Well, Microsoft is basically a licensing business so the profit margin should correctly be 100%. Unfortunately, it also has to create stuff to license (ie pay f

Well, Microsoft is basically a licensing business so the profit margin should correctly be 100%. Unfortunately, it also has to create stuff to license (ie pay for R&D) and incur some marketing, support and other costs, so that reduces the margin somewhat ;-) In the 1990s, Microsoft also had CD manufacturing and packaging costs, but those have mostly gone away now. In a competitive market, hardware generally results in manufacturing_cost+plus_profit pricing, which drives margins close to zero. That's what happened to the PC OEMs. Apple makes better margins because it doesn't use cost-plus pricing: it picks whatever price it thinks the market will bear. The higher margins are justified by product design, branding, saturation advertising and/or whatever. That's how IBM worked as well, until it had to face competition from PC clones. They're different business models, but Sculley took a bet, essentially thinking that there was more turnover (and profit) in selling PCs for $2,500 than there was in licensing software for $50. He was wrong in the 1990s, but maybe times have changed ;-) IBM has got rid of as much hardware as possible and shifted its focus to high-margin licensing, and it's not doing too well....