In The Tom Peters Seminar, the business guru who goes by that name celebrated the fact that only some 10% of the price of his new Minolta camera resulted from materials and labor. The rest was “ephemera” and “intellect.” That means, translated from Peters-speak into English, that only a tenth of the hours we work to pay for a piece of consumer electronics go to pay the production cost; the rest go to embedded rents on artificial property rights.
Now Rob Carlson reports recent information that sheds new light on this contention. He cites Joel Johnson’s inadvertent admission that only 8-10 of the people at Aliph working on Bluetooth headsets are actually necessary to carry out or coordinate the production process. The rest are involved in administration and marketing. And the total cost of manufacturing (outsourced to China) amounts 5% or less of retail price. The proprietary software of the iPhone probably adds around $30 to the price.
On the other hand, the material components of a typical smart phone cost around $170-180. So total production cost is a little over $200, and the rest of the $500-600 price is retail markup and rents on proprietary design.
The remaining unanswered question, to make sense out of all this, is the cost breakdown of the components themselves. How much of the price of the components reflects the actual cost of producing them, as opposed to rents on proprietary design? How much of it is just administrative overhead from conventional corporate modes of organization (Weberian work rules, job descriptions, mission statements, and all the rest of it)? I suspect it’s a lot, if the efficiencies hardware hackers typically achieve in reverse-engineering proprietary designs are any indication (Factor Twenty cost reductions are not unusual).
Carlson himself, in the same post, goes on to describe how Biodesic‘s improvements in manufacturing processes and component designs are resulting in radical cost reductions, further blurring the boundaries between physical components and bits.
I’d be interested in any light the readers could shed on how much of the price of iPhone components results from proprietary design, administrative overhead, etc. I’m inclined to believe that conventional manufacturing is riddled with overhead costs in a manner comparable to a human body with congestive heart failure, bloated with edema from head to foot.