Inside the iPod nano

[~Shard~]

Wow, Apple's going to make a lot of money on this new iPod, which is great! And come early next year, there will no doubt be a price drop as well - but for now, people are obviously willing to pay the price, so Apple would be foolish not to cash in on that as much as possible, especially with the Xmas season fast approaching.

Interesting piece of news...

 

[Cfg5]

I read this article in Macworld a couple days ago that said "the nano is so inexpensive, that apple probably loses some money on it, i guess they use the ipod to sell music on the iTMS.

Derr

 

[Lacero]

I read this article in Macworld a couple days ago...

LOL. Macworld is about as biased as CNET.

 

[jkhanson]

I think Apple is way over charging the nano - big time. I mean come on! $150-$175? Deal. Not this $200-$250 bull crap.

Prices are a function of both supply and demand, not the manufacturer's costs. Does anyone sell a 2 gig flash mp3 player for less money? Is Apple's inventory piling up? No on both counts. The nano is not too expensive.

Down the road, like always, the price will come down. Apple is smart to leave room for that while the competition has nothing to compete with the nano.

 

[neonart]

I'm very glad Apple can make a fantastic product and hold a nice margin that keeps them, and the resellers motivated to sell iPods.

Those who think Apple needs to charge what they think is fair have never had their own company. When you sell anything at weak margins all you're doing is turning money around. There are ALOT of expenses that consumers don't think of. R&D, tooling, freight, general overhead, marketing, merchant charges, warrantees, taxes, etc.

It's those high demand products with high margins that keep good companies alive, and great products available.
It's cut-throat sales techniques that keep companies like Dell making cheap products in mass quantity.

 

[heywhynots]

Not paying for its development but rather futher R&D

The R&D for the nano has already been paid for. It is a sunken cost. Apple invests in itself with its R&D spending which creates new products or improves the one's they already have which Apple is betting will bring in more money & help them grow as a company. Some of that money will be invested in R&D & the cycle keeps going. In other words, the margins Apple takes in from the Nano are helping to pay for the R&D for the next generation of products & the money made from the Mini & other products helped pay for the Nano's development.

 

[treblah]

So the 4GB nano is roughly $152? Without the 40% discount from Samsung that would be roughly $220, right?

I almost feel bad for other companies that are going to try and compete with Apple. Almost.

 

[Mike Teezie]

I thought this was going to be a thread showing someone who had taken an Nano apart.

That's what I want to see.

On topic - Good for Apple that they got a great deal with Samsung.

 

[digitalbiker]

I'm guessing zero cost for drives

and Business Week is guessing the cost of the drives as I am sure Apple and Samsung are not revealing the actual invoice price

I'll bet the cost of a drives for Nanos are next to nothing, since the Nano doesn't contain a hard drive.

 

[devilot]

I thought this was going to be a thread showing someone who had taken an Nano apart.

That's what I want to see.

What you're wanting to see, here.

 

[MacSlut]

Any way you look at this, Apple has to be making a very high net profit on the Nano. Take out marketing, distribution, R&D, legal, kitchen sink, and even at the wildest estimates you're still talking about a high net profit.

And this is a good thing (for Apple).

The retail price is of course based on optimizing profits by charging a price based on what the market will bear. What's amazing is that since Apple has achieved critical mass, they are able to purchase all of the components for what other manufacturers would need to pay for the 2GB flash alone.

Apple could still sell the Nano at a profit with a price lower than what it would cost competitors to produce even a half-assed knock-off.

Apple does advertise the Nano a lot (around San Francisco anyway), but while the Nano is out-marketing all the other competition, the advertising budget as a percentage of revenue on it is probably way lower than the major competitors.

Not only that, but the Nano has probably received more mindshare from free exposure than all of the competitors combined and combined pr/advertising.

What I'm surprised of is that the Nano doesn't seem to be hurting sales of the full sized iPods...and even that the mini seemed to continue to sell well as stock runs out.

 

[jettredmont]

I thought this was going to be a thread showing someone who had taken an Nano apart.

That's what I want to see.

