Apple Watch U.S. Sales Estimated at 2.8 Million, Sports Band May Have Base Cost of Just $2

[xyion1]

The R&D argument is getting tiresome to read. Apple like most other companies has an R&D budget that's constantly being deposited into by the sale of everything Apple sells. In other words, a sale of any Apple products contributes a percentage of the sale to future and current R&D research.

No one knows exactly what percentage of R&D went into the rubber band (elastomer by any other name is rubber). So yes when you break down the cost of the rubber band it probably is around $2.00. Add a couple dollars for packaging and delivery and maybe you bring the price up to $5.00. No matter how you slice it Apple is making a killing on these bands.

Furthermore once they sell X number of bands they will have paid for all the R&D and the resulting profit is astronomical. Apple charges $50 because they can get away with it. Their marketing techniques are about the best in the world. They have the ability to make anything they sell seem "prestigious".

So let's stop pretending like Apple deserves to to sell these at A 400% profit and that we should be happy for them and continue opening our wallets.

Rant/

Apples Net Profit margin for the last quarter was 23.39%
Google's Net Profit Margin for the last quarter was 20.78%

Those are within the realms of reasonableness, don't you think? It's not like Apple has 90% net profit and Google has 21%. So dig through the quarterly reports if you'd like. (I got my data from YCharts.com - I don't believe they have a horse in the race either way.)

In order to keep margin, Apple can charge $50 for an optional band purchase, bump up the price of all hardware by some amount, start charging for software or produce products of lower quality/materials for the same retail price. Generally speaking, accessories or add-ons (be it watch bands, soda, pinstripes/tint on cars) have a much higher profit margin than the main item being sold. This certainly isn't new or unique to Apple - I'm not sure why they get blasted for it all the time.

 

[thirteen1031]

I saw an Apple Watch in the wild for the first time, today.

Unfortunately, the young guy was a complete douchebag. He was arguing loudly on his phone whilst ordering a drink at a café. He had the Apple Watch on his left wrist and a traditional watch on his right. He looked scruffy and wore an Abercrombie t-shirt.

Nuff said.

Yep. That's me. Only not a guy. And not arguing on the phone loudly or otherwise—and I never talk on one while ordering. Oh, and I only have the Apple watch and no Abercrombie tee and I don't think I've ever left the house looking scruffy. And then there's my husband who also has the watch. Neat, clean, modest in dress, and always so very polite to those behind the counter. Also, several other watch owners we've run into. Courteous, hard working, kind, thoughtful....

But we all have the watch, so, 'nuff said right? Gosh, it's going to be hard to learn how to be rude to those behind the cafe counter, they're always so nice to me, but I guess my buying a watch means I must be a douchbag so...best get started.

 

[sracer]

Apples Net Profit margin for the last quarter was 23.39%
Google's Net Profit Margin for the last quarter was 20.78%

Those are within the realms of reasonableness, don't you think? It's not like Apple has 90% net profit and Google has 21%. So dig through the quarterly reports if you'd like. (I got my data from YCharts.com - I don't believe they have a horse in the race either way.)

That net profit margin is for the company overall and says nothing for individual products and services which can vary greatly.

 

[xyion1]

That net profit margin is for the company overall and says nothing for individual products and services which can vary greatly.

Oh I agree profit is different product to product, but Apple maintains its books in the aggregate. People feel the watch band is overpriced - Apple wants to continue to maintain their margin. So now Watch OS2 costs $10 for everybody and the bands are $25. Would that be a better solution?

Or is your position that every individual product deserves its current margin or 20%, whichever is less? Not sure how any company would stay in business then.

 

[Keirasplace]

I went to the Apple store, because I had an issue with the screen of my Iphone, like two weeks back or so. I had yet to see an Apple watch live, a couple store employees had them on. Two things I noticed while I waited by the side of the Store, as I waited make an appointment for like 20 minutes or so.

Only one customer looked at the watches, this is in Miami, pretty busy store, there were two tables full of watches, and while I waited, only one guy was looking at the watches. The tables with the watches are planted right in the middle of the store. Like three employees were there idle, because no one seemed to want to approach this tables, which I guess the employees were there to attend.

When I eyed the employees wrists, which they did happen to have apple watches sports version. They look pretty bland, and cheap looking. Now, is not surprising to hear, Apple is really having such a huge mark up.

