iPod Shuffle: the tiny device with the huge profits

BusinessWeek is reporting that Apple’s Shuffle 3G – retail price $79.99 – is made up of parts costing just $21.77.

Those costs, which include the headphones and packaging, represent just 28% of the retail price, meaning the tiny device likely has a huge profit margin. To put things into context, the components of the first iPod touch cost 49% of the retail price, while those used in the 3G iPod nano were around 40%.

Perhaps surprisingly given the low costs, the key components come from a big-name firm. Samsung provides both the main chip (at $5.98) and the flash memory ($10). The power comes from a lithium battery costing $1.20 which research firm iSuppli says is the smallest it’s ever seen.

Of course, there are other costs involved in producing a device such as research, staff wages and distribution. Apple says its overall gross margin on products is 34.7%. If that same margin applies to the Shuffle it will be taking in just over $20 per unit.

Given the price-to-cost ratio, you may be wondering why nobody has yet produced a ‘clone’ version which is considerably cheaper than the Shuffle 3G, but still gives the makers a healthy profit. PMP Today notes that though the components are cheap, the sheer task of fitting such small parts together requires a technology which is beyond the budgets of most knock-off firms.

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7 Responses to iPod Shuffle: the tiny device with the huge profits

  1. And there you have it – proof that Apple doesn't just sell things at too high a price: they aren't just selling the parts, they are selling something that was put together through research and technology which costs a bomb as well.

    They aren't Microsoft – they research, implement and produce each product itself and does so to a high quality.

    Nothing wrong with that. Nobody has a problem when a car firm sells their car at a way higher price than the parts cost, so why they have that problem with Apple?

  2. And there you have it – proof that Apple doesn’t just sell things at too high a price: they aren’t just selling the parts, they are selling something that was put together through research and technology which costs a bomb as well.

    They aren’t Microsoft – they research, implement and produce each product itself and does so to a high quality.

    Nothing wrong with that. Nobody has a problem when a car firm sells their car at a way higher price than the parts cost, so why they have that problem with Apple?

  3. @Andrew: The difference is cars are a good bit bigger, are considered by many a necessity, and typically last more than 2 years, unlike many of these 'high quality' mp3 players. Oh sorry, mp4 players. I almost forgot Apple invented their own format to help control the iTunes environment just a little bit more.

    What drives me crazy about the times we find ourselves is how many of these are going to sell. Kids want them because 'all the cool kids use iPod'. Actually if they have over 95% of the music player market, a lot of loser kids have them too. Probably more, since I think the ratio of coolness compared to normal and loser kids was significant.

    And not only will the kids buy them (and by 'buy' I mean get their parents to buy them), their parents will get them too. Full-grown adults too lazy to do a little homework themselves take their 10 year-old's advice on what's the best out there.

    My turn for a car analogy. Would you take your 10 year-old's word on which is the best car to own?

  4. @Andrew: The difference is cars are a good bit bigger, are considered by many a necessity, and typically last more than 2 years, unlike many of these ‘high quality’ mp3 players. Oh sorry, mp4 players. I almost forgot Apple invented their own format to help control the iTunes environment just a little bit more.

    What drives me crazy about the times we find ourselves is how many of these are going to sell. Kids want them because ‘all the cool kids use iPod’. Actually if they have over 95% of the music player market, a lot of loser kids have them too. Probably more, since I think the ratio of coolness compared to normal and loser kids was significant.
    And not only will the kids buy them (and by ‘buy’ I mean get their parents to buy them), their parents will get them too. Full-grown adults too lazy to do a little homework themselves take their 10 year-old’s advice on what’s the best out there.
    My turn for a car analogy. Would you take your 10 year-old’s word on which is the best car to own?

  5. @Micheal, you said it yourself:

    "typically last more than 2 years"

    Comparatively, though, for a couple of hundred bucks, you are getting a way better deal with the mp3 player.

    A car lasts 10 years at top whack, on average, before you get a new one, say, and an mp3 player lasts 2 years on average (at least – I've had my 5G iPod for nearly 3 now), but:

    Car price/5 > mp3 price.

    So yes, my car analogy still adds up. You didn't take scale into account. Of course an mp3 player doesn't last nearly as long, but it doesn't cost nearly as much.

    Yours falls apart, however. Most adults are intelligent enough to select their mp3 player without giving others the decision. And 95% still choose iPods.

    I'm not an Apple fanboy – I have both a Mac mini and an MSI Wind and prefer the Wind for everyday life because I get to wander about the house with it. However, I simply understand that Apple isn't just selling a physical product – they are selling the technology used to put it together.

    And what a brilliant technology it is. 95% of people think so, anyway.

  6. @Micheal, you said it yourself:

    “typically last more than 2 years”

    Comparatively, though, for a couple of hundred bucks, you are getting a way better deal with the mp3 player.

    A car lasts 10 years at top whack, on average, before you get a new one, say, and an mp3 player lasts 2 years on average (at least – I’ve had my 5G iPod for nearly 3 now), but:

    Car price/5 > mp3 price.

    So yes, my car analogy still adds up. You didn’t take scale into account. Of course an mp3 player doesn’t last nearly as long, but it doesn’t cost nearly as much.

    Yours falls apart, however. Most adults are intelligent enough to select their mp3 player without giving others the decision. And 95% still choose iPods.

    I’m not an Apple fanboy – I have both a Mac mini and an MSI Wind and prefer the Wind for everyday life because I get to wander about the house with it. However, I simply understand that Apple isn’t just selling a physical product – they are selling the technology used to put it together.

    And what a brilliant technology it is. 95% of people think so, anyway.

  7. @Micheal, you said it yourself:

    “typically last more than 2 years”

    Comparatively, though, for a couple of hundred bucks, you are getting a way better deal with the mp3 player.

    A car lasts 10 years at top whack, on average, before you get a new one, say, and an mp3 player lasts 2 years on average (at least – I’ve had my 5G iPod for nearly 3 now), but:

    Car price/5 > mp3 price.

    So yes, my car analogy still adds up. You didn’t take scale into account. Of course an mp3 player doesn’t last nearly as long, but it doesn’t cost nearly as much.

    Yours falls apart, however. Most adults are intelligent enough to select their mp3 player without giving others the decision. And 95% still choose iPods.

    I’m not an Apple fanboy – I have both a Mac mini and an MSI Wind and prefer the Wind for everyday life because I get to wander about the house with it. However, I simply understand that Apple isn’t just selling a physical product – they are selling the technology used to put it together.

    And what a brilliant technology it is. 95% of people think so, anyway.

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