If you plan to buy Apple’s new iPhone 5s, you’re faced with an important choice: go with the 16GB model for $199, the roomier 32GB model for $299 or the 64GB version at $399. That’s a lot more money, but if you have been using a 16GB smartphone, as I have, you’re aware of how annoying it is to constantly juggle music, photos and apps as you run out of space.
So is the higher price fair? Not exactly. It turns out that the price you pay for extra storage is much, much higher than what the memory actually costs Apple. Four times as much to be exact, according to Bloomberg News. Of course, Apple isn’t going to sell components for the same price it pays, but as the story points out, the exorbitant markup is a significant factor in Apple’s enormously profitable iPhone business. And that markup is much higher than its competitors’ markups.
AT&T, for example, sells the 16GB Samsung’s Galaxy S4 for $200 on contract. The same phone with 32GB of memory costs $250. Samsung may have a small cost advantage because it makes its own memory, but the savings can’t explain the huge price gap. The mobile memory markup accounted for 25 percent to 40 percent of Apple’s profits in the last quarter, according to Bloomberg.
Unlike phones made by Samsung and others, Apple doesn’t let customers swap out old memory cards, so there’s more incentive to purchase devices with higher storage capacity.
Apple is in business to make money for its shareholders, of course. It can charge as much as consumers are willing to pay, and that’s hardly a crime. However, you should know that despite its reputation as being the hip, friendly alternative to companies such as Microsoft, it can be as rapacious as any of its competitors.
Still, Apple fans love the company so much that it is now the most valuable brand in the world, according to a survey by Interbrand, a consulting company. There’s nothing wrong with loving a company that makes great products, but this news should buff a bit of Apple’s shine.
San Francisco journalist Bill Snyder writes frequently about business and technology. His work appears regularly in CIO.com and the publications of Stanford's Graduate School of Business and the Haas School of Business at the University of California at Berkeley. He welcomes your comments and suggestions.