#recoup R & D
10 messages in this thread
If what Jim Drew said about the A4000's costing 2.5x what it should have
at release is accurate, 4000's should have been ~$1400 at release and
should be about $800 right now (if that ratio was maintained). Hearing
that was really disgusting to me. Maybe the 1200 should have sold for $250
at its release too. It's sad that gross mismanagement can figure so
prominently into the price-performance equation.
$225 for a PS's and cases in volume is inexcusable, especially considering
that a full tower case (with fancy digital LED speed display) and ample PS
can be bought via Computer Shopper mail-order for about $100-$120 (in
_single units_).
>> Oh yeah, I forgot, there is no honor among thieves.
It's a good thing Gould and Ali don't have E-mail addresses, eh? <eg>
– Jim, on AutoPilot!
>>If what Jim Drew said about the A4000's costing 2.5x what it should have
>>at release is accurate, 4000's should have been ~$1400 at release and
>>should be about $800 right now (if that ratio was maintained). Hearing
>>that was really disgusting to me. Maybe the 1200 should have sold for $250
>>at its release too. It's sad that gross mismanagement can figure so
>>prominently into the price-performance equation.
Well you have to remember that they had to price it high at first just like
anything else to recoup R & D … However the fact that the Amiga would stay at
the same price or in some cases increase is utterly insane and I am glad that
Commodore has bit the dust… Maybe someone now will price it fairly and make a
great computer affordable for all of us..
>> Well you have to remember that they had to price it high at first just
>> like anything else to recoup R & D …
Naturally — but 2.5x more?
>> However the fact that the Amiga would stay at the same price or in some
>> cases increase is utterly insane and I am glad that Commodore has bit
>> the dust…
Ditto on both counts. It's kind of like the Neo-Geo vs. the 3DO — the
Neo has only come down about $100 over the past four years (and you still
have to pay $250 for each game), but the 3DO dropped $300 in one year.
And that A2000 price hike was really dumb.
>> Maybe someone now will price it fairly and make a great computer
>> affordable for all of us..
Here's hoping….
– Jim, on AP!
>> they had to price it high at first just like anything else to recoup
R & D
I'm not being a smart-alek… could you please explain to me… why?
>> I'm not being a smart-alek… could you please explain to me… why?
While it's not a written law that companies *HAVE* to price items higher
at release to recoup R&D costs, it's almost invariably the case, and
should be expected. Remember when Nintendo released the SNES here in
1991? It was priced at $199. During the '91 Christmas season, they sold
hundreds of thousands — if not millions — of those units. Why? Demand
was extremely inelastic (a 1% change in price produces less than a 1%
change in quantity). People would have bought out the stores' invontories
(and they did) no matter whether the SNES was $199, $99, or $19.95.
However, IMMEDIATELY after Christmas, Nintendo lowered the price to $179
to better compete with the (I think) $149 Genesis. Within six months,
both systems were going for $129. Now you can get either (without a
pack-in) for $89.
This could technically be called price discrimination; the companies sell
products to people with varying degrees of want at prices matching that
want, maximizing their profits. A person who thinks the Saturn is worth
$475 will go out and buy it when it hits for $475 (as is happening in
Japan right now). One who doesn't think so will wait until it comes down
in price. (Heck, there are even people who think the Saturn is worth $800
— they're importing it at huge premiums!)
Anyway, back to the case of a new Amiga company. The pent-up demand that
exists is very inelastic; many are willing to pay twice for one now what
they would have been in February of this year. If production of even
current models is resumed, they will sell out at any price (let's hope CEI
doesn't gouge us 😉 until the demand becomes more elastic (that is, until
the desperate have bought all they want). Once that elasticity is
regained, CEI will have to lower prices if they want to continue to sell
Amigas.
Sorry if the economics is a little confusing. 🙂
– Jim, on AutoPilot!
> The pent-up demand that exists is very inelastic; many are willing
> to pay twice for one now what they would have been in February of
> this year.
Demand for Amiga's may well be inelastic, but it is also shallow. While there
are individuals and companies which would pay dearly for them, I don't think
the numbers add up to much (in the context of other companies sales figures).
The number of individuals in a position to be "inelastic" is probably small as
they would have bought a machine when they were available. Individuals do not
have a pipeline where they need to continually obtain new machines (generally).
