Why are macs so expensive?

[natureca]

Mac's are expensive because they are branded as high end machines and for the tight control and testing of the software/hardware.

In the end choose the one that fits your budget and does what you need it to do. I only really have Windows myself because of gaming and using photoshop, most of my time outside those 2 activities is spent on linux.

[Butler to Baby Sloths]

Mac's are expensive because they are branded as high end machines and for the tight control and testing of the software/hardware.

In the end choose the one that fits your budget and does what you need it to do. I only really have Windows myself because of gaming and using photoshop, most of my time outside those 2 activities is spent on linux.

Yeah, I have my windows machine, and for working I have my, now 5 years old, 220 euro netbook (windows XP) with an intel atom 1.7GHz and 1GB RAM (intentionally bought with not being able to play games on it) that can still run up to 12 hours on the battery and I have used and abused that thing. That laptop is a great little thing.

[BicycleMafioso]

The 300-400% profit margin argument is silly.
They have bigger profit margins than many other companies, but because extra RAM costs an unproportionate amount of money, it doesn't mean it's the same with the parts included.
They are massproduced units after all, with only a few outside of recommended specifications. Now with nothing being (reasonably) user-replacable at all, it's even more understandable. Not "because they can", but "because it's more difficult".
I have understanding for (not to confuse with "like") their idea of having products users cannot tinker with, because they can guarantee a certain performance, quality and durability of a product.


However, they have an undeservedly good rep for "superb build quality". This, they do not have. They are no better or worse than other computers. In the high-end segment, it's likely a tad sub-par.
However, their builddesign is phenomenal. Which allows them to have sub-par build quality and still be well-off.

(And before anyone thinks differently, I'm very much against Apple, but that doesn't mean I have to be wearing blinders and think they are the devil)

[Badpaladin]

If OSX is only 20 dollars, why the (oftentimes) large discrepancy between the value of the hardware and the retail price?

Because a company has the right to make as much money as they want off something (provided it's legal of course).

[Daverid]

As many others have said, "Macs just tend to work".

Where I went to school the Film and Television rooms had Macs and my Form room had PC's ... Never-the-less in my 3 years doing Film and TV never once did a Mac break or have hardware problems. Whereas the PC's would constantly have problems, be it Hardware, Components and/or Software.

I don't like Macs, I don't really like them at all... But even as a Mac hater it's definitely a case of Macs are just designed to be User Friendly, and designed to "Just Work". For that you'll pay more, and alot of people don't mind paying more for 'Ease of Use'.

[a21fa7c67f26f6d49a20c2c51]

This profit margin you mention, evn, does it include whatever else Apple are using money for

Once again not proof read - I'm writing this response on a train, it'll be done when I get to my stop. sorry for typos and awkward grammar in advance.
Gross margin is (roughly speaking) the difference between the cost of making a good and the price recieved for selling that good. Let's look at an example.

An iPhone is one of Apple's most successful (profitable) products - according to court filings in their Samsung case it's good for 50%+ margin (I'm rounding here for easy math). Let's say the cost of "making" an iPhone is $500 - that means the exchange by which you get an iPhone and Apple gets money ends up with Apple having roughly $1000 of your dollars.

That $1000 could be money you pay for the hardware from your cell phone provider (in my case, I pay $200 every 2 years for a new iphone - that almost certainly goes directly to apple) and then my monthly bill is around $120 - of which Apple will get some portion - lets say $35/month for 2 years. In my case Apple ends up with a little more of my money - lets say about $1100 - which is better than 50% margin. You might opt to buy an iPhone directly from their store with no contract - in that case Apple only gets $800 of your money. On average more people opt for the deal like mine so their sale prices are closer to $1000 than $800 per iphone.

