Is it any wonder that humanity faces a growing number of problems which seem insurmountable? Disease. War. Rebellion. Terrorists. Scandal. Racism. Oh, and the disparity between the hope of the information superhighway and the reality of the misinformation superhighway. Here’s an Apple-related example of the trouble humanity is in these days.
From Time Magazine’s Money:
The iPhone X Costs $999. Here’s How Much Apple Spends to Make One
Both components of the headline are offered as fact. Both are wrong. Here’s why.
First, cost is treated as if it is price. Yeah, that’s a problem we humans have all too often. We treat the meaning of one word as if it is synonymous with another. “What does an iPhone cost?” should be phrased as “What is the iPhone’s price?” Cost and price are not the same thing.
There’s the price of a new car, and then there’s the cost of operating the car over x-number of years.
Second, writer Aric Jenkins assumes knowledge of how much money Apple spends to make an iPhone X. Only Apple knows that amount, but tech writers and researchers and gadget hounds have endangered humanity with a stream of inaccuracies, in this case, simply by adding up an estimate of each part in a device to conclude that’s what it costs.
No. That’s wrong.
That so-called cost is an estimate. Apple does not tell journalists how much it pays for components and they often are sourced from many different suppliers. Companies like IHS Markit will buy products and tear them down part-by-part, then attempt to determine the price of each component.
Teardown engineers at IHS Markit have completed their preliminary physical dissection of the new Apple iPhone X and found that the model A1865 version of the smartphone with 64 gigabytes of NAND memory carries a bill of materials (BOM) of $370.25.
That seems on the surface to be completely plausible– if it were not for all the fiction involved. IHS Markit does not know what Apple paid for each component, therefore, the BOM is not accurate. Just as unfortunate is media and marketing critics who do not understand where BOM fits into the overall price and cost structure of a product.
Not considered at all in any of the analysis you may have read about an iPhone X’s cost of $370.25 are the many other costs associated with the new device. For example, how much does it cost to manufacture an iPhone X from the components? What are the design and engineering costs to bring iPhone X to market? What are iPhone X’s marketing and distribution costs compared to other devices? What about the costs associated with service, support, training, retail sales, et al?
Hear the silence.
Not a word is written about such variables yet they make up a huge part of the overall price tag of an iPhone X, just as they must be considered as part of the price Apple charges for other iPhone models, iPads, the Mac line, Watch, and Apple TV.
Cost and price are not the same thing. IHS Markit only knows the price of iPhone X, not the amount Apple spends on each component, not the amount Apple devotes to design, manufacturing, shipping and distribution, marketing or any other element of running a business operation.
Cost and price are not the same thing. Estimated numbers presented as fact are more closely aligned to fiction.