NAMM report

[billf]

Yes, and no. Software makes close to 100% profit. It's likely about $10 to print the manual, another $10 on the boxes and disks. Out of $400, that's about a 95% profit margin. Where-as hardware costs quite a bit to produce every unit. It's common for hardware to be less than 25% profit margin. So even if the money made on 828MK3s and other hardware is more than DP, it would likely have to be over 4x as much to match the profit margin. And also take into consideration that DP locks users into upgrade paths, while hardware has a lot more overhead for within-warrenty repairs. Software is a much more instant return, and is worth a lot more to invest in.

Wow. I think you have a naive view of software development. The up front costs are expensive in terms of R&D, and costs continue through the support phase.

[James Steele]

Wow. I think you have a naive view of software development.

You indeed put this more kindly than I did. You cannot just factor out labor costs and overhead out of the equation, otherwise I could go into business making chairs and so long as I sold chairs that contained $5 worth of wood and $5 worth of fabric for $20, why I'd surely have 100% PROFIT!! This sort of economics only works in the North Pole where your labor force are elves and your transportation costs are nil due to magical reindeer. Of course God only knows what it costs Santa in utilities to heat his manufacturing facilities in the North Pole. Fortunately he doesn't have lease payments on the structure or land and he's truly "offshore" so he's not subject to onerous taxes. Still word is out that the elves are seeking to unionize and are demanding larger pension benefits which in turn could potentially drive up the cost of manufacturing the toys which means Santa's net loss per unit would significantly increase. But then Santa has magic on his side. Unfortunately, businesses don't.

[Prime Mover]

Oh come on. This is silly. Sure there are overhead costs, especially for initial development. But those are true for both software and hardware. We're comparing software and hardware overhead costs, which are ENORMOUSLY different, no matter how you look at it. Maybe my math was a little extreme, I shouldn't pretend to know just how much goes into continued production of a software product, but it's obviously MUCH MUCH lower than hardware.

So, forget all my bad math, and let's just say it correctly:
There's a much higher profit margin for software than hardware. That's all that really matters in this discussion, anyway.

[billf]

Wow. I think you have a naive view of software development.

You indeed put this more kindly than I did. You cannot just factor out labor costs and overhead out of the equation, otherwise I could go into business making chairs and so long as I sold chairs that contained $5 worth of wood and $5 worth of fabric for $20, why I'd surely have 100% PROFIT!! This sort of economics only works in the North Pole where your labor force are elves and your transportation costs are nil due to magical reindeer. Of course God only knows what it costs Santa in utilities to heat his manufacturing facilities in the North Pole. Fortunately he doesn't have lease payments on the structure or land and he's truly "offshore" so he's not subject to onerous taxes. Still word is out that the elves are seeking to unionize and are demanding larger pension benefits which in turn could potentially drive up the cost of manufacturing the toys which means Santa's net loss per unit would significantly increase. But then Santa has magic on his side. Unfortunately, businesses don't.

Software development has cycles, and during those each of those cycles are costs on both current products and unreleased products. Right now MOTU is spending money on what will at some point be the next version of DP. Those costs include marketing (on the research side), engineering, QA, product management, and so on. That sort of manpower does not come cheap.

I hope the op of this sub-thread will rescind his statement because it is just blatantly wrong.

[Prime Mover]

I hope the op of this sub-thread will rescind his statement because it is just blatantly wrong.

Sorry, I don't mean to be an ass, but I stand by my basic assessment. You talk about development cycles. So then what do you call the 828 "Mark 3"? That didn't just pop out of thin air either. Hardware takes development too, LOTS of development, just like software.

Both have development costs
Both have tech support costs
Both have shipping costs
Both have marketing costs
Both have rent/overhead costs

But hardware also has the additional cost of parts/manufacturing, which is HUGE.

Some hardware takes more money for R&D, some software does. You have to look at a case by case basis. But at the end of the day, when you've finished development of software, you have little manufacturing costs. Each unit costs comparably little to produce.

I'm not saying that software is cheap or easy to produce, but at the end of the chain, when you begin moving units, software becomes relatively cheap to move units per sale. People are getting defensive, as if I'm calling MOTUs job easy. That isn't true and it has NOTHING to do with what I'm saying.

I'm simply stating that the initial claim that MOTU makes substantially more on money 828 units than DP is rubbish.

[James Steele]

Oh come on. This is silly. Sure there are overhead costs, especially for initial development. But those are true for both software and hardware. We're comparing software and hardware overhead costs, which are ENORMOUSLY different, no matter how you look at it. Maybe my math was a little extreme, I shouldn't pretend to know just how much goes into continued production of a software product, but it's obviously MUCH MUCH lower than hardware.

Sure... manufacturing costs less. And what WAS silly is not that you said it was lower, but you just included NONE of the real expense of developing software in your calculations of "profit" as if software companies were selling blank DVDs or something.

There's a much higher profit margin for software than hardware. That's all that really matters in this discussion, anyway.