In order to get that average of $1000 per phone Apple needs to actually make that device and put it in our hands. The physical cost of the device (ie: the $500 in hardware, programmer salary, regulatory testing, shipping, Chinese labour, etc) subtracted from the ~$1000 that they get from each customer on average yields gross margin. At 50% gross margin that means Apple spends $500 making an iPhone, sells it to you and I for about $1000 and so has a gross margin of $500 on each iPhone they sell

After that you have other expenses for a business: marketing, taxes, lawsuits, R&D, campaigning for gay marriage, environmental certification, ensuring factories don't use child labour, the janitor who cleans the staff room, filing for patents, etc. You take your gross margin ($1000 from selling us iPhones - $500 to make the iPhone) and subtract these other expenses to get net profit.

Last quarter Apple's gross margin was ~45%. Their net profit (before taxes) was ~35%. I went with gross margin because it was the best way to let Apple look terrible - plus I happened to know what gross margin for a handful of companies were so I didn't need to spend a whole lot of time doing research.

35% net profit (that is after selling an iPhone and accounting for all the crap that happened to make it, and all the crap required to get your or I to buy one - Apple still has ~$350 out of the ~$1000 we paid for it): that's impressive. Doing that hundreds of millions of times - well that's why they're the biggest corporation in the world.

It's interesting that you'd bring up Apple's marketing budget - it's much smaller than I suspected (you can't spit without hitting an iPod poster these days). They break out these expenses in their quarterly filings. Apple's 2011 budget for advertising was just shy of $950 million dollars (check the 10-K filing if you want an exact number). Given that Apple is selling more crap than any other company we should expect them to have a very large advertising budget. How do their competitors stack up?

Coca-cola spends about $3-billion per year. They're the most recognized brand in the world. Nike spent 2.5 billion last year.
Microsoft spent about 1.5 billion last year and you can expect the number will be much larger next year given a new release of Windows, Office, and Phone and Tablet platforms are coming this year.
Samsung spends $600 million - which given how tiny (lower revenue, lower profit) they are compared to Apple is significant. They spend 60% ad much on advertising to and yet only make $4.7 billion dollars (Apple makes that much profit in 6 weeks), but again Samsung is kinda hard to talk about because they're relaly diverse. Still, when you look at their competitors it's kinda crazy to see how little Apple spends on advertising relative to their global brand recognition and their profits. And it's not like advertising is Apple's in-house magic: you could hire the same firm Apple uses if you wanted to, some of their competitors have! That's yet another reason I suspect there's slightly more to their profitability than clever commercials.

R&D is something Apple fans like to use a defence of the pricing. "You pay $1000 for a mac because $200 needs to go pay clever people to design and build OS X and iPhoto! plus the 'secret mac hardware that makes them so awesome has to be invented by magicians!'". Fortunately we can get some insight from their SEC filings again: Apple breaks out R&D as a line-item. In 2011 Apple spent $2.4 billion on R&D - that's a pretty big chunk of change. Apple is a leading company in battery and manufacturing technology so that's not unusual to see a company ~10% of their profit on R&D.

But what about their competitors?

Samsung spent 10 billion (remember that Samsung sells power plants, manufacture integrated circuits, and and heavy-lift cranes and container ships - not all of that is going to making better cellphones). Microsoft spends just about as much as Samsung, around ~10 billion (they come up with some awesome technology but it seems like their internal bureaucracy prevents most of it from getting productized and sold). Google spends nearly 4 billion (there's big money in finding new ways to learn more about you, but Android is seeing some of that cash). Dell spends $600 million, HTC spends around 1/3 of what Apple does. Nokia about twice what Apple does for R&D, they are pretty focused in one industry, and yet they haven't really got anything to show for it (save for a reputation for making indestructible phones). It kind of pisses you off to see Apple's competitors doing so poorly despite putting so many resources into dreaming up new/better things. As a consumer of techno-gadgetry I'd like to see something coming out of all those billions. As an Apple share holder I'm glad these companies are apparently inept at converting research into desirable products. This is probably the one area I just don't understand: how can companies like Microsoft spend 4x more than Apple on R&D and still not have a phone that competes well (as measured by profit/market share/etc) with the iPhone? How are we still waiting 3 months for their "iPad alternative" to ship? WTF. How come Samsung's 10 billion dollars haven't resulted in a phone that is as much better than the current iPhone as the 2007 iPhone was better than everything else on the market? I don't know why any of this is true, I just recognize that it is.

