Businessweek published a story on July 2, 2009 that looked at the amount of money that was invested in to each Iphone 3GS. It may shock you how much money Apple is making on each phone.
With any technology on the market there is a lot of cost that goes in to R&D. Inventing the next tech gadget, even for the experts, isn’t as easy as one would think. Countless hours paying experts a lot of money adds up quickly. This is one of the largest reasons why technology costs a lot of money when it first appears on the market but over the course of a few years, drops in price rapidly.
The general public sees the triumphs in engineering by falling in love with whatever the latest gadget is, but what we don’t see are all of the failed attempts. How many movies ended up putting a loss on the books of major studios? How many drugs never get FDA approval, and how many new pieces of technology never take off? Even Apple has it’s fair share of missteps.
With all of that, what makes these companies invest millions if not billions of dollars in to inventing the next public craze? They know that with all of the missteps, it really only takes one big hit to wipe clean the slate. They also know that if it’s a good product, the accessories that go with it may make generate more income than the actual product.
The Iphone is a perfect example of that. Sure, there’s the phone but there is also the service, the cover, the Bluetooth, the clear screen protector, and the car charger just to name a few high profit margin accessories.
What lesson can the average investor take from the Iphone? Sometimes you have to take a chance. Sometimes you need to think beyond tomorrow. Sadly, the most common question I’m asked is how to get rich quickly. What if, in the Apple board room, the innovative thinkers talked about how they could double the company’s net worth within a year? Without a long term approach, you will never get rich.
How much does it cost to make an Iphone? $179.16. That means that Apple is making less than $19 on each phone that they sell but they know two things: First, the accessories are going to make them all the money they need. ITunes…need I say more? Second, making each new Iphone costs a little less money so getting the most out of their research and development dollars is going to help the bottom line.
Think like Apple. No more thinking about getting rich quick. Think about long term investments that continue to pay.