From my imperfect recollection: Margin is traditionally formulated as the difference between the selling price and the cost of goods sold (“COGS”), basically a

From my imperfect recollection: Margin is traditionally formulated as the difference between the selling price and the cost of goods sold (“COGS”), basically all of the variable costs required to manufacture the unit and ship it to the customer. Cost of Good Sold does not include the infrastructure required to get the customer to buy it. So while shipping the unit to an Apple Store might be included in COGS, the rent Apple pays for the store and the salaries of the geniuses in the store are not part of COGS. Marketing expenses are not part of COGS. There’s another value, Cost of Sales or “COS,” that includes certain somewhat fixed but discretionary costs associated with selling the product. COS is always larger than COGS. Anyways, “margin” is a useful thing to know when comparing products and companies, however we cannot assume that just because Apple has high margins, that there is a business opportunity for someone to have lower margins. It could be that the other business will be killed by their Cost of Sales. This is especially a problem when competing with an incumbent: Marketing and other costs are going to be very high while you try to compete with the juggernaut. Imagine, for example, that Apple spends $1,000,000 a month marketing to a certain small segment of the market. If you want to sell to the same segment, you are going to need to spend serious coin to offset Apple’s million dollars a month plus all the goodwill Apple enjoys from making products people actually like. But your sales are insignificant to begin with, so your COS will far exceed any margin you plan to extract, putting you in the red from day one. Meanwhile, Apple is spending that $1,000,000 a month out of their high margins. And worse, if you expect your price to do all the talking for you, what will you do when Apple launches the iPad Nano at a low price? Their COGS are lower than yours, so they can obliterate your price advantage with a single press release announcing a Black Thursday sale. The hard truth is, competing on price is a difficult job. You need to have very deep pockets and some expectation of a big payoff down the road to make back the money you lose up front. You need to have a COGS edge. In other words, you need to innovate somewhere other than deciding to charge less. Dell did that back in the day with their supply chain optimization. Apple does that now. You need to do something more than simply cut margins: You need to disrupt the tablet business. It is not impossible, but it is more than simply sharpening your pencil. Exempli gratia: Kindle, as noted by another commenter elsewhere.