Posted on 09/07/2007 9:54:37 PM PDT by paudio
Ten years ago, Microsoft was the company everyone loved to hate.
The most vociferous Microsoft haters slammed the company for being a greedy industry bully that used its monopolistic, clunky, copycat operating system to force software on users and coerce partners into unfair licensing deals.
Don't look now, but the role of the industry's biggest bully is increasingly played by Apple, not Microsoft. Here's a look at how Apple has shoved Microsoft aside as the company with the worst reputation as a monopolist, copycat and a bully.
-snip-
Apple fully understands the power of monopoly pricing. The company has sold the 8GB iPhone for two prices in its short, three months of existence: $599 and, now, $399. When the iPhone was the only way to get the whole multitouch, big-screen, Wi-Fi iPod experience -- when the product had no alternatives -- the price was $599. One analyst estimated Apple's cost to build an iPhone is $245.83. I don't know if that's true but, if so, more than half the user cost was profit. That's theater soda pricing. But as soon as Apple introduced an alternative to the iPhone -- the iPod Touch -- Apple dropped the price by one-third.
Imagine if another company were allowed to compete in the OS X media player market. These players would all drop to below $300. Don't hold your breath, though; it'll never happen. Apple has the power to exclude all others from software than runs on its media players. Microsoft could only dream of such power.
(Excerpt) Read more at pcworld.com ...
Greed invades where a virus fails to take foot?
What’s the big whoop? It’s all part of the economics of technology. The first cell phone cost $2000.00 and was as big as a brick. DVD players debuted at near $1,000.00. Wide screen TV’s hit the market at over $5,000.00. Now you can pick up a decent 42 inch LCD for around $2,000.00 and the price is still falling.
Most people knew the price for the iPhone would drop. Just maybe not so quickly.
It’s not like you have to buy Apple products.
Correct! And that's that.
they own OSX. I might disagree with the way they use it, but its their property. I am pro-property rights, after all.
I guess the sales weren’t as strong as they liked, hence the price cut. Maybe Steve Jobs was just being nice?? anything is possible I guess, but this does HURT the competition that might try to ncompete with an IClone
Theatre soda profit is in the 1500% range.
Apple is making retail profits on products they would normally sell at wholesale. Apple is offering a $100 credit to iPhone purchasers. Early adopters are still burned, but so were the early buyers of Razrs and other cell phones.
the first space hotel will probably cost $500,000 a night not including trip fare or food. The price will go down as the market directs.
Well with 50% profit that $100 credit at an Apple store amounts to a cost of about $50 to Apple. A good deal for them...
Doubt that was it. The stunningly clear LCD display on the iPhone was one of the most expensive parts. Now, with the iPod touch sharing the same screen, the volume of them that Apple is going to buy is going to go way, way up - which means that the price is going to go way down.
From day one, Steve said that he wanted to sell the iPhone for less money and implied that he would drop the price as soon as he was able to.
Exactly. When the RAZR came out, it was $499. A year later, they were literally giving them away with a contract. How do you think the RAZR early adopters felt?
I bought my RAZR outright for $120 right before the price dropped to “free with contract”. I knew that would eventually happen. I definitely don’t feel ripped off - I knew I got a good deal for the day on which I made the transaction.
LOL...as if Microsoft would ever even agree to give any money back.
And then, if they did, the recipient would not be able to accept it because of the broken arms that Microsoft twists. They play serious hardball with vendors and busisness customers.
After saying this early in the article he finally says this at the end of the article;
You see, my point isn't that Apple's growing bad reputation is deserved, but that Microsoft's wasn't. All that evil monopoly hype, court cases and public posturing directed for so long at Microsoft drained energy and resources from the entire industry. The market, however, corrects issues such as that. In the case of Microsoft's "monopoly," Linux, Firefox and now Apple prove that customers always had choices.
You would never suspect from reading the first two thirds of the article that the author is an intelligent capitalist.
