Posted by Joshua Zyber on 04/15/06 02:23

"asj" <kalim1998@yahoo.com> wrote in message
news:1145053709.880044.288750@g10g2000cwb.googlegroups.com...
> you an MBA or something? although cheaper sells more units for
> near-commodity items, when it comes to luxury goods, high-margin items
> will usually yield more profit to the companies.

The high-margin items have more profit because they have more markup,
which is great for the hardware manufacturer if it works but not so good
for the software providers.

Consider this scenario: Two companies, A and B, both build disc players
that costs $100 to make. Company A retails their product for $150 and
sells 100,000 of them, making $5 million in profit. Company B retails
their product for $700 and sells 10,000 of them, making $6 million in
profit.

Harware company B makes more money using this strategy. Good for them.
However, Product A has a user base of 100,000 customers that software
providers can sell to, while Product B has a much smaller base of users.
Software providers for Product B can't make a profit, and switch their
support to Product A. Product A dominates the market. Product B is
eventually discontinued even though initially Company B made more money
from it than Company A. Company A continues to sell their product for
many years, bringing in much more income over time than Company B.

[Back to original message]