5 ms·

How does this business model even make sense? I just can't wrap my head around why you would produce a product, cripple it, and then sell it. Edit: My point is

by adbge 16y ago

How does this business model even make sense? I just can't wrap my head around why you would produce a product, cripple it, and then sell it. Edit: My point is that Intel is intentionally reducing the value of their product. How can they afford to do that and remain competitive?

xenophanes 16y ago
So you don't have to produce lots of different products? Mass producing the same good version is cheap.
- gaius 16y ago
  It's like region locked DVD players. It's all the same kit off the same assembly line, just with one jumper lead attached. If you're Sony or whoever you want to be able to shift your inventory from country to country if that's where the demand is.
  - caf 16y ago
    It's not even a physical jumper, most DVD players can be switched region by means of codes sent to the IR port.
chunkbot 16y ago
The _business model_ makes sense, because the sale of these unlocks are practically all profit, and thus they can sell at multiple price points. It's just not right in a moral sense to prey on uneducated consumers like this.
- ergo98 16y ago
  How is this preying on uneducated consumers? If I bought a netbook that had an Atom 450 in it, and I knew what the processor was and what it was capable of, and then I took delivery and found out later that it really is an Atom 450+ that can morph into a Xeon 7500 with a payment, there's no loss or detriment to me to not take the option. If anything it's a convenience.
  - matwood 16y ago
    Actually you bring up a good point where it's much better for the consumer because mobiles are so hard to upgrade. Joe consumer can buy the cheap laptop today and then pay an upgrade fee later to simply bump the processor up without having to buy a whole new machine. Sounds like a good deal for him.
patio11 16y ago
Price differentiation between customer groups. It is not different conceptually from my downloadable software, which is free or $30 depending on whether you want a code which activates an if statement in the bitwise identical executable. I could charge people $5 for the download and $25 for the code. Not a great idea, I think, but straightforward.
wmf 16y ago
It's a form of damaged goods price discrimination. People who would not have bought the full-price processor will buy the crippled version. http://en.wikipedia.org/wiki/Price_discrimination http://en.wikipedia.org/wiki/Price_discrimination http://www.economics-ejournal.org/economics/journalarticles/2007-1 http://www.economics-ejournal.org/economics/journalarticles/...
rbanffy 16y ago
IBM mainframes have been doing it for decades. In their market, it makes sense. You buy a cheap mainframe and, when the time to upgrade comes, the hardware upgrade consists of a phone call. Now... Would you have to run a Windows program in order to "upgrade" the CPU? I kind of like the idea of writable logic inside the CPU.
rythie 16y ago
Most of the cost of the chip is in the R&D just like in software so the cheap chips cost about the same as the expensive ones on manufacture. For years, people have been overclocking cheap chips to make them run like the top end ones which shows there is little difference between them. Therefore price differentiation comes into to play so they can maximise their profit. It's similar to what Microsoft do with the different editions of Windows.
adamtj 16y ago
Any good business seeks to extract the maximum amount people are willing to pay. A single price for all buyers works against that. (I forget the economics term for it.) It's why coupons and discounts for senior citizens exist. Senior citizens and people willing to spend time clipping coupons often can't afford to pay regular prices, so businesses offer discounts where they still make a profit. Some profit is better than none. I'm sure Intel would love to produce high-end chips for people willing to pay, and low end chips for others. But, the cost of designing and building two separate but similar products would probably be much higher than simply crippling high-end chips. The alternative is that they only produce high-end (or low-end) chips and normal prices, driving low-end (high-end) customers to competitors, or they lower their high-end price and try to make up the difference in volume. It does seem a little dirty to sell something to somebody, but restrict how they can use it. But, Intel isn't just selling a chunk of silicon. They are selling the work that went into shaping that silicon just so. They could have designed it much more cheaply if it didn't need to do so much. So, by buying the low-end chip, you aren't paying them for the extra effort they put in for their high-end customers. If you want the extra benefit, then you must pay for the extra work.
edanm 16y ago
Please, read this article by Joel Spolsky on (software) pricing: http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie... Amazingly informative, taught me a lot about how pricing works in the real world.
prodigal_erik 16y ago
In a well-functioning market every vendor would be frantically scrambling to improve value minus cost, because the delta between the two is the upper bound on their profit. But being in a market with very few competitors and ridiculously high barriers to entry gives Intel the luxury of incurring minor costs to decrease the value they offer, without seeing anyone immediately undercut them on it. If you could run a chip fab in your garage, you wouldn't see price discrimination ploys succeeding.
zokier 16y ago
I think it works like this: Intel develops a CPU and looks at the market and sees that their chips is competitive at $150 price point. So they go and sell it at that price. But the production costs of a CPU is probably closer to $10. And because there is a market of people who do not want to pay $150 for a CPU, Intel cripples some features of the CPU and sells it for $100. This way those who are willing to pay more will pay more, and those who are not pay less.