Right... At my store, the watch display area was packed and it was nothing like your "scenario", see all is good now hey. Want me to go to another store and describe the scene there too. Can do it live on Twitter... As for markeup, its the same markup all watch brands have, so do you have to say about that hey buddy? Guess they all look cheap then hmmm.

 

[rocknblogger]

Apples Net Profit margin for the last quarter was 23.39%
Google's Net Profit Margin for the last quarter was 20.78%

Those are within the realms of reasonableness, don't you think? It's not like Apple has 90% net profit and Google has 21%. So dig through the quarterly reports if you'd like. (I got my data from YCharts.com - I don't believe they have a horse in the race either way.)

In order to keep margin, Apple can charge $50 for an optional band purchase, bump up the price of all hardware by some amount, start charging for software or produce products of lower quality/materials for the same retail price. Generally speaking, accessories or add-ons (be it watch bands, soda, pinstripes/tint on cars) have a much higher profit margin than the main item being sold. This certainly isn't new or unique to Apple - I'm not sure why they get blasted for it all the time.

I don't know that they get blasted for it all the time. I know I certainly don't. And generally speaking I have no issues with the markup on their products. The only issues I have is when they sell things like cables or dongles at huge markups just because they can.

I have no issues with the price of their hardware whether iPhone, iMac, MBP or Mac Pros. It's when they stick it to the consumer for the things I mentioned above. I also don't have a problem with the prices of the other bands. But $50 for a piece of rubber or $80 for a MB adapter is simply unreasonable.

 

[Shanghaichica]

Oh well. I'm not interested in how much profit Apple are making on the bands. It comes down to how much I think the band is worth and £39 for the sports band is very reasonable imo.

 

[OneMike]

Funny how some would get on other members for buying a 'cheap' 3rd party band for their multi hundred dollar apple watch. Yet, they are ok with people spending $49 on a $2 band

 

[thirteen1031]

Funny how some would get on other members for buying a 'cheap' 3rd party band for their multi hundred dollar apple watch. Yet, they are ok with people spending $49 on a $2 band

Um, I don't know about "some" but I, personally, am not getting on any members for buying a "cheap" 3rd party band for their watch. If such bands are already for sale, have at it! It's your watch, wear it on what you like. But a quickie search doesn't show me many choices.

One batch of such coming out in "mid-June" has its bands priced at $80. So...$49 is still the cheaper one. Given the limited availability bands, why are you "getting" on those who bought the cheapest and really only bands available up till now? What other choice did they have if they wanted the watch?

 

[nickdylan]

Funny how some would get on other members for buying a 'cheap' 3rd party band for their multi hundred dollar apple watch. Yet, they are ok with people spending $49 on a $2 band

Pretty ridiculous. The third party watch bands will be like all other third party Apple accessories: some of them will be cheap crap that falls apart, some of them will be totally usable, and some of them will be well-made and fit niche uses better than the first party product. If you get your band for $1.50 from Alibaba, enjoy it while it lasts and make sure to buy a backup. On the other hand there will definitely be people paying three + times the cost of an Apple band for custom bands.

 

[Xiroteus]

A bag of potato chips costs $3. It takes about 5 potatoes at 20 cents each to make a bag of chips. That's $1 worth of potatoes. And they charge $3. That's a 300% profit! Is that robbery too?

I knew there was a reason I buy chips when they are two dollars!

 

[SvP]

Now really, you can buy one for $10 retail online. If you mass produce it, $2 is no problem. http://www.alibaba.com/product-detail/case-for-apple-watch_60279392815.html

If you want to make a point about production cost, don't pick Chinese copy scammers as an example. They simply copy. Badly. It takes no effort to copy.

I really don't care about the production cost, i care about the value. I don't think there's anything wrong with the value. As wit ANY OTHER THING EVER i want to pay less, but i'll pay the price for this gladly.

 

[Shanghaichica]

In my Apple Store the last few times I've been there have been a good amount of people trying on watches, viewing the watches and speaking to the employees about the watches. However I've also been to Selfridges (London, department store) Selling the watch to buy watch bands on two occasions. On both occasions there were swarms of people viewing the watches, trying them on and talking to Apple employees. The last time I went in particular I saw a few people actually buying watches. One gentleman had actually just bought two SS watches. To say there is no interest in the watches is simply not true.