If this total was in the low thousands I would be suprised. Not that the
number of interested people is that low, just those who "must" have one and
will pay any price.
The number of companies who would be "inelastic" is probably also small, but
they could probably sell many machines. Probably for Toaster and related video
type uses. But even there, I would be suprised if total demand at "tough"
prices would be higher than a few thousands also.
Bottom line: There will be an "inelastic" time, but it can't possibly be very
long. The "outside" world will buy an Amiga, and pay dearly for it, only if it
is for something a PC can't do at any price.
For word proccessing, spread sheets, etc, the demand for Amiga's will be as
close to zero as is noticable because they are used to using PC's (and
cheaply). The demand for video uses will be high, but they can't charge a
price so high that a Pentium with an expensive video subsystem becomes
competitive.
There are PC based systems which give the Toaster a run for the money. But
they are very expensive. If the Amiga costs too much, the PC solution becomes
"interesting". Given two "equal" solutions, I will bet dollars to donuts that
the PC will win, if for no other reason than "fear" that the Amiga will again
pass.
I hope we will soon see desktop Amiga's in production, but I am not expecting
sales to be more than perhaps 100K a year, perhaps as low as 30K (Full up
computers, not CD32's). Even a return to production will sell only to the
faithfull, as the neutral fencesitters will now be gun shy.
Hope I'm wrong……
Oh well. Could be worse, could be raining.
—— Andrew
Andrew –
Nice to hear from you again after all this time! 🙂
Now then, on to the issues you took issue with.
First off, I never actually said that there was a _massive_, inelastic,
pent-up demand for Amigas at any price. I said that there is _an_
inelastic, pent-up demand for Amigas. Whether that's three megafanatics
or a million victims of marketing hype (SNES 😉 isn't necessarily
relevant. In fact, I'd put a ceiling of maybe 100 people who would
actually run out and snap up the first Amigas off the new production line
at shortage prices.
You are absolutely right when you say that any period of demand
inelasticity will be short-lived. That's true of all markets. Given
enough time, demand will become more and more elastic. For example, if
your electric company were to double your rates tomorrow (ignoring the
fact that Uncle Sam pays your electric bill ;), would you be able to
immediately cut electrical consumption in half? Probably not — you
_need_ that much electricity to power everything you own. However, you
would begin taking actions to enable that halving of consumption, such as
switching to natural gas or solar power. Soon you _would_ be able to
substitute alternate power sources for electricity (your demand would
become elastic), and the next time that the good ol' Electric Co. decides
that it wants more money, you will be able to reduce your consumption
accordingly.
Now then, back to Amigas. If CEI decides to pull that trick, it will only
work for a very short while (like the SNES's selling for $200), until the
shortage situation is satisfied. Then, as demand elasticity increases,
they will be forced to lower prices to maintain and increase sales.
Those annual sales numbers you gave are a mite pessimistic, IMO, though
it's good to be on the conservative side when estimating revenues. I'd
expect sales to resume at a level somewhat lower than the level they left
off…but not quite _that_ much lower, especially if new-and-improved
models are released, advertised, and _supported_.
>> Oh well. Could be worse, could be raining.
Hey! I _like_ rainy weather! <g>
– Jim, on AutoPilot!
The price inelasticity is exactly the reason that the market can be swamped
with any remaining product immediately for the xmas season thus producing
additional revenue for R&D.
A modest but *visible* advertising campaign is required, and yes, thump PeeCees
and Macs directly. compare a 4mb pc 486/33 to a 4mb amy 68040/33 multitask,
render etc. and kill em. Have another commercial talk about how amigas are
used in animations for shows like babylon 5, and by ad agencies, etc… get
visibility on shows like the computer chronicles, beyond 2000. Get a small but
impressive group of celebs to talk about stuff they've done with amigas. For
example Todd Rundgren.
Use a visible *Amiga* logo distancing from the Commodore name.