Underdog Or Patent Troll?
How Burst.com went from making software to suing tech giants
Richard Lang comes across as a mellow Californian. The youthful-looking 52-year-old lives on an 11-acre estate among apple trees in the hippy town of Sebastopol, north of San Francisco, where he plays guitar in local bands and his wife runs an "equine experiential learning institute" that helps clients get in touch with themselves by riding horses. But there's nothing laid-back about his strategy at Burst.com, the Santa Rosa (Calif.) company he co-founded 18 years ago. With just two employees, Burst holds 10 U.S. patents, and its focus is on asking big companies to license its technology -- and suing them if they don't.
??In March, 2005, Burst won a $60 million settlement from Microsoft Corp. (MSFT ). The next target, Lang says, is Apple Computer Inc. (AAPL ), which he says infringes on Burst's patents covering superfast transmission of content, such as songs and video, over networks. He's seeking a chunk of the tech giant's burgeoning music revenues, and says he plans to sue in mid-April if no settlement is reached.
??That makes Burst, in many people's eyes, a "patent troll." In recent months tech giants such as Microsoft, Intel (INTC ), and Yahoo! (YHOO ) have vilified the trolls -- tiny companies that don't make anything but simply hold a portfolio of patents. Their business plan consists of cashing in on this intellectual property by suing traditional corporations, the types that produce real products. That infuriates the targets of these suits, who claim that the legal risk forces them into exorbitant settlements, and that the ensuing payoffs increase costs for consumers. For many, the poster child for trolls is NTP Inc., the tiny company that extracted $612 million from Research In Motion Ltd. (RIMM ), the maker of the BlackBerry wireless e-mail device.
??But it was never Lang's plan to be in the litigation business. A legitimate visionary, he patented a method for transmitting data over digital networks that turned out to be years ahead of its time. His company once seemed poised to become a major tech player in its own right. But the hardball tactics of Microsoft blew apart Burst's original business model, Lang claims, and gave him no choice but to turn to the courts.
??While big companies have been complaining that the patent system is tilted against them, Lang believes his tale demonstrates that the opposite is often true. "There's a million ways for a plaintiff to lose a patent case but only one way to win," he says. "So if you're a big rich company, why not go ahead and go through the [legal] process? Maybe the little guy will run out of money, or run out of courage."
??The validity of Lang's tale of woe will ultimately have to be determined by the courts, but right now he is not winning many friends in Silicon Valley. Burst is asserting very broad patents, and Lang has been making the rounds with veiled threats of infringement actions. He's aiming for big payments. While Lang won't discuss his hopes for the Apple claim, his lawyer cites as a point of reference other cases in which plaintiffs were rewarded more than 2% of infringing revenues. That would be about $200 million so far for Apple. "Burst.com approached Apple claiming that some of our products violate their patents, but we don't agree," says an Apple spokesperson. On Jan. 4, Apple filed a suit seeking to invalidate Burst's patents.
??While Lang is controversial, his record as a tech clairvoyant is impressive. When the rest of the world was focused on stuffing 500 channels onto cable TV, he was devising ways to use digital networks to deliver content more efficiently and reliably. Lang recognized that shows could be sent faster than they could be viewed -- in "bursts" that took full advantage of momentary increases in network capacity, rather than in constant "streams." Indeed, at the 1991 Consumer Electronics Show, Lang drew a crowd with a demo in which 15-minute segments of a PBS documentary were zipped to a TV across the booth in seconds. "They were demonstrating things that other people couldn't do," says tech pundit Robert X. Cringeley.
??"SO OUTSIDE THE BOX"
?After spending the 1990s trying to perfect "real-time streaming" of content -- often in low resolution with tiny images -- titans including Apple, Microsoft, and Real Media have since embraced Lang's general approach. "We were so outside the box that even in the late 1990s, people didn't get it," says Lang.
