profits

Why an iPod Touch costs more than the sum of its parts?

We've all read those blogs that "reveal" the parts cost of a fill-in-the-blank, Kindle, iPod, or Palm Pre. If you ask me, this simplistic, by-the-numbers gambit overlooks most of the costs of bringing a product to market.

First and foremost, products, all products, are priced to what the market will pay. I don't care if it's a 16-ounce bottle of Poland Spring water, Coldplay concert tickets, or a Ferrari 599 GTB Fiorano, retail prices are determined by what the market will pay. And luxury products have higher profit margins than mass market stuff. Oh really?

But the mindless rash of blogs that purport to add up the parts costs, for example $39.51 for the display, $15.96 for 8 gigabytes of flash memory, $15.41 for components, and $12.39 for the 3-megapixel camera, to calculate the cost of anything are hugely misleading. The writer merely subtracts the parts cost from the retail price and concludes the difference is the "profit."

Does the writer assume the company's factory doesn't pay rent or for electricity or heating and air conditioning? And that the factory labor force works for free?

These articles completely ignore other costs, such as research and development and engineering expenses associated with creating say, a Kindle. Manufacturers also pay significant licensing fees for technology used in their products.

Shipping costs of large products such as flat-screen TVs must be factored in before determining the final cost to the consumer.

Oh, and what about the online or brick and mortar retailer? They have their own set of expenses for rent and employees. Some of whom might need health insurance. … Read more

You, too, can flip a start-up (if you've got 7 years)

Those who joined the technology industry in the 1990s can be forgiven for believing that dramatic wealth for paltry effort is the norm.

For everyone else, it's worth being reminded of something that Trevor Loy, a partner with venture capital firm Flywheel Ventures, said in recent congressional testimony:

We expect to hold a typical venture capital investment for 5-10 years, often longer and, since the technology bubble burst, rarely much less.

Unfortunately, Loy is not alone. In fact, as Tim McAdam and Jim Tybur of Trinity Ventures told me over breakfast Thursday morning, 20 years of National Venture Capital Association data (PDF) … Read more

Facebook hits 200 million members, thinks charity

We knew Facebook was about to hit 200 million active users, but now it's official, per a post by founder and CEO Mark Zuckerberg on the company's official blog.

"We will welcome our 200 millionth user to Facebook some time today," wrote Zuckerberg, who's just over a month away from his 25th birthday. "Growing rapidly to 200 million users is a really good start, but we've always known that in order for Facebook to help people represent everything that is happening in their world, everyone needs to have a voice."

To commemorate … Read more

Hundreds of 'Twestival' fundraisers springing up tonight

If you're looking for something "good" to do Thursday night, you're in luck. Volunteer-organized Twestivals are planned in more than 200 cities around the world.

The Twestivals are a loose coalition of fundraisers that aim to use the social-media tool du jour--Twitter--to raise money for Charity Water, a nonprofit devoted to bringing clean drinking water to developing countries.

It's not officially organized by Twitter, but enthusiasts are hoping that the series of Twestivals can be an example for future fundraisers and how the likes of Twitter can fuel volunteer and donor efforts. Word has spread … Read more

TSMC follows Intel with profit plummet

Updated at 10:50 a.m. PST throughout.

Taiwan Semiconductor Manufacturing Co. posted a sharp profit decline of 64 percent on Thursday. This comes after Intel posted a steep dive in profits last week.

TSMC, the world's largest contract chip manufacturer, said its sales sunk to 64.6 billion Taiwan dollars ($1.96 billion) in the fourth quarter of 2008, down 31 percent from the same period last year as well as from the previous quarter.

Net income was NT$12.6 billion in the fourth quarter, down nearly 64 percent from the year-earlier period and 59 percent from … Read more

Profitability covers a multitude of sins

In a fascinating letter from Sequoia Capital to the CEOs of its portfolio companies, Sequoia urges the obvious: be prudent and conserve cash. The counsel is obvious but largely unheeded in the technology industry, as well as throughout our economy: debt equals unhappiness, while profitability equals happiness (and flexibility).

