

You’re paying too much to get a little more space on your iPad and iPhone - Kenan
http://www.slate.com/articles/technology/technology/2012/07/apple_profit_margins_you_re_paying_way_way_too_much_to_get_a_little_more_space_on_your_ipad_and_iphone_.single.html

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lukifer
I can't stand the "breakdowns" from iSuppli: as if raw components were the
only cost! There are the massive teams of software engineers, not only to
write the software, but to maintain it over time. There are shipping costs,
labor for manufacturing and quality control, advertising, marketing, R&D for
all the unshipped iterations, legal and compliance issues (for every single
country), data centers, overhead, infrastructure, and more. Sure, some of
these are fixed costs, and some can be absorbed by revenues from other product
lines, but it's not like you can just subtract components and arrive at the
take-home profit.

All that said, I'm sure that Apple still takes in a good profit on every low-
end unit. But I don't see their overpriced storage as a gouge (or at least, an
unreasonable one). Rather, it also acts as a subsidy: all the people who can
afford a 64GB/3G iPad make up the difference profit-wise for the 16GB/WiFi,
allowing them to offer it at a lower margin, both to entice users in and then
up-sell, and also to grow the market share. Other industries do this kind of
thing all the time, for cars, game consoles, etc.

Is Apple overcharging you on storage? Most certainly. But I don't think it's
anything worthy of outrage. If it's not a good value proposition for you,
don't buy it. There are plenty of alternate tablets which include micro-SD
slots.

~~~
ars
So because of that your takeaway is that the breakdowns are useless?

Take that data for what it is and don't expect from it what it isn't.

And they do estimate manufacturing costs BTW, plus boxing costs - basically
all the costs of making the widget. They don't claim to, and don't, estimate
other costs, that's just not what they do.

~~~
janardanyri
It's a healthy dash of guilt by association; these iSuppli reports
unfortunately lend themselves to sloppy reporting. This article is a typically
wonderful specimen, which crosses lines freely with nonsense sentences like
these:

"On the high-end Wi-Fi model, which offers you 64GB of space for $699, Apple’s
non-manufacturing profit margin shoots up to 48 percent."

As though you get to handwave away non-manufacturing costs and then call it a
"non-manufacturing profit margin."

~~~
ars
Certainly, but that's not iSuppli's fault.

~~~
lukifer
Fair enough; I suppose it is the tech press who are dropping the ball here.

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ars
This is simply called segmented prices
<http://en.wikipedia.org/wiki/Price_discrimination>

By all accounts it's a good thing, since it lets those with lower budgets
still get the device, and yet still allows the manufacturer to make a profit.

You want to make a device for every price point your customers are willing to
pay.

Cars do it too - those extras you can pay for don't cost anywhere near as much
as you pay, they are simply there to make extra profit.

That's why you have the high/mid/low models of virtually every device, and the
price difference is not anywhere near the performance difference (look at
intel CPUs for example).

When you go to a car wash do you really think that extra shine/wax/whatever
spray really costs that much? It doesn't, it's simply a way to make a little
extra from those who are willing to spend it.

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jbarham
IMO this article is spot on. I've ordered the Nexus 7 and wondered if 8 GB
would be enough, but then checked how much of the 16 GB on my Nexus phone I
was using, and it's only a couple of GB.

In contrast, the PCWorld review of the Nexus 7
([http://www.pcworld.com/article/258772/google_nexus_7_tablet_...](http://www.pcworld.com/article/258772/google_nexus_7_tablet_review_solid_but_not_revolutionary.html?tk=rel_news))
starts by harping on and on about the supposed storage constraints of the 8GB
model.

Too many mainstream reviewers are still obsessed with specs. Normal people
don't know or care about specs; they only care about the overall experience,
which is why Apple is where it is.

IMO Android has caught up to iOS in terms of everyday usability but the
hardware is generally much cheaper than Apple and improves faster. I think the
Nexus 7 will mark a turning point in the Android ecosystem.

~~~
jarek
I don't know. The original 2010 7" Galaxy Tab came in 16 GB and 32 GB models.
The lowest iPhone 4S model is a 16 GB. The smallest capacity iPad has been a
16 GB since the first one in 2010.

Personally, I'm using practically all of the 8 GB SD card that's in my Nexus
One at the moment. (Much of it is music - I listen to fairly obscure stuff not
readily available on streaming services.) I'm about to move up to a 16 GB
card. Most people probably won't have 8 GB of music but 8 GB of video is very
possible. Then there's downloadable content for media apps for the tablet.

I'm not going to buy a non-upgradeable device with storage space that's
limited since yesterday, and paying a premium for what should be baseline
kinda stinks. More than $15 for the 8 to 16 GB upgrade is just bad, as is no
32 GB option.

