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It doesn't cost $450 to make an iPhone. That's insane. It may cost that in parts, but there are many, many highly paid engineers, designers, product managers, e

It doesn't cost $450 to make an iPhone. That's insane. It may cost that in parts, but there are many, many highly paid engineers, designers, product managers, etc. who worked on those products. Those people's salaries must be accounted for somehow. This is something that a commenter on Hacker News should understand! All of those dumb cost breakdowns for what it "costs" to make iPhones or whatever always miss the fact that you actually have to design and build the software, hardware, and services that makes it all work. Not to mention shipping and other retail costs.

PaulDavisThe1st 6y ago
The $450 is the marginal cost of an iPhone. That's typically the normal number cited for the "manufacturing cost" of a product, regardless of the level of R&D and marketing that goes into it.
- Terretta 6y ago
  GP claimed iOS was "free". Can't be both free, and the phone only costs its parts. GP also said to cover cost of app store in the phone, despite only costing its parts. I consider iOS to be one of the iPhone's parts. I don't understand why machinery engineered from metal is so different from that engineered from bits, that I must consider them two products instead of one. Metal, glass, silicon, bits: one PDA appliance.
  - PaulDavisThe1st 6y ago
    All good. But iOS has a marginal cost of essentially zero. So its presence (or absence) has effectively no impact on the marginal cost of an iPhone.
    - halostatue 6y ago
      Given the ongoing security updates and years of upgrades provided to older phones, I would argue that the marginal cost of iOS is NOT zero nor anywhere close to it. Relatively low, sure, but one would need to figure the amortized cost of ~5–6 years of OS updates across the devices who are receiving the latest iOS this fall.
  - cromwellian 6y ago
    This is economics. The price of a product in a competitive market tends to its marginal cost -- the cost to produce one additional unit. The marginal cost of an iPhone is $450 in parts and labor. The R&D costs are fixed costs, not marginal costs, they don't vary whether you sell 1 million iPhones or 10 million iPhones. Most of iOS's costs are fixed. Even if you amortize the cost of it across the number of phones sold each cycle, it will be insignificant. Apple employs ~12,000 engineers. If all 12k cost $1million per year, it would cost Apple $12 billion a year. Apple revenue in 2019 was $260 billion, or 4.6% of revenues. Apple gross profit was $104 billion. So if Apple had to somehow cut some rent-seeking streams and eat $12 billion, their profits would only be reduced 12% Now we know these figures are way overboard. Employee costs aren't $1 million per year for every engineer. All 12k engineers are not working on iOS or the App Store, etc.
    - scarface74 6y ago
      This obviously comes from a misunderstanding of economics. The price of a good is what people are willing to pay for it. Why are people willing to pay more for Nike’s than Converse? There are literally hundreds of Android phones, yet people are willing to pay more for iPhones. People have been paying a premium for Apple’s goods for forty years. Instead of complaining about the evilness of Apple, maybe the problem is the incompetence of the rest of the market to make something compelling.
      - 07t15 6y ago
        Not quite relevant, but Nike owns Converse
      - PaulDavisThe1st 6y ago
        This is incredibly simplistic, and to say "this obviously comes from a misunderstaning of economics" seems ironic, to say the least. You're completely ignoring price signalling for a start, which provide information to consumers about price elasticity. You're ignoring asymmetries between producers and consumers, which hide information from consumers about price elasticity (and thus affect what people are "willing to pay"). You're ignoring things like decoy effects, in which manufacturers deliberately offer extra items at different price points because of the known impact on consumer psychology. Basically, you write as if consumers are driven by a rational and fully informed decision making process, when we know with absolute certainty that this is not the case, and that manufacturers/sellers have considerable ability to shift "what people are willing to pay for it". Also, vastly more people buy those Android phones than iPhones, which makes it less clear if the market has failed to "make something compelling" to compete with iOS, or if there is a subset of the population willing to pay a premium for specific perceived benefits, real or otherwise, in the case of iOS devices.
IncRnd 6y ago
Apple has more products than an iPhone. In business you do not include the costs in that manner. Even without an iPhone, those costs exist and would be paid.
- cromwellian 6y ago
  People used to pay money for Trumpet Winsock, then a TCP/IP stack became critical infrastructure, and you no longer paid for it. Web Browsers used to have a commercial model (Netscape), then the Web become so critical, it became commodity infrastructure. Disk compression and encryption? Table stakes. Video decompression/compression? I could go on and on, but ALOT of functionality that used to be commercial add-ons has become commodity, and required OS infra. It's just paid for, and no on charges. Otherwise, hey, let's unbundle Mobile Safari, and Mail, and Maps, and when you buy an iPhone, the first thing you have to do is buy all the builtin default apps.
ksec 6y ago
>This is something that a commenter on Hacker News should understand! It pains me to see Computing, Tech, or Software Engineers that are the top paying job today and especially in Silicon Valley, are complaining about the cost of Hardware all while completely ignoring the Software Cost and Design Cost. This left, free-ish mentality wasn't a thing 10 - 20 years ago. But has steadily getting mainstream. I have no idea why.