by adbge 16y ago

xenophanes 16y ago

So you don't have to produce lots of different products? Mass producing the same good version is cheap.

gaius 16y ago
It's like region locked DVD players. It's all the same kit off the same assembly line, just with one jumper lead attached. If you're Sony or whoever you want to be able to shift your inventory from country to country if that's where the demand is.
- caf 16y ago
  It's not even a physical jumper, most DVD players can be switched region by means of codes sent to the IR port.

chunkbot 16y ago

The _business model_ makes sense, because the sale of these unlocks are practically all profit, and thus they can sell at multiple price points. It's just not right in a moral sense to prey on uneducated consumers like this.

ergo98 16y ago
How is this preying on uneducated consumers? If I bought a netbook that had an Atom 450 in it, and I knew what the processor was and what it was capable of, and then I took delivery and found out later that it really is an Atom 450+ that can morph into a Xeon 7500 with a payment, there's no loss or detriment to me to not take the option. If anything it's a convenience.
- matwood 16y ago
  Actually you bring up a good point where it's much better for the consumer because mobiles are so hard to upgrade. Joe consumer can buy the cheap laptop today and then pay an upgrade fee later to simply bump the processor up without having to buy a whole new machine. Sounds like a good deal for him.

patio11 16y ago

Price differentiation between customer groups. It is not different conceptually from my downloadable software, which is free or $30 depending on whether you want a code which activates an if statement in the bitwise identical executable. I could charge people $5 for the download and $25 for the code. Not a great idea, I think, but straightforward.

wmf 16y ago

It's a form of damaged goods price discrimination. People who would not have bought the full-price processor will buy the crippled version. http://en.wikipedia.org/wiki/Price_discrimination http://en.wikipedia.org/wiki/Price_discrimination http://www.economics-ejournal.org/economics/journalarticles/2007-1 http://www.economics-ejournal.org/economics/journalarticles/...

rbanffy 16y ago

IBM mainframes have been doing it for decades. In their market, it makes sense. You buy a cheap mainframe and, when the time to upgrade comes, the hardware upgrade consists of a phone call. Now... Would you have to run a Windows program in order to "upgrade" the CPU? I kind of like the idea of writable logic inside the CPU.

rythie 16y ago

Most of the cost of the chip is in the R&D just like in software so the cheap chips cost about the same as the expensive ones on manufacture. For years, people have been overclocking cheap chips to make them run like the top end ones which shows there is little difference between them. Therefore price differentiation comes into to play so they can maximise their profit. It's similar to what Microsoft do with the different editions of Windows.

adamtj 16y ago

Any good business seeks to extract the maximum amount people are willing to pay. A single price for all buyers works against that. (I forget the economics term for it.) It's why coupons and discounts for senior citizens exist. Senior citizens and people willing to spend time clipping coupons often can't afford to pay regular prices, so businesses offer discounts where they still make a profit. Some profit is better than none. I'm sure Intel would love to produce high-end chips for people willing to pay, and low end chips for others. But, the cost of designing and building two separate but similar products would probably be much higher than simply crippling high-end chips. The alternative is that they only produce high-end (or low-end) chips and normal prices, driving low-end (high-end) customers to competitors, or they lower their high-end price and try to make up the difference in volume. It does seem a little dirty to sell something to somebody, but restrict how they can use it. But, Intel isn't just selling a chunk of silicon. They are selling the work that went into shaping that silicon just so. They could have designed it much more cheaply if it didn't need to do so much. So, by buying the low-end chip, you aren't paying them for the extra effort they put in for their high-end customers. If you want the extra benefit, then you must pay for the extra work.

edanm 16y ago

Please, read this article by Joel Spolsky on (software) pricing: http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html http://www.joelonsoftware.com/articles/CamelsandRubberDuckie... Amazingly informative, taught me a lot about how pricing works in the real world.

prodigal_erik 16y ago

In a well-functioning market every vendor would be frantically scrambling to improve value minus cost, because the delta between the two is the upper bound on their profit. But being in a market with very few competitors and ridiculously high barriers to entry gives Intel the luxury of incurring minor costs to decrease the value they offer, without seeing anyone immediately undercut them on it. If you could run a chip fab in your garage, you wouldn't see price discrimination ploys succeeding.

zokier 16y ago

I think it works like this: Intel develops a CPU and looks at the market and sees that their chips is competitive at $150 price point. So they go and sell it at that price. But the production costs of a CPU is probably closer to $10. And because there is a market of people who do not want to pay $150 for a CPU, Intel cripples some features of the CPU and sells it for $100. This way those who are willing to pay more will pay more, and those who are not pay less.