 

[Benjamin Frost]

Yep. That's me. Only not a guy. And not arguing on the phone loudly or otherwise—and I never talk on one while ordering. Oh, and I only have the Apple watch and no Abercrombie tee and I don't think I've ever left the house looking scruffy. And then there's my husband who also has the watch. Neat, clean, modest in dress, and always so very polite to those behind the counter. Also, several other watch owners we've run into. Courteous, hard working, kind, thoughtful....

But we all have the watch, so, 'nuff said right? Gosh, it's going to be hard to learn how to be rude to those behind the cafe counter, they're always so nice to me, but I guess my buying a watch means I must be a douchbag so...best get started.

Nice humour.

Your post suggests that I may yet encounter a civilised Apple Watch owner.

 

[Stephen123]

Material
Stress testing
Length
Colour
Design of buckle
Hole spacing
Hole design
Detail design
Finish
Packaging design

Basically there's a lot more to it than you'd think, despite it seeming like a rather simple item. I can see R&D for the sports strap alone easily running in to the tens of thousands, possibly into the hundreds.

This still misses the main costs. They designed a plastic manufacturing process that hasn’t been used for this sort of thing before, built the machines to do it, and operate the machines. If it was “a damn rubber band” or a regular cheap plastic watch band, people would not be expressing surprise at how comfortable it is. Practically every review of Apple Watch expresses surprise at how the band feels. If it was a common process it would not be surprising.

 

[Dmunjal]

This still misses the main costs. They designed a plastic manufacturing process that hasn’t been used for this sort of thing before, built the machines to do it, and operate the machines. If it was “a damn rubber band” or a regular cheap plastic watch band, people would not be expressing surprise at how comfortable it is. Practically every review of Apple Watch expresses surprise at how the band feels. If it was a common process it would not be surprising.

Stop this already. Stop defending Apple and all of its "high-end" manufacturing practices. When all the manufacturing and R&D is done. When all the operating expenses are accounted for, Apple has much higher margins than anyone in the smartphone industry and even most other industries. There are higher margin products out there but they are considered boutique manufacturers or manufactured by hand and not mass market like Apple.

The Apple tax is high and apologists are happy to pay it.

 

[gnasher729]

Stop this already. Stop defending Apple and all of its "high-end" manufacturing practices. When all the manufacturing and R&D is done. When all the operating expenses are accounted for, Apple has much higher margins than anyone in the smartphone industry and even most other industries. There are higher margin products out there but they are considered boutique manufacturers or manufactured by hand and not mass market like Apple.

The Apple tax is high and apologists are happy to pay it.

There is no such thing as an "Apple tax".

Every company trying to sell things has a certain cost for producing and selling the goods, and a certain income from selling the goods, and the difference is called "profit" or "loss" if it is negative. The income is based on what potential customers are willing to pay for the product, multiplied by how many customers are willing to pay that price. What customers are willing to pay is largely independent of what it costs to produce the item.

A successful company is one that makes products that many people are willing to buy at a price that is substantially higher than what it costs to produce that item. That's Apple, for example. There's no tax involved here. The important number is the difference between what the product is worth to customers, and what it costs to sell. Apple cannot just "charge a tax". If the value isn't there, the product will not sell. That's all.

 

[Dmunjal]

There is no such thing as an "Apple tax".

Every company trying to sell things has a certain cost for producing and selling the goods, and a certain income from selling the goods, and the difference is called "profit" or "loss" if it is negative. The income is based on what potential customers are willing to pay for the product, multiplied by how many customers are willing to pay that price. What customers are willing to pay is largely independent of what it costs to produce the item.

A successful company is one that makes products that many people are willing to buy at a price that is substantially higher than what it costs to produce that item. That's Apple, for example. There's no tax involved here. The important number is the difference between what the product is worth to customers, and what it costs to sell. Apple cannot just "charge a tax". If the value isn't there, the product will not sell. That's all.

That's not all. Take off the logo and the exact same product is 25% cheaper. That is a brand tax. Don't get me wrong. It is well earned. But it's certainly not the in the process or the materials.

 

[Nand]

Can't be by much, since the design is old. See below.



The material is synthetic rubber like many other sport bands before it. They all feel very similar to each other.



Hardly original. It's pretty much a duplicate of Marc Newson's late 1990s Ikepod watch sport bands.