??By the late '90s his company had grown to 110 employees and was selling a software package called Burstware. Then, Microsoft got in the way. When the software giant upgraded its Media Player software in 2000, suddenly Burst's key product stopped working. Lang is certain it was on purpose, a charge Microsoft denies. Regardless, Burst nearly went bust. Customers backed away, as did bankers who had been arranging a $70 million secondary offering for the company. Within months, he'd laid off all but four staffers and was begging Microsoft for a licensing deal. "Microsoft, like many big companies, wants to wear out their opponents," says Lang. In one e-mail, Burst's contact at Microsoft reported that the company was "going, going..."
??Burst survived, though. Convinced that a 2001 release of Windows Media Player infringed on Burst's technology, Lang got an investor to put up $1.5 million to keep the company afloat as it pursued a lawsuit, filed in June, 2002. Without admitting liability, Microsoft agreed to the $60 million settlement a day before a hearing on whether it had destroyed evidence. Although the myth is that trolls get fabulously wealthy, Lang personally ended up with just a fraction of the settlement proceeds, $2.5 million.
??Believing the victory validated his patent claims, Lang has expanded his search for licensees. Apple was his first stop, and not only because of its deep pockets. Apple reps had approached him at a trade show back in 1991, and Burst met with Apple in 1999, 2000, and 2002. "The attitude is exactly like it is at Microsoft and everywhere else. If you won't take next to nothing [for Burst's technology], we'll fight you for the next 10 years," he says.
??That may well be what happens. Lang's patents have never been upheld in court, and Apple will be a formidable foe. But he insists his easygoing style doesn't tell the whole story: "I'm a bit of a terrier."
???By Peter Burrows?
Touch screen tables have been around a long time. What does Microsoft do? They build a table. They built a table because they couldnt imagine any other way of making it than what they saw and stole. Multi touch is cool but bending over a coffee table all day or trying to carry it around isnt.
Apple is great but their real problem is that they try to force things on their clients. I remember buying a mac years ago and apple had decided to eliminate all unnecessary items such as the CD force opening hole and the off button. I guess the assumption was that Apple computers don’t lock up. When it did I had to pull the power plug to turn it off or pry open the CD slot to get the CD out.
Last month they grew 30% but had 70% profit growth. What that tells me is they are really putting the screws to their customers by not passing on lower component prices. This is great for the company, but as we have seen recently it can come back and bite them.
When demand for a product forces prices to plummet so fast in a few short months the company refunds their early customers $100 cash ... the market is hardly indicating a “monopoly”.
Heh. Everyone wants to forget what Apple was like in the '80's. When a company reaches a certain size and market share, they all act the same way.
The PS-2 was an attempt at closed architecture, but by the time it was introduced, people were fed up with the idea because of their Mac experiences. The only thing left of the PS-2 is a keyboard connector, now obsolete because of USB.
This article is incorrect. 55% Gross profit is relatively normal in retail. Moreover, theatre markup is in the neighborhood of 1000% markup, or more. And I do not like Apple (no IPod, Mac, or Iphone in my house)
You should also try keyword searches, not just title searches.
“Maybe Steve Jobs was just being nice??”
I don’t think the word “nice” is in Jobs vocabulary.
That was meant to be funny
well, Microsoft should have won that argument. They made the product, they should get to decide what is core. Blocking other software from being loaded is wrong though
Well stop right there! If you DON'T KNOW then the rest of your argument is based on an unknown premise -- which means you are wasting our time.
Get back when you have the facts!
Yep, they got what all other adopters of new technology get, a hefty price tag. I can’t believe all the whining from them that new purchasers now pay a couple of hundred bucks less. Usually it takes a few months, but the price you pay today is probably going to be much higher than if you waited.
I don’t think Apple should offer them any sort of rebate. The only reason to do that would have been if there was some sort of major flaw. Deciding to buy when the demand is greatest isn’t a flaw.
Except for the fact that MS was an OS monopoly and Apple is not a music player monopoly you’d have a point.
