In a report released today by IHS Markit, it was revealed that the 6.5″ iPhone XS Max 64GB only costs Apple $390 to produce. Yet, the price tag for consumers is a whopping $1,099 — a difference of $709. Why then are the profit margins so large for the iPhone XS Max? Let’s look at some of the top reasons for the so-called “Apple Tax.”
1. Research and Development
As with any good product, a significant amount of research and development (R&D) goes into making the product possible. It was reported that Apple spent more than $3.4 billion on R&D in its last quarter of 2017, up $410 million from the previous period. But what is R&D, exactly? R&D encompasses the development process of new products and services, as well as improvement upon existing products and services. For Apple, this looks like developing the new iPhones each year as well as their services and software. A chunk of Apples R&D costs also go towards one of the highlight features on the iPhone XS Max, which is the camera. The cameras present on the iPhone aren’t just off the shelf; rather, a significant amount of work goes into making the iPhone camera top-notch through extensive use of software refinements.
Perhaps one of the biggest things that separate iPhones from other phones on the market is their detailed and beautiful design. Even though the iPhone XS Max is quite similar to last years iPhone X, plenty of man hours goes into refining every detail of the iPhone to ensure that it stands up to years of use. Tieing into that last point, Apple even noted during their presentation that they are designing iPhones to last for years since consumers are typically holding onto their phones for 2-4 years. So when you’re looking for your next phone, remember that you’ll probably be holding onto it for a while.
iOS 12, the software that the iPhone XS Max comes is a continual work in progress for Apple, and since it’s developed by Apple, the costs for all the developers and internal testers has to be factored into the iPhones cost. Unlike some Android phones where not as much software development has to be done since Google provides the core operating system (think Motorola), Apple has to do all of the hardware and software work.
Apple is a business after all, and they need to market their product in the competitive phone industry. You see their ads on social media, in searches, on TV, and countless other places. It all costs a good amount of money put up all those ads, and the minds behind their ad campaigns cost even more.
After all of that, there are still factors like failed production models, internal departments like HR and accounting, retail employees, and much, much more. Sure, it is a 60% profit margin — at first glance, but there is so much that goes into producing the iPhone that Apple’s take-home pay is much lower.