Please circulate this among your friends who are not industrial designers. Because just when we think an awareness of our role has finally permeated society, we see we've still got a ways to go. Take, for example, the rash of "How Much Does It Cost to Make an iPhone?" videos. In a typical example, last year CTN Technology Newsbroke down the cost of a 6S Plus, then breathlessly exclaimed that "[It] actually costs $236! [It] costs $749 in stores, but it's definitely not worth anywhere near that!" More recently, CNN Money broke down the cost of the 7:
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So the materials cost is $292, and it retails for $749. I've noticed that people love circulating these videos on social media, and...
...the impression seems to be that for every iPhone 7 that Apple sells, $457 goes straight into their bank account and stays there.
Laypeople, please think this through. First off the materials cost of an individual unit is what's known as a Bill of Materials, or BOM, in our industry. (We don't expect you to have heard of that term any more than you lawyers can expect us to know what the hell tort reform means, but we're mentioning it here for the sake of edification.) Now consider what the BOM covers: All of the phone's parts. The ingredients list, if you will. That's it.
Let's step forward in time. What happens after it gets out of the factory? These iPhones go into boxes. Those cost a couple of cents, too. Then they get loaded onto trucks. Then ships and airplanes, then trucks again. People load and unload them. And unsurprisingly, there aren't any companies willing to provide fuel, vehicles, drivers, pilots and longshoremen for free.
Let's keep going. How did you hear about the iPhone? A lot of it probably came from blogs, news or social media, some of that tied back to Apple employees. Dozens or hundreds of people in Marketing running around creating materials, arranging photo and video shoots and drawing salaries.
Okay, let's go back in time. Before the factory workers are called in to start building the phones, a bunch of supply chain folks had to figure out where they can get those parts, and arrange for their delivery. And before that, a bunch of engineers had to figure out how all of the parts go together in the first place. And yes, all of these people draw salaries, too.
Let's go even further back in time. Before the engineers and supply chain folks had problems to solve, there was no such thing as an iPhone 7. It doesn't come out of thin air. R&D had to be done. A team of industrial designers sat down and started burning through paper and gigabytes to figure out what the hell an iPhone 7 is. And as smart as these people are, they don't get it right on the first sketch, the second mock-up, the third rendering, the fourth prototype. They spend countless hours producing iteration after iteration, sweating small details and traveling down countless paths that they will later have to abandon in favor of a more promising one.
All of that costs money.
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.
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