Its only a ‘monopoly’ because people bought it. They can buy Apple, Linux or whatever they want but apparently people like Windows.
Not wasting my time ...
The iphone has been torn down and the cost of it’s components estimated by quite a few analysts ... for example -
http://rfdesign.com/rfic/iphone-isuppli-components-0712/
“The iSuppli’s teardown determined that the 8 Gbyte version of the iPhone has a total hardware bill-of-materials (BOM) and manufacturing cost of $265.83, generating a margin in excess of 55% on each unit sold at the $599.00 retail price, “
The only person who wasted your time was you - instead of stopping reading at that point and moving on, you decided to post.
“Exactly. When the RAZR came out, it was $499. A year later, they were literally giving them away with a contract. How do you think the RAZR early adopters felt?”
I was almost an “early adopter” of the RAZR, but then common sense and the thinness of my wallet prompted me to go with a V710 instead for $99 w/service contract.
A short time later, telcos were literally giving away RAZRs for free — everyone and his/her mother had one, yet I only saw a grand total of two people with a V710. If that’s not exclusivity, then I don’t know what is :)
IMO, there is no such thing as a ‘monopoly’ and TR’s ‘trust busting’ was one of the worst things that happened to the American Free Market.
Greenspan thinks so too:
http://www.polyconomics.com/searchbase/06-12-98.html
Nope.
In old terms Microsoft is a horizontal trust, ‘the OS trust’ on the model of the old Smelter’s Trust (you all remember them, don’t you?). Apple is a vertical trust like the Guggenheims (ah, you’ve heard of them)—computers, OS, music players, content sales (music, video). Simultaneously the number 1 MP3 player maker, number 3 PC maker, and number 5 music retailer, as well as the number 2 OS maker (albeit with a way smaller market share that number 1).
I don’t remember what the rankings of the Guggenheims’ opperations were, other than that they were number 2 in smelting, behind the Smelters Trust with a way lower market share, but they had some ranking in mining, manufacturing of finished metal products, and distribution of the same.
This article is incorrect. 55% Gross profit is relatively normal in retail.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Yep, it is amazing how many don’t seem to realize that many products are deliberately priced so that “half-price” sales can be run and still allow a fair profit margin to the retailer. Who would pay full list price for jewelry or furniture?
True. As the poster of the other thread, I posted the entire article title of the original publisher... which included the word "Opinion."
I don't fault you. FR needs a better search engine.
Uh, RS? Every one of the analysts is quoting iSuppli... which is the organization that guessed that the cost of the components and manufacturing was $256.83... even your example is quoting iSuppli.
Component and manufacturing costs are not inclusive of all costs. There is shipping, profit the the assembler, taxes, overhead, etc. Usually, a product must sell for four times the manufacturing costs for it to be profitable... in the Restaurant industry, the food should sell for 8 times the materials cost... or the restaurant will fail.
“Uh, RS? Every one of the analysts is quoting iSuppli... which is the organization that guessed that the cost of the components and manufacturing was $256.83... even your example is quoting iSuppli. “
Why would you think the cost of componants would be very different from that ? 10% +- ? 20% +- ?
The reason these analysts believe this is important is that these are fixed costs - advertising, rebates, any kickbacks to AT&T are variables and cannot be estimated as accurately.
Obviously the $200 reduction is taken directly from profits on new sales and the $100 in store rebates are taken from past sales.
Have you ever managed a business? I have.
Those fixed costs are often among the least important.
iSuppli has absolutely no idea about what Apple paid the manufacturer of the iPhone's motherboard and case. They have no idea about what portion of the cost is R&D for the user interface. They also have no idea about the cost of the packaging. They don't know because Apple won't tell them... just as the suppliers of everyone of the other parts will not tell them what discounts Apple gets on the quantities of products they supply to Apple. When they state that the cost is $256.83, they are guessing... and it is a given that their guess is wrong... because they don't know the cost or quantity discount or the costs of proprietary items.
