Why an iPhone does not cost Apple just a third of what you pay for it

apple store New York City
CC BY 2.0 Lloyd Alter/ Apple Store, 5th Avenue

When I was in the prefab business (and now, when I write about them) the most common complaint was "why does it cost so much? Why doesn't it cost 50 bucks a foot?" I would then spend a lot of time explaining that there were serious costs in design, shipping, administration, fees and more that all add up. Whenever I write about a nice piece of furniture, readers complain "why does it cost so much? I can get a knockoff much cheaper."

Now over on Quartz, a business website offshoot of the Atlantic that is usually pretty good, Mike Murphy writes that after taking apart a new iPhone and looking at its parts, it only costs $ 225 to build, a third of the $ 649 that Apple sells it for. He does go on to note:

Although parts and labor aren’t the only costs that go into the total cost of making a product like the iPhone—there’s research and development, marketing, shipping, and packaging, to name a few—it’s surprising that Apple has spent relatively so much on a phone that many have found underwhelming, and at a time when the company’s sales are stalling.

This is a conversation we have had before on TreeHugger, usually under the title On Knowing The Price Of Everything And The Value Of Nothing.

Over on Core77, Rain Noe goes through the things that add to the cost of any product, from the designers, to the engineers, to the marketing team, to the fancy box, to the shipping, to the fancy stores and their employees, to the markup for the other retailers who sell the phone (they are not all sold in Apple stores).

Rain Noe concludes:

Now, do all of those costs eat up all of the $457 differential? Of course not. Apple is a fabulously wealthy company that enjoys a hefty profit margin on each of their products, and that's their right. It's up to them to set the price wherever they want it, and it is up to us as consumers to decide to buy their products or not. If Apple is successful, it is us who have made them so; if they become irrelevant, it will be us who have decided so.

What I don't like is laypeople being misled into thinking that Apple enjoys a profit of $457 on each iPhone 7. That notion completely disregards the efforts of the hundreds or thousands of people who put in the time to make the product a reality.

And why is this on TreeHugger? I am certainly not an apologist for Apple and its pricing; just yesterday I wrote about how one should break free of this vicious upgrade cycle and keep your old phone; see Why the best smartphone is the one you already have It is probably not the best example of the principle I am espousing.

But the same thing can be said for almost every product or tiny home or prefab or chair that we show on this site, where, unlike the iPhone, most are short run, hand made, high quality using sustainable materials. But the same economic principles apply: there is a lot more than goes into every one of them than meets the eye. Oh, and the makers have to eat.

Why an iPhone does not cost Apple just a third of what you pay for it
There is a reason that things costs more than the sum of their components, and it applies to more than just iPhones.

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