Here:

http://arstechnica.com/reviews/hardware/nano.ars

Complete with autopsy photos (not for the squeamish! Poor, battered nano!)

("stress" testing and heart failure on .../3; autopsy on .../4)

 

[Deslock]

(edited because I misread the article the first time and my numbers were off)

I don't think the nano is overpriced. Cost for parts and assembly: 2GB = $98 and 4GB = $152. So far, that leaves $97-$101 profit. But you still have to account for costs associated with:

1. hardware design and testing
2. developing and updating software and firmware
3. advertising
4. distribution to retail stores (like Best Buy)
5. lower wholesale prices for retail stores
6. cheaper educational pricing ($20 less)
7. overhead of selling through Apple stores
8. free shipping for website sales
9. free engraving for website sales
10. support and warranty
11. packaging
12. headphones, USB cable, and dock adapter (or were these counted in the initial cost estimate?)

IMHO, $229 (educational) for a 4GB flash player is an exceptional deal, never mind also getting one that's 0.27" thin, weighs only 1.5 ounces, and features a color screen, excellent sound quality, click wheel interface, iTunes integration, photos, games, PIM, etc.

Yeah, you can get hdd-based players cheaper, but they're bigger and heavier and suffer from hdd-induced sluggishness, skipping, vibration, noise, and fragility.

 

[Stampyhead]

Apple really is not out to make a big turn around on any of their "pods."
Their real profit comes from the contract you sign when you buy one.
What's that I hear? You did not sign a contract? ... Oh yes you did! How many millions of people have downloaded itunes after buying a pod? And how many millions of songs sell after the sales of new pods?
They could give them away and still make a big profit... but who's that dumb?

Maybe, but Apple doesn't really make much money from the iTunes Music Store. In fact, I heard that it was the other way around, that they barely break even from the music store and that they got into the online music business to help sell more iPods. Either way, the almost have the market cornered so have to be making money somewhere!

 

[Fender2112]

What?! I've seen the ad A LOT, and I don't even watch TV that much!

-czardmitri

Ditto for me. I've seen the Nano ad at least a dozen times this week. That's more than all other Apple ads put together.

 

[revisionA]

I say its ridiculous to expect more out of a subcompact mp3 player, it does more than any flash based player on the market (no fm... i know).

Heres the deal. This is their price point. And the size of the flash memory will go up in the next revision... but otherwise, this is the nano. Its new, its very hip and people are paying about 50 bucks more than they think they should ... same basic situation as when I got my g5.

If Apple stuff was the best price it would called Dell. If it were the highest quality it would be called... Apple. We get toshiba and samsung parts (two excellent manuf.) or quanta notebooks, excellent too. You get what you pay for.

If you dont want to spend the 250... fine, more for those of us who will.

$

 

[shawnce]

Apple really is not out to make a big turn around on any of their "pods."
Their real profit comes from the contract you sign when you buy one.
What's that I hear? You did not sign a contract? ... Oh yes you did! How many millions of people have downloaded itunes after buying a pod? And how many millions of songs sell after the sales of new pods?
They could give them away and still make a big profit... but who's that dumb?

Your logic is really backwards here. So you may want to reevaluate your "dumb" comment.

For one Apple makes more money (profits) off of the iPods revenue stream then off of iTMS revenue stream. Second a relatively minor percentage of iPod users actually use the iTMS, sure they use iTunes but iTunes != iTMS.

If you play with some numbers you can see that even if 100% of iPod users purchased songs from iTMS that they average number of songs some is around 60 songs per iPod sold. That translates to about 60 dollars of revenue per iPod but only around 6-15 dollars of profit per iPod (don't know the exact margins on iTMS but it is low). That profit is minor compared to the profit from selling the iPod in the first place.

It is also now known that the number of iPod sold more then doubles the number of cumulative (not active) iTMS accounts (like a fair number came from song give anyways with little use after that).

Of course Apple is purposely trying to play the two (and iTunes) off of each other to attempt to maximize market penetration and hold off competitors. They are also attempting to use iPod, iTMS, and iTunes as brand building and as a funnel to Mac sales.