Like every major shift in the environment, this one will offer opportunities as well as risks. JP Morgan was able to buy two great assets as substantial discounts with government assurances, precisely because they played the game frugally while others were more risk seeking...Many companies that thrived post 2001‐2003 were simply "Last Man Standing" in their industry. It doesn't sound all that glamorous, but it was the exact right strategy to deploy at the time.

As a result, Sequoia urges its companies to "(not) spend money until you have to," warning that "access to...capital...may be dramatically impacted" and that the "cost of capital is going way up."

I'm grateful to work for a company that has prudently managed its resources. Our CEO, the former COO of Business Objects, is very frugal and we've never hired in advance of the revenue to support those hires. Consequently, we have most of our venture money in the bank, as well as a profitable business that should get stronger during the downturn.

I've written before about how a recession would benefit open-source buyers, but it's also important to recognize how it benefits the vendors. Open-source vendors are demand-driven: the software is made available for download and customers find you. Alfresco routinely closes six-figure deals over the phone/e-mail in a 60- to 90-day sales cycle. Virtually none of our deals require an on-site visit.

This means we can invest more in our products while simultaneously charging less, which is what customers need in a tightening economy. Get more, pay less. That's the open-source value proposition for this recession-plagued economy. A subscription model helps, too, because it doesn't require the sale of new licenses, as a license-driven model like Microsoft's does. Red Hat could not sell a single new subscription this year and hold revenue steady. That's the power of open source.

But the fundamental premise underlying all of this is to operate one's business in a prudent and profitable manner.… Read more

Facebook declares support for new nonprofit ServiceNation

ServiceNation, a relatively new nonprofit that hopes to engage more Americans in volunteer and service work, has earned the seal of approval from Facebook.

The social network will provide the organization with advertising deals, technical help, and support for ServiceNation campaigns on Facebook. In return, ServiceNation has selected Facebook as a primary tool for online organization and communication.

The nonprofit was kick-started earlier this year by four existing organizations: City Year, Be the Change, Civic Enterprises, and Points Of Light. Its inaugural "summit" is set for September 11 and 12 in New York with a keynote by California … Read more

Apple's cash hoard: Begging for a 'windfall tax'?

It's almost a truism that while Microsoft struggles to do anything right (in the media's eyes), Apple can pretty much do no wrong.

This is as true of Apple's cash position, which BusinessWeek recently noted may soon surpass that of Microsoft's, as it is of Apple's product portfolio and business strategy.

It's the cash that I find particularly surprising. Apple is swimming in cash, more than $20 billion of it. The company adds more than $1 billion in cash to its stockpile each quarter. Today we give Apple a free pass on its iTunes/iPod lock-in, which delivers much of the Apple profits, because we can still happily apply such adjectives as "cool" and "innovative" to Apple.

The U.S. Congress is fixated on taxing the oil and gas companies for their "windfall profits" today, while Apple's profit margins as a percentage of sales are actually higher than Exxon's and those of the other bogeymen of Congress.

There was a time that we said similar things about Microsoft and happily bought into the lock-in that we'd eventually come to mistrust and seek to escape. Few are saying this now of Microsoft. And its cash hoard of roughly $23.7 billion has simultaneously become a cause for envy and concern: what will the convicted monopolist do with that pile of money? Can it possibly be in our interest?… Read more

Wikimedia Foundation edits its board of trustees

As part of its annual "Wikimania" conference in Alexandria, Egypt, the nonprofit Wikimedia Foundation--parent company of Wikipedia, Wiktionary, and a number of others--announced two new members to its board of trustees. The announcement went out on Friday and is effective immediately.

Taking over from current chair Florence Devouard will be Michael Snow, who has been on the board since February and has been an active member of the Wikipedia community since 2003. A lawyer based in Seattle, Wash., Snow created the "Wikipedia Signpost" community news resource in 2006.

Another Wikimedia Foundation board member has been announced, … Read more