When you fish out $200 for an iPhone or $500 for a PS3, have you ever paused to wonder how much the companies bore to build that gadget? Are you getting a fair deal or are the companies ripping you off? Market research company iSuppli clears all doubt by tearing down 25 popular gadgets to find out the price of the component parts and the vendors supplying those ingredients.
Don’t be surprised when you see some devices selling at a loss, for instance gaming consoles. The companies are willing to swallow losses on some gadgets in hopes that they’ll make up the difference, and then some, on sales of related gear, such as video game software. As you can see below, some manufacturers are barely breaking even from the sale of their devices. In realty, the actual profit comes not from the gadget but from the sale of related services and peripherals.
You can read the complete article on Business Week. For the convenience we present some of the popular gadgets below.
Retail price: Starting at $499
Cost of components: $219.35 to $334.95
Google Nexus One
Retail price: Starting at $179 with two year contract
Cost of components: $174
Retail price: Starting at $199 with two year contract
Cost of components: $185
Retail price: Starting at $199
Cost of components: $179.16
Amazon Kindle 2
Retail price: $359
Cost of components: $185.49
Microsoft Xbox 360
Retail price: $399
Cost of components: $470
Sony PlayStation 3
Retail price: $599 (60GB) $499 (20GB)
Cost of components: $840 (60GB) $805 (20GB)
How do companies make their money selling gadgets for a lower retail price than cost of component price. And why would Google only retail for $5 more than their component costs?
both sony and microsoft lose money per console sold. they earn the money back through the game companies, they get a percentage of each sale.
the nexus one may be 5$ more expensive than manufacturing costs, but keep in mind that's WITH a two year contract. it's through the contract google earns most money. why do you think most mobiles are so much more expensive when unlocked than with contract? that means they need a different way to earn their money.
i do think the prices for both consoles are outdated, however. from what i recall the current losses of microsoft/sony aren't nearly as big.
fun factoid: nintendo has made money from their console from the beginning, since the wii is much cheaper to manufacture.
Had doubts regarding the pricing of Sony and microsoft but the above comment cleared them off.
Amazing how business works.. Will never understand.
Cool beans! Article and comments. The iPad should be a hit. Neat'o stuff. =)