 

[blufire]

I say its ridiculous to expect more out of a subcompact mp3 player, it does more than any flash based player on the market (no fm... i know).

Heres the deal. This is their price point. And the size of the flash memory will go up in the next revision... but otherwise, this is the nano. Its new, its very hip and people are paying about 50 bucks more than they think they should ... same basic situation as when I got my g5.

If Apple stuff was the best price it would called Dell. If it were the highest quality it would be called... Apple. We get toshiba and samsung parts (two excellent manuf.) or quanta notebooks, excellent too. You get what you pay for.

If you dont want to spend the 250... fine, more for those of us who will.

$

Yeah, I was disappointed that they lowered the sizes (2GB and 4GB) from the mini line. It seems that with these margins, they *could* have done 2GB and 4GB (assuming they could have fit the extra chip). Hopefully the next revision will bring the sizes up to par!

 

[jcshas]

I know of at least one more area where Apple has saved some manufacturing costs with iPod Nano's. The plastic they used to make the display. I stuck mine in my pocket and it came out a few minutes later looking like I had rubbed it with sandpaper! So much for the concept of 1,000 songs in your pocket.

 

[shamino]

I think Apple is way over charging the nano - big time. I mean come on! $150-$175? Deal. Not this $200-$250 bull crap.

It may be higher than you think the device is worth, but the fact that they are selling well (especially the 4G models) tells me that they're not overpriced.

FWIW, I agree with you that the nano costs more than it should. IMO, the now-discontinued mini was a better deal ($200 for 4G, $250 for 6G.) But that's because I only care about the music. The things that differentiate the nano (smaller size, color screen, flash memory) mean very little to me.

On the other hand, compared to flash-based players from the competition, it's still a great price. 2G players generally cost more than $200, and I don't think you can get a 4G flash-player from anyone else right now.

 

[oskar]

I'll bet the cost of a drives for Nanos are next to nothing, since the Nano doesn't contain a hard drive.

He didn't say hard drive, only "drives". Remember that the iPod Shuffle and Nano could easily be considered flash drives.

 

[shamino]

Marketing? I haven't seen a single ad on TV for the nano.

You must watch different shows than I do. I've seen ads for the nano during:

• The Simpsons
• Jay leno
• Conan O'Brien
• Battlestar Galactica

And I think I saw one during Law & Order, but I'm not certain of that.

Apple doesn't need to do marketing for the Nano and I'm sorry but at 50% even with ads they are making a profit that is insanly large.

Agreed. Right now, the iPod is incredibly popular. They only need to run enough ads to let people know that the new product has shipped, and the rest will attend to itself.

And most companies run more ads with a profit margin much less than 50%.

 

[shamino]

Perhaps, but the fact that they are selling well shows that consumers are willing to pay. I'm sure the price will eventually drop. It has, historically, with all of the other iPods right?

Maybe. It is common for Apple to boost features/capacity and not change prices.

This is most obvious with the full-size iPods. Each generation sold at 3 price points: $300, $400 and $500. As the product evolved, the features/capacities increased, with the devices remaining at these prices. The smallest/cheapest ones would be discontinued instead of discounted.

Many Macs have followed this model as well. For instance, before the introduction of the Mac mini, no Mac ever sold for less than $800 - this being the price of the low-end iMac G3, and now the low-end eMac. As the iMac and eMac evolved, the $800 model would get better, but the old designs would not be sold for lower prices.

Of course, there are exceptions. The 60G iPod photo debuted at $600, and was later discounted in stages until reaching its current price ($400).

 

[andiwm2003]

a 40gb harddisk replacemaent would then cost about 20x$54= ~$1000

well it will take another two years before we see a flash based 12inch widescreen powerbook thats 1/3 inch thick and has 10hrs battery life.

maybe prices drop faster than i think.....

 

[~Shard~]

a 40gb harddisk replacemaent would then cost about 20x$54= ~$1000

well it will take another two years before we see a flash based 12inch widescreen powerbook thats 1/3 inch thick and has 10hrs battery life.

maybe prices drop faster than i think.....

Don't you worry, it will come - eventually, it will come...