View attachment 562517

View attachment 562518

So no, even the R&D argument... which could only account for a handful of cents per band anyway... doesn't carry much weight as far as price goes. It's more about Apple marching to the drumbeat of investors wanting constant profit growth.

http://www.businessinsider.com/apple-designer-marc-newson-wears-a-9500-apple-watch-2015-6

Marc Newson is the designer who was brought on board by Apple to help the company create the Apple Watch.

 

[SvP]

http://www.businessinsider.com/apple-designer-marc-newson-wears-a-9500-apple-watch-2015-6

Marc Newson is the designer who was brought on board by Apple to help the company create the Apple Watch.

And as a previous owner of that thing i can guarantee you its NOT the same BY FAR. material of the new bands is.. well, excellent.

 

[kdarling]

Marc Newson is the designer who was brought on board by Apple to help the company create the Apple Watch.

Sure, we all know that Apple hired Newson and he brought with him a lot of his old designs.

That's why the sport band was 1) not unique and 2) did not require lots of R&D to design.

 

[thirteen1031]

That's why the sport band was 1) not unique and 2) did not require lots of R&D to design.

Not unique no. But can you really know for sure how much R&D was done on these bands? Maybe the R&D people came up with 50 completely new designs for this sports band as well as factoring in this older one. Maybe 100. Maybe 1000. They tested the hell out of these thousands of bands, with all kinds of alterations, before concluding that this older one was the way to go--and getting that older band just right. Or maybe they always assumed this older one would be in the running and, as you say, didn't have to do much at all to it.

Or maybe others fell by the wayside. Or maybe not, and we'll be seeing them in the future. All original designs. All part of R&D's long hours creating sports bands for the watch.

In the end, unless someone here worked on the Apple watch band and/or has documented evidence on all R&D did to create that sports band, then this is all just so much speculation. Being that you are in engineering, I give more credit to yours. But, really, we need more facts before we can say, with authority, how much was or wasn't done on these watch bands...and what it was worth.

 

[thirteen1031]

Apple tax is high

Apple "tax"? New speak much? You're really making a verbal stretch there in your attempt to switch out the neutral word "price" with the negative "tax" and cast Apple as some big bad villain. A tax has to be paid, like it or not, want it or not, agree with it or not. A price need only be paid if we think it's worth it.

And I think the price I paid for my watch was worth it. There are plenty of other smartwatches out there and other tech by other companies. You don't have to pay any price you don't feel is worth paying. So go buy their products and frequent their website and praise them over Apple for not ripping you off. But don't try to tell me that I don't know whether something is worth my money. I work hard for that money, and I'll send it on what I want and what I like. And I make no apologies for that.

 

[forex_rog]

The price of bands is just robbery.

I foresee a huge market for after-market cheap chinese-made bands on eBay - some are going to be cheap and nasty no doubt, but I'd guess a lot of them will come close to Apple's $2.05 sell-for-$49 bands for $5

 

[Dmunjal]

Apple "tax"? New speak much? You're really making a verbal stretch there in your attempt to switch out the neutral word "price" with the negative "tax" and cast Apple as some big bad villain. A tax has to be paid, like it or not, want it or not, agree with it or not. A price need only be paid if we think it's worth it.

And I think the price I paid for my watch was worth it. There are plenty of other smartwatches out there and other tech by other companies. You don't have to pay any price you don't feel is worth paying. So go buy their products and frequent their website and praise them over Apple for not ripping you off. But don't try to tell me that I don't know whether something is worth my money. I work hard for that money, and I'll send it on what I want and what I like. And I make no apologies for that.

Please don't get defensive. I am an Apple shareholder and have spent thousands on Apple gear. I'm stating that there is a myth that Apple spends more than its competitors on high end materials or more than its competitors on R&D. The facts show that Apple spends less on R&D than its competitors. Its COGS are also typically less than its similarly priced competitors.

The proof is in the net profit margins. Apple's is higher than everyone else after all expenses are taken into account. These expenses are frequently mentioned as differentiation but Apple still has higher margins after these are taken into account.

So, what makes the difference? It's the brand. The same exists for Nike, Porsche, and other top brands. They've earned it over a long period of time and they deserve it. It allows them to charge more than other competitors and get higher margins in return.

This is the Apple tax. Marketing 101. I pay it. You pay it. Happily I might add. But don't say it's because of superior materials or manufacturing processes.