6 ms·

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

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.
    - scarface74 6y ago
      If only Android was owned by a company with a popular website where they could inform consumers about the benefits of alternatives and if it has capital to produce a premium phone. Do you really think consumers don’t know they are paying Apple a premium?

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.
  - scarface74 6y ago
    If only Android was owned by a company with a popular website where they could inform consumers about the benefits of alternatives and if it has capital to produce a premium phone. Do you really think consumers don’t know they are paying Apple a premium?