So Apple's R&D budget isn't really that big. To put it in perspective - Apple made 8.8 billion last quarter (net profit - all expenses in). Last quarter is an "average" one for them - it's not the the one with all their Christmas money (which is always very good) nor the jan->march cycle which is always rather bad. There were a couple of new products (new macbooks) but they didn't ship until late in the quarter so you won't see them reflected until their Q3 results. Even then, they made a billion dollars every 10 days. Their whole marketing budget is paid for in 2 weeks. Their entire yearly R&D budget is paid for in the next 5 weeks.

That sort of explains the relation between Apple's gross margin (~45%) and net profit (~35%): Apple doesn't spend a whole lot of money on things that aren't making them a profit.

Microsoft posted their details a few days ago too: They sold roughly $75 billion dollars worth of stuff last year. They had a gross profit of roughly $55 billion (~75% margin - much better than Apple) but then their net profit was only 21 billion because they have expenses like $18b in "sales and administration" and $10b in R&D that burned through that gross margin. That might lead an investor to wonder WTF is microsoft spending $10b on if they can't turn it into something that captivates a broad consumer audience the way the iPad has? You might also wonder why Microsoft spends more than twice what Apple does on "selling and admin" when the bulk of their profit comes from software (compared to Apple who makes the bulk of their money from iPhones and Macbooks). Apple has 20% LESS gross profit that Microsoft and yet managed to make 20% MORE profit. What the hell Microsoft? You could probably make a similar argument about Samsung but I'm not tearing through their filings: Samsung is such a large and diverse company that it's difficult to find details about their consumer electronics devision.


To double check my numbers just pull up 10k filings for microsoft/apple/etc. I rounded things off for easy math : the extra precision from careful calculation wouldn't have changed the point I was trying to make in any significant way.

R&D is something Apple fans like to point to but the truth is Apple doesn't really do R&D on the same order of magnitude as their larget competitors. Maybe Apple is more focused with their R&D program, maybe they have some secret to finding "better boffins", maybe really clever people like working at Apple and only dolts want to work at Microsoft. Maybe other companies don't have executives that know what to do with good research. Whatever the cause, Apple's R&D sure seems to be resulting in very successful products.

Anyway, I hope that clears up net profit vs gross margin a little and helps to offer some detail about how Apple spends their money.

To the guy making the "ram upgrades cost more than the retail price of ram therefore Apple has 400% profit" argument. If that's the depth of thought you're going to display then I'm not going to spend any time discussing the matter. That kind of discussion is below the level of discourse I'm sure you're capable of and indulging it would be insulting to your intellect and a waste of mine.

[Badpaladin]

<big post>

2011 was an insanely huge year for Samsung. Most reports put their overall smartphone sales for 2011 either slightly behind or slightly ahead of Apple, and they've sold the most units in 2012 than any other company (and they could also be coming out with another phone in late 2012 to compete with Apple, but rumors are rumors).

Apple hasn't been as dominant a force for a while now, at least in smartphone sales. Profit margins are likely higher, though.

[a21fa7c67f26f6d49a20c2c51]

2011 was an insanely huge year for Samsung. Most reports put their overall smartphone sales for 2011 either slightly behind or slightly ahead of Apple, and they've sold the most units in 2012 than any other company (and they could also be coming out with another phone in late 2012 to compete with Apple, but rumors are rumors).

