had a $35 retail price, it's fee would have started as $0.525 (52.5) per unit. On a retail $35 item, that's not too big a deal. When Apple raised rates, the fee would have increased to $3.50. That becomes noticable. Under the latest plan, the fee increased to $4.00, or ~11.4% of the retail cost. Many cheap items don't even have an 11.4% profit margin. All of a sudden, cheap items become almost untenable to produce. (An item whose retail price is $20 or less becomes essentially impossible.)

2. Expensive: If an item had a $100 retail price, it's fee would have started as $1.50 per unit. Not a big deal at all. When Apple raised rates, the fee would have increased to $10. Not insubstantial, but not horrible either. Under the latest plan, it drops to $4.00, or 4% of retail cost. This makes it better.

Basically, Apple is trying to get rid of 'cheap' accessories, those under $40. (Since that's the point at which the old fee and the new fee are the same.) At the same time, they want to have more expensive accessories; probably for two reasons: 1. It makes the iPod more of an 'upscale' device, since many accessories will be 'upscale'. 2. It locks users into the iPod, having spent possibly more money on accessories than on the iPod itself, when it comes time for a new music player, you'll be inclined to stick with an iPod, even if a competitor is cheaper and better. A corrolary of this is that since you're locked into the iPod, you're also locked into the iTunes Music Store. (Among large 'commodity' stores, anyway. Small niche stores that sell in mp3 are obviously vendor-neutral.)
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Old May 10, 2006, 02:11 PM   #18
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Sounds good for Apple -- this should make more high-end products iPod-compatible. It isn't about lowering prices on existing products, it's encouraging future high-end products, and making existing high-end iPod-compatible manufacturers happy about their decision to support iPod.

Also, as mentioned in the article, administration and compliance is greatly simplified--just sell the physical iPod dock connectors for $4+change a pop. This is the same licensing compliance strategy that was used with Firewire.

Apple owes no allegiance to low-end accessory manufacturers; they're a dime a dozen, and Apple is happy to make their own acccessories as well.
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Old May 10, 2006, 02:40 PM   #19
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$4/unit is great! I know of an iPod speaker manufacturer, and its president told me he presently pays something like $10~$15 per unit.
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Old May 10, 2006, 03:32 PM   #20
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Quote:
Originally Posted by otter-boy
It does seem that many products are given price points that companies feel will appeal to the consumer ($49, $99, $299, etc.) instead of relating directly to operating costs.

This is called Economics 101.
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Old May 10, 2006, 03:39 PM   #21
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I never knew about the license fee. But I hope the consumer will see a positive result from this. Cheaper prices, more HIGH quality accessories. The market is already flooded with cheaply designed, low quality accessories.
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Old May 10, 2006, 03:43 PM   #22
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Originally Posted by ehurtley
It locks users into the iPod, having spent possibly more money on accessories than on the iPod itself, when it comes time for a new music player, you'll be inclined to stick with an iPod, even if a competitor is cheaper and better. A corrolary of this is that since you're locked into the iPod, you're also locked into the iTunes Music Store. (Among large 'commodity' stores, anyway. Small niche stores that sell in mp3 are obviously vendor-neutral.)
good call. seems like having more and more expensive accessories that use proporetary iPod dock connectors is a good way to ensure that people keep using iPods.
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Old May 10, 2006, 04:04 PM   #23
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I cannot believe how high that royalty was just for interfacing with an ipod, 10% is incredible... talk about using your market position to screw people (oh it isn't Microsoft we're talking about so it must be ok ;-)). Seriously though I've spent more time that i care to remember putting budgets/BOMs together for consumer electronics and i'd need resuscitation if someone asked for 10% of the wholesale price just for using their physical interface.
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Old May 10, 2006, 04:05 PM   #24
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Quote:
Originally Posted by weitzner
good call. seems like having more and more expensive accessories that use proporetary iPod dock connectors is a good way to ensure that people keep using iPods.
Hey if it gets rid of the low end crappy accessory I am all for it... to much junk you can buy now that can plug into the iPod dock (and cause problems for customers and Apple support).
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Old May 10, 2006, 05:17 PM   #25
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Quote:
Originally Posted by boncellis
As far as the Nunchuk controller with the Wiimote, I noticed that it looked like a dock connector, but it's actually closer to something like a cell phone cable.
I thought of that too, but it's not the same connector. The nunchuk is more like a USB/Firewire cross than an ipod connector. It would be cool if it was though!
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