That also is something we don't know. Define "MUCH." I just found out at NAMM that ALL MOTU hardware is manufactured in the United States. That's right. NOT CHINA. Furthermore, audio interfaces aren't televisions. You don't have the economies of scale that you do when you're manufacturing and selling hundreds of thousands of units. So what I'm saying is that obviously your first assertion where you factored out the most significant costs in software development in your calculation of "profit" was fundamentally flawed, but beyond that it's likely that you're still over-estimating the comparative profit margin on hardware versus software, especially in light of the fact that MOTU produces smaller production runs and it isn't being outsourced to Chinese workers.

[James Steele]

I hope the op of this sub-thread will rescind his statement because it is just blatantly wrong.

Sorry, I don't mean to be an ass, but I stand by my basic assessment.

I would only stand on it after you modified it. Companies have enormous costs in development since not just any Joe Blow can program sophisticated audio software, and about the time they've moved enough upgrades to cover those costs, they might have a few months where they're making a healthy profit (after they've paid salaries, utilities, payroll taxes, you name it), they've got another round of intensive development going on.

Really none of this would have happened if you just hadn't so crazily overstated your case the first time around reducing software development to selling manuals and discs as if the raw materials of those two things was the total cost of production and everything left over was profit... about 95% as you estimated. Can you really expect to say something so wildly off the mark and not get called out on it?

[Umbrella]

Garageband, to its credit, comes with a righteous collection of sample-instruments out of the box, and practically for free...

I see an easy solution to this. MOTU needs to develop a market dominating music player as well as smart phone to subsidize their software. Easy!

Naw, just accept that the market has changed and that competition has set the bar as more bang for less buck

[bayswater]

You have to pay software engineers, project managers, etc. All sorts of man hours go into it.

There is also the post release support costs. But to be fair to PM, there is an accounting approach that regards the development cost to be sunk once the software is released, and that approach only counts incremental costs. You can go broke if you only cover incremental costs, but sometimes its the only way.

[bayswater]

You have to pay software engineers, project managers, etc. All sorts of man hours go into it.

There is also the post release support costs. But to be fair to PM, there is an accounting approach that regards the development cost to be sunk once the software is released, and that approach only counts incremental costs. You can go broke if you only cover incremental costs, but sometimes its the only way.
(sorry for the double post)

[bayswater]

There's a much higher profit margin for software than hardware. That's all that really matters in this discussion, anyway.

I've been involved in both and I disagree. (Unless of course you have something like Windows).

[amplidood]

I've done simply the GUI design of my own themes.

It. Takes. A. Long. Freaking. Time. What's the ratio of percentage of time for the GUI compared to what's under the hood? I have to imagine it's very lopsided. So a lot of time and effort is involved in software development. And it's not a one time deal. New features, adapting to newer architectures, more new features... it never ends.

Time = money.

The original statement that software is only worth the manual and disk it's printed upon is how the whole argument started. That is why intellectual property income potential has been decimated so badly. After all, it just appears out of thin air, right? In fully developed form, right? Our efforts to educate several generations in honesty and integrity have failed.

Miserably.

[billf]

Sorry, I don't mean to be an ass, but I stand by my basic assessment.

Okay. Your original assessment is:

Software makes close to 100% profit. It's likely about $10 to print the manual, another $10 on the boxes and disks. Out of $400, that's about a 95% profit margin.

I'm not saying that software is cheap or easy to produce

You are contradicting yourself. Software development costs are either 100% profit as you first stated (which means it is easy and cheap to produce), or software is expensive to produce, in which case the profit margins are low.

[James Steele]

Garageband, to its credit, comes with a righteous collection of sample-instruments out of the box, and practically for free...

I see an easy solution to this. MOTU needs to develop a market dominating music player as well as smart phone to subsidize their software. Easy!

Naw, just accept that the market has changed and that competition has set the bar as more bang for less buck

Right... but if, in the case of Apple/Logic, the new "bar" has been set because the company is raking in huge profits from a whole different enterprise, then I think that bears consideration. Not every competitor in the DAW market is a company worth billions that could basically give away Logic or Garageband as part of a larger strategy. It's easy from the perspective of the consumer to cheer this one and say that's just tough for everyone else... they'd better learn to compete... however I don't know if we all want to be forced to fewer options some day or all be forced to use Logic if Apple decides to put Logic STudio up on the new App Store for $89.99 or something like that.

[James Steele]

I've done simply the GUI design of my own themes.

It. Takes. A. Long. Freaking. Time.

Amen. Many people have no idea hour labor intensive it is.

Our efforts to educate several generations in honesty and integrity have failed.

Miserably.

"Oh stop complaining! Your Themes should be free and you should just take them on tour and set up a merch table and sell AMPGUIDMOD T-shirts!"

Honestly, I swear in some ways I don't think there's been a worse time to be producing any sort of intellectual property like music or software. I just found out my site got crawled by a site the finds all MP3s on the net. Turns out I had some MP3s in a private directory for streaming on Playlist.com (previously Project Playlist) and it got crawled, catalogued by this site, and in turn indexed by Google. Today on Facebook I was talking about how a friend had heard one of my songs on local radio, even outro'd it with my name, and it has never "officially" been released. Some woman read about it and then later commented that she "googled" my song and "really liked it" and was happy to "add it to her collection!" I asked here WHERE she got it and that's how I found out about the site. Seriously, beware posting any MP3s of your work to your website. Until I think it through, nothing of mine that I hope to perhaps sell in the future will reside anywhere but Apple's iTunes servers.