I don't doubt that Samsung is selling 1.5 assloads of phones. The problem is that they're aren't making any money doing it (not by Apple standards anyway). Part of the problem is relatively low margin: people don't seem to like Samsung phones enough to let Samsung get away with a 50% margin. Part of that is Samsung spending 10x more than Apple on advertising and ~4x more on R&D. (caveats about samsungs diversity still apply)

This brings us back to two arguments that I don't think are adequately addressed by posters in this thread:

• If Apple's success is all marketing and brand recognition - home come Samsung can't match that with access to the same advertising firms and 10x more advertising budget than Apple has?
• If you want to defend Apple's pricing and margins by point to R&D - how do you reconcile that with the fact that Apple's R&D spending is an order of magnitude smaller than their competitors when adjusted for revenue?

My responses to these are pretty simple. In the first case I counter that the assertion is false: Apple's products are subjectively better in the minds of many consumers for one reason or another: the advertising argument is a selfrighteous snear made by people who can't accept that maybe other people can have different values than they do and so they attempt to marginalize them by saying their "sheep" or "brainwashed by advertising" rather than accept that reasonable people can have different opinions given identical facts. Recognizing that somebody else's opinion might be valid opens the door to the possiblity they might be wrong…and they can't have that.

In the second case I have no good explanation. The sort of money Apple's competitors spend on R&D and marketing combined with their comparable gross margins should have resulted in dozens of products that are more successful (profitable) than the iPod/iPhone/Macbook and yet that's not the case. In some cases you can explain that away as poor management and internal bureaucracy (I argue microsoft is a good example of that). Trying to extend that argument to explain all of Apple's competitors being universally clueless when it comes to making a profit is foolish. I'd rather just admit I do't have a good explanation for why out of all the other phone makers only Samsung is doing even remotely okay (when measured by profit). I also can't explain how with only 7% of the PC market Apple is managing to snatch up 35% of the profits. You'd think HP and Dell would be able to come up with some product that has the right mix of design and build quality and efficient production that would allow them to capture some of the people willing to pay "Apple prices" for computers. Certainly there is some brand-following going on for Apple but that doesn't explain how their 3x more effective at making money than everyone else. I think OS X is probably the best explanation, but Windows doesn't suck - and for many users it's probably an objectively better choice - so IMO it's not enough to explain how Apple is taking such a huge share of the PC-market profit share.

All the same, I don't think there's anything particularly wrong with selling your product at a high premium provided you can find people willing to pay it. The fact that a copy of Windows has twice the markup that a Macbook does is fine by me. Your reward for making things people want is getting to dicate a price that makes you very rich.

Apple hasn't been as dominant a force for a while now, at least in smartphone sales. Profit margins are likely higher, though.

We'll have to agree to disagree here. IMO if you've got one company taking 70% of the profit in a particular market then that counts as a "dominant force". If that same company has the overwhelming majority of Applications for their platform and the bulk of the developers who make money from selling applications that run on that platform - they're in a very strong position. It seems like you think there's some value in being a popular choice in and of itself. I think that popularity is good only if it leads to profitability. I don't care if Apple sells one phone this quarter so long as somebody pays $15b for it. If Samsung sold 10x more phones than Apple this year they'd still (at current rates) make less money.

[Kopla]

Didn't read the whole topic but IMO the whole PC vs Mac thing is like this.

If you had the money would you buy

A: a Custom chopper motorcycle
or
B: a mass produced Harley Davidson?

I bet most of you answered A, but they both do the exact same thing and its as simple as that. Chances are you would rather be seen with the most shiny thing

[vaajtswv]

I recently compared a baseline Macbook...I found this out it kind of surprised me, any opinions?

Because it's the hero we deserve, but not the one we need right now...and so we'll hunt it, because it can take it. Because it's not a hero. It's a silent guardian, a watchful protector...an Apple Macintosh.

[Badpaladin]

Profitability is fine, but it's no substitute for having highest sales. One of the biggest reasons Apple has been so great with phone profitability is that it seems like everybody has an iPhone, whereas there's no other significant device that's as recognizable and widespread. Being able to rest on their laurels that every year, they've had no other single phone be a true competition means they don't need to push their marketing and R&D as hard as they may have when they were first selling their device.