~~~
ars
8 GB of music is several days worth at least. I guess it's easier to just
leave it all there, but it wouldn't be that hard to cycle it every day or so.

Maybe setup a streaming server on your own PC and download and cache a days
worth each time you have wifi access.

~~~
jarek
Yes, or I could just use a $10 - $13 worth of fingernail-sized technology and
never have to worry about syncing or cycling files.

I don't think it's uncommon for "normal users" to have more than 8 GB of
music, video, apps, and downloadable content. Apple seems to agree.

~~~
ars
Oh I agree. But you have to live with what's available.

------
zaroth
It's a technically easy way to create product differentiation and start
capturing consumer surplus. It's also easy for their salespeople to explain
the added value to a wide audience - "you can take more pictures and video,
and run more apps on this version." Easy to do and easy to sell is a product
manager's dream.

Production cost is irrelevant. People don't buy things based on how much they
cost to make. It's all about value, and Apple knows how to sell it. I would be
interested to see a breakdown of how much of Apple's profits have come from
selling Flash upgrades. I'm sure it has proven to be a brilliant pricing
strategy earning them untold billions.

------
MrFoof
Regardless, people tend to make purchases based on the perceived value, not
based on component cost.

I mean, is Slate going to do a car comparison and create an argument for
consider horsepower per dollar (or cubic feet of storage per dollar, or seats
per dollar, or whatever metric you fancy most) when purchasing a vehicle? I
mean, does it really cost thousands of dollars more to produce a 6-cylinder
engine over a 4-cylinder, plus a beefier transmission and driveline
components? Of course not.

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brennenHN
While this is a totally valid point, the article is missing a fundamental
piece of the equation. There is no way to upgrade an iPad for cheaper. If I
need 64GB on my iPad, it's not possible for me to circumvent Apple's fees.

The necessity of going through Apple, who is charging too much, is what makes
this a valid point of complaint and Slate totally misses that, which makes
them look dumb.

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Nursie
This is why I like devices to have a micro SDXC slot. My Galaxy Note 'only'
came with 16GB built it, but I bumped it up to 80GB for a total of $70.

Flash memory of various types is not expensive these days, and it is small and
low on power requirements. It's been easy to spot the price-gouging for a few
years now.

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alanh
I really find the extra space useful (for podcasts, audiobooks, music, and a
movie or two for that long flight). I wish the upgrades were cheaper. I know
why Apple does it, but I don’t like it; and contrary to Slate’s POV, I’m not a
sucker, I am just getting a raw deal on the upgrade.

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anusinha
This is a strong reason to pick devices that let you use a microSD (or
similar, hopefully non-proprietary) card for extra storage. I will never run
out of memory on my smartphone for that reason, since most "bulk data" that I
encounter is music, photos, etc.

~~~
jarek
This is a strong reason why manufacturers have been increasingly removing
microSD slots from mobile devices. No microSD on Nexus devices since 2010,
can't get an HTC One model with both microSD and NFC...

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zdw
Do these stats take into account device density? I wonder if the higher
density flash chips are more expensive.

About a year ago 4GB DDR3 SODIMM's were about $50/each but 8GB versions which
required twice as dense chips were around $500/each - there was a huge premium
on the dense chips.

Now the prices have dropped to roughly $30 and $70 respectively, which is much
closer to a linear price/size curve.

Does anyone know if flash pricing follows a similar curve?

~~~
ars
Usually you leave an empty space on the board to be filled with extra memory
for the higher version. (And for some devices there are services that will
solder in a chip for you in that spot.)

It's not typical to use different density chips since then you have to tune
the rest of the system to match, and that's more complicated.

~~~
zdw
If SSD logic boards are any indication, devices with fewer chips frequently
have lower read/write speeds, as they're not using all the lanes on the
controller.

I'm thinking this would be the case as well on a tablet, unless the flash is
in a bus topology already.

~~~
mbell
> I'm thinking this would be the case as well on a tablet, unless the flash is
> in a bus topology already.

There is no speed difference between 1 or 2 chips in this context, they are
just treated as separate banks and mapped to different memory addresses
controlled by the flash memory controller in the SoC.

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gamble
How much storage do you really need on a mobile device these days? I had the
64GB iPad 2, but with the new iPad I didn't feel the need to go beyond 32GB. I
don't even fill that up. With iTunes Match and so many other streaming
services, local storage with all its syncing issues isn't as relevant anymore.

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GertG
"Modern gadgets are meant to be disposable machines, not eternal repositories
of all your stuff. "

I think that would be a better subject to get worked up about than the feeling
you're getting conned because the profit margins on one (optional!) part of
your gadget are higher.

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lnanek2
Good, the people willing to pay through the nose for the premium model can
fund research into more products, heck, they can even make or break the
success of the product as a whole. Meanwhile, if the lower spec options works
for you, you are getting a deal.

