Here’s a post about the CrunchPad on MAKE – they said it would be “open source” but that never happened and now the project is dead too. We’re starting to see “open source” and “open source hardware” used as a marketing gimmick or to get good will before a project is released, a bit of a bummer.
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9 Comments
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That really is a bummer. It’s an annoying thought that someone would use the idea of open hardware for the sole purpose of raking in cash, and then never even deliver on the promised product.
Michael Arrington acting like a complete cocknocker, AGAIN, what a huge surprise.
That was doomed from the start, but not because it was open source hardware.
As you pointed out in your Make quote, people that don’t know any better often set unrealistic price targets for hardware. Sure, a $199 tablet would be killer.
But add up batteries, display, processor, memory, wireless, and you can see that the margin on this will be negative (BOM cost alone will be over $200, unassembled, with no markups). OLPC suffered from similar wishes meeting reality.
You mentioned 40% margin for open source. For consumer products, I’ve seen rules of thumb between e and pi for list price (270% to 315%). That gives room for margin at the retailer, distributor, and manufacturer levels.
A decent tablet at $399 would sell well, and leave room for a non-fantasy BOM (but only if you were frugal!) and maybe some margin. Targeting $199 is just marketing splash (*cough* OLPC).
silicon, > 100% margin is impossible 🙂
to be clear: 40% margin is 166% markup, 2 margins = 1.66*1.66 = 2.7556 = 275%
Good call – your theory about the lack of margins causing the CrunchPad to implode sounds entirely plausible.
That’s what I was trying to say, but I certainly wasn’t clear.
Multiplying the BOM by a number in the range of e to pi to get list price gives room for the margins needed for consumer products. The pi factor gives margins something like manufacturer 25%, distribution 15%, retail 50%.
If you knock out the disti’s 15%, or cut everyone’s margins (disti and retail won’t like that, unless you are, for example, Apple) then you get a multiplier of e.
If you are selling open source devices direct, then a 40% margin may be acceptable. There are costs involved with eliminating the middle men!
But for something as mainstream and hopefully popular as that CrunchPad tablet, I think they’d have to figure at least BOM * 2.7, which only gives them $199/2.70 = $74 for BOM plus manufacturing.
I worked on a device not too different from the CrunchPad. I got the cost down to around $200 by cutting some awful corners (for example battery life). When they found out they couldn’t sell it for $299, they killed that product, too.
I think Michael Arrington discovered he put in 0% margin for his device, making it non-viable as a product, even as an open source kit sold direct.
BTW, 40% margin is 66% markup, for all you MBA’s listening in 🙂
Just to be clear, I know I’m not telling LadyAda anything she doesn’t know. And she knows far more than I do about pricing open source hardware.
My hope is someone else thinking of doing (consumer) hardware will see this and get some insight into pricing vs cost issues. Sometimes otherwise bright folks don’t know the realities of hardware pricing, and I’ve worked for a few of them.
nice post silicon, sometimes im a bit ‘succinct’ but youve described in detail how to work out the numbers. its a tragedy that happens often and (perhaps because its a bit embarrassing) most people dont talk about it! your contribution is appreciated 🙂
The rest of the story…
Crunchpad turns into $500 JooJoo:
http://www.wired.com/gadgetlab/2009/12/hands-on-joojoo-crunchpad/
It appears that this type of device is indeed close to $200 BOM.