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?
Source: Reuters
Luke Dormehl is a U.K.-based journalist and author, with a background working in documentary film for Channel 4 and the BBC. He is the author of The Apple Revolution and The Formula: How Algorithms Solve All Our Problems … and Create More, both published by Penguin/Random House. His tech writing has also appeared in Wired, Fast Company, Techmeme and other publications.
5 responses to “Forget the Apple Watch, extra bands are where the big profit is”
This “razor-blade business model” isn’t exactly a new concept for Apple, surely the same principle existed and exists for the iPod, iPhone and iPad with their accessories? The cases and most notably the charging cables must have been purchased by a large percentage of these customers?
Agreed, razor blades are disposable and last for just a short time. Hopefully Apple’s watch bands will last as long as the band you get on a regular watch.
I don’t think this applies to the Apple Watch. In the razor-blade business model the number of blades usually exceeds the number of razors by far (like printers and ink). This does not apply to the Apple Watch where maybe one out of five owners buys an extra band.
$2.05 seems a little too hard to believe as the price to make one of these. This price must not include all of the money put into the development and research that goes along with the production of these things. I bet if you were to include that into the cost, seeing as it is totally related, the price point may be around $7-8 to produce one band.
“$2.05 seems a little too hard to believe…”
Agree with this. The metal snap-in connectors at the ends likely cost more than that. None of the “teardown” companies can be trusted anymore. The real money is in negative propaganda.