What that means for competitors is a vast sum in insane marketing and product creation so that they can simply get their device out there. Samsung's goal with the Galaxy S series hasn't been to come out of the gate to beat Apple immediately, it was to get millions of people to simply have their device and know what it is. Instead of buying and Android device as an alternative to the iPhone, Samsung's goal is for people to buy a Galaxy device as an alternative. Unfortunately for Samsung, the iPhone 4 came out around the time they first launched their flagship device, and that means each subsequent version of the flagship meant needing to pump a ridiculous amount of money into, well, everything. There was no other single device that even came close to really being a competitor until the SGSII, and that took the biggest ad campaign for a smartphone in 2011 and a ton of investment in the highest-quality inner hardware at the time (one of their major selling points was being the best-performing device on the market).

Apple's profitability is still the highest, and that's simply undeniable. But graphs like these scare them:



It means there's another company that has a single device line capable of competing with them. They haven't had that happen before**. Even if Samsung is still pushing more money into other areas, they're getting the exact results they want - a single device that can compete directly with the iPhone.

**Motorola Droid sort of competed for a bit

[Fitzgerald77]

So. . . you paid $2500 to check your e-mail. Congratulations, you know nothing about computers.

Also, what you paid for, I could build an equivalent PC for $1200.

Congrats on bashing Windows. Are you mad that you overpaid and don't know how to use a PC? If you knew anything about the two OSs, you'd know how easy they are to maintain. Tbh, you sound like you're in your early 20s. I'd think that money is a big deal. I just think you made a horrible buy, ya know, because it's Mac.

I almost died from laughter when he said windows "has a tendency to have annoying issues"

And wtf @ $2500 for a computer to only check email and FB... He can't be serious? Someone obvioulsy has more money than brain cells. My compute cost more than half of that, is almost 5 years old, and I have yet to have any sort of problem with it, and willing to bet my left nut it works more efficiently than a $2500 mac.

[Tepesch]

It's as simple as that:

You pay for a solid system with cheap OS upgrades and great support. If you buy a MacBook you can go to any local store or call the support line and they'll immediately repair it for you.
It's what you pay for.

If you buy a computer from any other manufacturer, you'll get the same hardware, probably no Windows update til you buy your next Laptop because it's just freaking expensive and a support line located in Bangladesh or India.

[Wries]

According to Apple, 8GB DDR3 costs $300, HD5770 costs $250, 512GB SSD costs $1000, and a regular DVD drive costs $100.
I don't think you realize how fucking insane this is. HD5770 was priced at $159 at it's official release 3 years ago and Apple is trying to sell it for $250 right now. And this is the least overpriced item on the list.

Where are you finding these prices? I can't see any of the prices you're listing when browsing the mac store. I had to pay $100 for my 8GB RAM upgrade. Way much, but not $300.

The 5770 is only present in the base mac pro. The price of that behemoth is a whole other story.

edit: I see you found all your price.s (except RAM?) in the mac pro. Figures. That thing is outdated and they're getting crap for it.

[haxartus]

Where are you finding these prices? I can't see any of the prices you're listing when browsing the mac store. I had to pay $100 for my 8GB RAM upgrade. Way much, but not $300.

The 5770 is only present in the base mac pro. The price of that behemoth is a whole other story.

edit: I see you found all your price.s (except RAM?) in the mac pro. Figures. That thing is outdated and they're getting crap for it.

http://store.apple.com/us/configure/MD771LL/A?

[yurano]

http://store.apple.com/us/configure/MD771LL/A?

Where'd they find an 8 slot motherboard.

[jbombard]

Because it is not a computer it is a religion, and ye must tithe to the fruit god.

[Deleted]

Where'd they find an 8 slot motherboard.

Mac Pros are typically built on server motherboards. But $300 for 6 sticks of ecc ram is pretty outrageous.

[dokilar]

lol those prices are quite humorous

[Deleted]

You pay for the brand. Ones you have payed, you are welcome in their exclusive cult and can join them in their secret rituals..