Embedded Pricing and Expectation.
The FriendlyARM line of ARM boards, Mini2440, Mini6410, Mini210, and displays are a bargain when compared to similar products - if you can find a truly similar product. This is especially true in the US and Europe. Yet quite often I see remarks in forums and on blogs that imply or say outright that they are too expensive. Or that some other device does the same thing and is much cheaper. But if you look around, there are ARM9 S3C2440 boards at 200 MHz that retail for $650, and they have buyers. [Actually, the FriendlyARM products were 50% higher before the eBay price wars of a couple years ago.]
The source of expectations: Apple sells an iPhone 4GS for $200 to $400 and an iPhone 4 for around $100. The iPhone 3G will shortly be $50 or less; even free in some cases. These products have high performance ARM9 and A8 Cortex dual core technology. I hear "Why should we pay more for the same thing in a larger package, and no cellular MODEM?" Good question! Shouldn't these ARM systems for embedded applications be even less expensive?
The short answer is "Because you don't understand the business model". The long answer is "Because you don't understand the business model at Apple and the cellular providers". Not much longer is it? Here is the simple truth. Apple has contracts with AT&T and Verizon to get a portion of earnings over the initial contract period of the buyer. Apple's revenue for an iPhone 4GS is not $200 or $400, it is $620. A "free" iPhone 3GS will produce $381 for Apple. An iPad with 3G probably earns Apple over $1000.
Retail in the phone business is not the same as retail in the embedded space! Now you have to wonder, do the Android phone makers have similar deals? They must have, to even survive. How about "unlocked" phones? How much more do they cost? Do some Android makers have deals where a provider detects the manufacturer of the unlocked device using one of their SIMs and pays the phone maker?
Pricing expectations in the embedded space have been strongly influenced by the phone market. And the hidden subsidies for phones have produced these expectations that are wildly out of sync with the reality of manufacturing. Anyone who has driven by Foxcon, or even seen the pictures, assumes Apple has great economy of scale. But economy of scale has a limit after which volume doesn't matter. These things are still expensive. (The iPhone 4GS is truly twice the price of the new Mini210 from FriendlyARM.)
Inexperienced designers or those not well connected in the industry are easily seduced by these apparently low retail prices and think the costs of production must be equally low. Prime examples are found in China, with its recent over production of engineers and special embedded ARM courses and ARM specific college text books, it is a hotbed of developers who think they must produce systems with performance/price ratios that meet or exceed Apple hand held products. To meet this impossible goal they must operate at margins so slim that a small increase in the value of the Yuan will instantly close off the foreign markets. We see copying of everything, cost cutting and short cuts from outright theft of designs and documents to complete copies of web sites, on top of which they are practically giving away their products. DVDs from eBay sources will have complete PDFs of copyrighted books and unlocked versions of top end EDA suites. But that is another topic. It is the business model that gets distorted. (We loose ten cents on each sale, but we will make it up in volume! An old joke in the West, but new doctrine in Shanghai?) I would bet that 99% of these newly minted entrepreneurs have no idea that Apple gets much more than the retail price of their phones and tablets. The other 1% get excoriated for being over priced.
Actually, I am an amateur but I had the opposite reaction to your prices. I was impressed with how low they are, especially some of the ones on Ebay. Then again, maybe some of these sellers ripped off your designs? I think it would be really interesting for you to blog about how you source parts and manufacturing.
ReplyDeleteHi Matt. I agree. The prices are excellent, especially for a good display. The eBay prices come from people in China who buy new or used discounted boards at retail. The boards are very popular in China, and distribution is rather chaotic. For example, you can find them in several booths at the famous SEG building in Shenzhen City. Usually after adding shipping costs, the eBay is pretty close to the ARMWorks site. Then consider ARMWorks has a 2 year warranty and English docs and support.
ReplyDeleteIf it has to go international from Seattle, then the eBay deals can be good but the sellers operate on a razor thin margin where this is a side business and making $10 every couple of days is a good deal. I can't recommend it as a business model.
I don't think there are any rip-offs out there. There are plenty of other S3C2440 boards based on the Samsung reference design and they all seem to lack something compared to the FriendlyARM designs. It is the rather random distribution inside China that leads to some confusion about the source. The FriendlyARM products are designed and manufactured by a very talented engineer and his team in Guangdong province. The video of a woman hand swapping a surface mount NAND chip for prototyping (home page of andahammer.com way down the page "SMT Hand Swap") is in his offices.
If I could control it, there would be no eBay sales or they would use a fixed price. If the prices could be increases 10 to 25 percent, we could throw a couple more full time people at support and development, which could only be a good thing. It would take a 50% price increase to be where they were before the eBay sales started pulling them down. The Mini35 was $165 minimum and the RMB to dollar exchange rate has worsened since then.