The razor-blade business model refers to a business in which a company sells a product for a modest price, and then profits from sales of accessories.
According to a new report, the Apple Watch represents a high-tech spin on this concept — since a large number of customers are not only spending hundreds (or even thousands) of dollars on the wearable device itself, but also shelling out for a spare band — thereby letting Apple dip into their wallets for a second time.
While Apple hasn’t yet revealed exactly how many Watches it has sold, e-receipt-mining data analytics company Slice Intelligence claims the company has thus far sold 2.79 million of its wearable device.
Of the customers who bought these Watches, around 20 percent also purchased a second band — which carry impressive profit margins for Apple. For instance, the basic Sport band sells for $49, but costs only around $2.05 to make for the 38-millimeter version — according to research firm IHS. The stainless steel link bracelet, meanwhile, costs $449.
While this price breakdown may not include all material, packaging and shipping costs, it’s likely that Apple is still making an enormous profit on the accessories.
I’ve noticed first-hand that many people who do buy Apple Watches tend to pick up straps for both basic day-to-fay wear and also more luxurious occasions — thereby making the device extra-versatile.
The more you read, the easier it is to see why Apple patented the hell out of its interchangeable Watch bands, isn’t it?