PaulDavisThe1st 6y ago

The $450 is the marginal cost of an iPhone. That's typically the normal number cited for the "manufacturing cost" of a product, regardless of the level of R&D and marketing that goes into it.

Terretta 6y ago
GP claimed iOS was "free". Can't be both free, and the phone only costs its parts. GP also said to cover cost of app store in the phone, despite only costing its parts. I consider iOS to be one of the iPhone's parts. I don't understand why machinery engineered from metal is so different from that engineered from bits, that I must consider them two products instead of one. Metal, glass, silicon, bits: one PDA appliance.
- PaulDavisThe1st 6y ago
  All good. But iOS has a marginal cost of essentially zero. So its presence (or absence) has effectively no impact on the marginal cost of an iPhone.
  - halostatue 6y ago
    Given the ongoing security updates and years of upgrades provided to older phones, I would argue that the marginal cost of iOS is NOT zero nor anywhere close to it. Relatively low, sure, but one would need to figure the amortized cost of ~5–6 years of OS updates across the devices who are receiving the latest iOS this fall.
- cromwellian 6y ago
  This is economics. The price of a product in a competitive market tends to its marginal cost -- the cost to produce one additional unit. The marginal cost of an iPhone is $450 in parts and labor. The R&D costs are fixed costs, not marginal costs, they don't vary whether you sell 1 million iPhones or 10 million iPhones. Most of iOS's costs are fixed. Even if you amortize the cost of it across the number of phones sold each cycle, it will be insignificant. Apple employs ~12,000 engineers. If all 12k cost $1million per year, it would cost Apple $12 billion a year. Apple revenue in 2019 was $260 billion, or 4.6% of revenues. Apple gross profit was $104 billion. So if Apple had to somehow cut some rent-seeking streams and eat $12 billion, their profits would only be reduced 12% Now we know these figures are way overboard. Employee costs aren't $1 million per year for every engineer. All 12k engineers are not working on iOS or the App Store, etc.
  - scarface74 6y ago
    This obviously comes from a misunderstanding of economics. The price of a good is what people are willing to pay for it. Why are people willing to pay more for Nike’s than Converse? There are literally hundreds of Android phones, yet people are willing to pay more for iPhones. People have been paying a premium for Apple’s goods for forty years. Instead of complaining about the evilness of Apple, maybe the problem is the incompetence of the rest of the market to make something compelling.
    - 07t15 6y ago
      Not quite relevant, but Nike owns Converse
    - PaulDavisThe1st 6y ago
      This is incredibly simplistic, and to say "this obviously comes from a misunderstaning of economics" seems ironic, to say the least. You're completely ignoring price signalling for a start, which provide information to consumers about price elasticity. You're ignoring asymmetries between producers and consumers, which hide information from consumers about price elasticity (and thus affect what people are "willing to pay"). You're ignoring things like decoy effects, in which manufacturers deliberately offer extra items at different price points because of the known impact on consumer psychology. Basically, you write as if consumers are driven by a rational and fully informed decision making process, when we know with absolute certainty that this is not the case, and that manufacturers/sellers have considerable ability to shift "what people are willing to pay for it". Also, vastly more people buy those Android phones than iPhones, which makes it less clear if the market has failed to "make something compelling" to compete with iOS, or if there is a subset of the population willing to pay a premium for specific perceived benefits, real or otherwise, in the case of iOS devices.

IncRnd 6y ago

Apple has more products than an iPhone. In business you do not include the costs in that manner. Even without an iPhone, those costs exist and would be paid.

cromwellian 6y ago
People used to pay money for Trumpet Winsock, then a TCP/IP stack became critical infrastructure, and you no longer paid for it. Web Browsers used to have a commercial model (Netscape), then the Web become so critical, it became commodity infrastructure. Disk compression and encryption? Table stakes. Video decompression/compression? I could go on and on, but ALOT of functionality that used to be commercial add-ons has become commodity, and required OS infra. It's just paid for, and no on charges. Otherwise, hey, let's unbundle Mobile Safari, and Mail, and Maps, and when you buy an iPhone, the first thing you have to do is buy all the builtin default apps.

ksec 6y ago

>This is something that a commenter on Hacker News should understand! It pains me to see Computing, Tech, or Software Engineers that are the top paying job today and especially in Silicon Valley, are complaining about the cost of Hardware all while completely ignoring the Software Cost and Design Cost. This left, free-ish mentality wasn't a thing 10 - 20 years ago. But has steadily getting mainstream. I have no idea why.