[sanowski]

Laughable! what is the cost of 16GB these days? Stopped reading after that answer, but keep going if you like advertorials.

Q. I was surprised that you weren’t competing on price so aggressively. This is essentially the same price as rival devices.

A. Well, it’s 32 gigabytes instead of 16, which is a big deal.....

[gdilla]

Cost has nothing to do with price. It's all about customer perception and their willingness to pay. Handbags cost very little to make, but some are priced at $800 and some are $8.

16GB more on an iphone 5 is $100 more in price. That is the choice given to the customer.

[sanowski]

My point is that knowing Amazon's business model, It's surprising they are openly playing the margin game on this device and bleeding the buyer vs. recouping that $100 in Amazon purchases.

[bitJericho]

I think it's much more likely that Amazon chose this price so that users didn't think it was a piece of junk.

Users are used to paying 600 for a phone. A 100 dollar Android phone works like shit. Add to that, if they priced it well below market value, then third parties would come in, buy up all the phones and stick them on ebay.

[gdilla]

Right. They want the perception of it to be a best in class smartphone.

[pbreit]

On iPhone, $100. So 50% of the phones price. That's a alot. And it was just one example. Hardly laughable.

[r00fus]

50% is a deceptive percentage, as that's a subsidized price with 2-year contract. For real price of the phone ($650 base model unlocked), it's around 15% of the total price.

[maxsilver]

Your right, but it's still $90 of margin that Apple takes and Amazon is giving up (on top of whatever Prime actually costs).

[franciscomello]

If it's so cheap to pack it into a smartphone, why doesn't Apple offer 64 on its base model?

[bradfa]

Differentiation, physical NAND chip size, and margins.

If the base model is 16 GB, then you have the ability to sell 2 higher spec models which have more capacity and to price them substantially higher netting larger margins (but likely lower sales volumes). If the base model was 64 GB, it would be difficult for Apple to have 2 higher spec models without impacting their phone's physical size as 512 Gb (64 GB) NAND is generally the largest available single chip size, today, so packing more than 64 GB into a constrained space inside a phone is hard.

The margins come from pricing what is likely a $5-$20 cost step as $100 price steps. Obviously more people are going to buy the less expensive phone so you make lots of profit but at lower margin, but you create a market where the lower sales volumes (larger storage capacity phones) have higher margin and net reasonable profits enough to justify having the larger storage capacity versions as carrying additional part numbers for sales is not 0 cost.