I would give their estimates more credibility if they said our estimate is between $225 and $275 for the materials we were able to estimate. Stating the amount as accurately as $256.83... down to the penny... invalidates their work.
Obviously the $200 reduction is taken directly from profits on new sales and the $100 in store rebates are taken from past sales.
Not necessarily. The $200 reduction can also be a result of economies of scale in the manufacturing process produced by much larger orders for the components and hence large discounts. That cost reduction and a margin reduction will cover it.
The $100 in store rebates (actually it will cost only the book cost to Apple of the products purchased by redeeming the coupons) will come out of future revenues as the coupons are redeemed. Apple will book a liability for the almost one hundred million dollars and will reduce that liability as coupons are redeemed.
“Have you ever managed a business? I have. “
LOL ... have you ever run a business that had custom made eletronics built in Asia ? I have.
“When they state that the cost is $256.83, they are guessing... and it is a given that their guess is wrong... because they don’t know the cost or quantity discount or the costs of proprietary items.”
IF you DID manage a business that made equipment don’t you think you could come up with a pretty accurate guess of what it costs to make similar items ?
“The $200 reduction can also be a result of economies of scale in the manufacturing process produced by much larger orders for the components and hence large discounts.”
Right - cut $200 in costs out of an item that has costs of $250 to start.
“... and a margin reduction will cover it.”
UH - margins are profit when just about everything else is that same as before you cut the price.
The bottom line -
Apple expects to sell 10 million iphones in 2008.
Dropping the sale price by $200 gave up $2 Billion in profits.
Since the only change in expected production quantities would be the cancellation of purchaces of 4G chips and the increase in 8G chips, isn’t it absurd to think they can squeeze $200 out of one chip ?
Gee... and you expect me to believe you've managed a business when you cannot even comprehend what I wrote?
Economies of scale have nothing to do with trying to "squeeze $200 out of one chip." As I said before, economies of scale combined with a reduced margin can result in the price reduction.
RS, if I buy 1,000 of a specific product as an initial run and it sells well... and then I ask the manufacturer how much 100,000 would cost, I would not be surprised at all at a 50% reduction in per unit cost.
If I were to up the order to 1,000,000 the per unit cost would drop even lower. Since my costs are subsequently lower, I will make larger profits and to maximize sales I might not only lower the price to reflect my lower costs but also reduce my margins to increase sales... there by actually making a LARGER profit than had I kept my initial price.
I know exactly what you wrote, but it simply does not make sense with how a large business operates. Your example of 1,000 and 10,000 shows just how small you are thinking -
“As I said before, economies of scale combined with a reduced margin can result in the price reduction.”
They planned to sell 10 million next year and you expect me to believe that they did not inform the suppliers of this ?
That they just figured you will place an order for a few hundred thousand and surprise their suppliers ?
If Apple believed their own forecast, they would have negotiated prices based on the high quantities to begin with so the suppliers would give them the best deal and guarantee delivery ... and the suppliers would include penalty for cancellations.
But let’s say Apple new projections don’t match their initial forecasts ( Did the Europeans say no way at that price ? )-— their move would be to lower their margin of profit to shove product out the door rather then risk those penalties and the stench of failure - especially after blowing it with the 4G version.
Those were examples, RS. I could have used any number. The fact is that the more you order of a product the greater the price breaks will be. It makes no difference if you are a small business or a large business... if you can order in sufficient quantity, you will get substantial discounts. I have ordered in 1m and 10m quantities in the past... I know the differences. They planned to sell 10 million next year and you expect me to believe that they did not inform the suppliers of this ?
Did I say that? Of course they knew and informed their suppliers. That is why they could, once they confirmed the demand, lower the price... and confirm the orders.
Ok - lets say you were just foolish enough to not negotiate the 10 million price with penalties if you reduce the quantities.
Just how much of a reduction on, lets say an $8 chip would you expect going from 1 to 10 million quantity ?
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