Above all, move to establish a reputation for competence and integrity at once
by preannouncing a new machine and delivering on time. Base machine of 4m ram,
540 m hd (keep it scsi…), 68040 @ 50 Mhz minimum, CD ROM, IBM and MAC disk
compatbility, Networking, Bridgeboard and Mac via Emplant options and work all
those deals out with those required 3rd parties such that the machine can be
sold at a base price of 1500 or less, the options costing less than the
comparable ibm or mac compatible products (eg 486 cpu on bridge for < 700)
>> The price inelasticity is exactly the reason that the market can be
>> swamped with any remaining product immediately for the xmas season thus
>> producing additional revenue for R&D.
Yep. I hadn't thought of that, but you're right. (This probably wouldn't
apply as well to CD32, though, since competition in the console market is
quite fierce.)
The only problem I see here is…how many units are there? Even if they
sold for double profit, several thousand units would have to be sold to
accumulate a decent amount for a little bit of R&D.
>> A modest but *visible* advertising campaign is required, and yes, thump
>> PeeCees and Macs directly.
I can only remember this happening _once_, when one of Commodore's
presidents (Max Toy?) went on Computer Chronicles and showed off
multitasking with an A2000 and a BridgeBoard — and exchanging data 'twixt
the twain, of course.
>> Have another commercial talk about how amigas are used in animations
>> for shows like babylon 5, and by ad agencies, etc…
Absolutely.
>> get visibility on shows like the computer chronicles, beyond 2000.
I think B2000's featured the Toaster once…I know Next Step has…but
neither mentioned the name of the computer it was running on, as far as I
can remember.
I also remember that one of those Discovery shows did a segment on desktop
video recently — and they didn't even mention the Toaster!
>> Get a small but impressive group of celebs to talk about stuff they've
>> done with amigas. For example Todd Rundgren.
Todd Rundgren?! Ewwww! How about Grant Boucher? <g>
>> Use a visible *Amiga* logo distancing from the Commodore name.
Definitely.
>> …68040 @ 50 Mhz minimum…
(I'm not absolutely sure, but I think the highest the '040 goes is 40MHz.
The lowest '060 is 50MHz, though.)
There does need to be an option for really low-enders, though. I'd set
the bare minimum at an '030/40MHz, or maybe an '040/25MHz. (I would have
suggested an '040 sans FPU or MMU, but then that'd preclude raytracing or
use of an Emplant.)
Really, though, the Amiga needs to cut the PC's off at the knees in the
price-performance area again just like it did nine and then seven years
ago. $1000-$1500 for a top-of-the-line-but-non-power-user _system_ (that
INCLUDES the monitor!) isn't bad — especially if it can run WinDoze too.
<smirk> (Power users would buy the tower model, naturally. 😉
– Jim, on AutoPilot!
Financial analyists say that there are two parts making up the cost of an
item:
–fixed costs: the one-time costs of bring the item into existence;
–variable costs: the incremental cost of producing an item.
If an item costs you a million bucks to develop, and can be manufactured at
ten bucks a pop, you're faced with the classic pricing dilemma: price too low
and you'll never get your developement costs back (unless you have ENORMOUS
sales); price too high and you'll have too few sales. The usual thing is to
estimate the market at various price levels, and set the price to maximize your
revenue. If Commodore felt that they would sell the same number of machines
regardless of price, their business strategy would tend to be: hike the price!
If dropping the price to half would double the unit sales, revenue would remain
constant (production costs would increase) and there would be no economic
justification for the price reduction. The existence of competition can change
the decision point dramatically; I wonder if Commodore noticed that there was
competition?
Many companies introduce new products using a "cream skimming" pricing
approach. Price it high, and let those who are willing, buy. Then, drop the
price, and see who else buys. Repeat at intervals until you start getting
close to the variable costs threshold. Know anybody who does this? Like chip
manufacturers? Problem is, when consumers catch on, they tend to wait and hang
back for the prices to settle.
I remember many years ago a group of us decided to privately publish a
work called The First Book of KIM. Printing costs were roughly: first copy,
$1000, remaining copies $1. We also needed to allow for postage and handling,
and set a price that allowed retailers to take their usual markup. Our primary
goal was not to make money, but we definitely didn't want to lose much. We
(under)estimated the market, and printed about double that number of copies.
We priced so that if somehow we sold out the first printing, we could pay for a
second printing with the cash surplus rather than our own money.
I think it was a good plan. We didn't allow for Stan Ocker's garage
burning down, taking out about half our print run. But it was a good plan,
anyway.
–Jim