My job benefits include some of the email press releases I get. (Some of them, anyway.) One reliable source for interesting ones is IHS Technology, the industry analysis company. This week’s was a doozy. They were talking about their Google Glass teardown. Here’s the key take-away: The BoM (Bill of Materials) cost for the $1,500 Glass is $152.47. That’s a nice margin. (Technically, Google Glass carries a BoM of only $132.47. IHS added an extra $20.00 manufacturing expense for putting the parts together.)
It’s the Engineers’ Fault! Darn That NRE!
After I picked myself off the floor, I read down the release to the comment by Andrew Rassweiler, IHS’s senior director of cost benchmarking services.
“As in any new product,” he said, “especially a device that breaks new technological ground—the bill of materials (BoM) cost of Glass represent only a portion of the actual value of the system.
“IHS has noted this before in other electronic devices, but this is most dramatically illustrated in Google Glass, where the vast majority of its cost is tied up in non-material costs that include non-recurring engineering (NRE) expenses, extensive software and platform development, as well as tooling costs and other upfront outlays. When you buy Google Glass for $1,500, you are getting far, far more than just $152.47 in parts and manufacturing.”
Breaking it Down
The cost breakdown in the release gets a little confusing. It says the eyeglass frame is the most expensive part of the device, at $17, but then it goes on to say that the next most expensive component is the head-mounted liquid-crystal on silicon (LCOS) projector display, for which IHS' cost estimate is $20.00. The Apps processor is from TI. It’s an OMAP4430. The interesting thing IHS has to say about it is that it is built on a 45-nanometer (nm) process technology, “two generations behind the 28nm chips employed in the latest flagship smartphones,” notes IHS. Even in a product as avant-garde as Glass, it isn’t really necessary to press Moore’s Law.
Or maybe not. Rassweiler also observed that, “Today’s Google Glass feels like a prototype. The design employs many off-the-shelf components that could be further optimized. If a mass market for the product is established, chip makers are expected to offer more integrated chipsets specific to the application that will greatly improve all aspects of performance, including processing speed, energy efficiency, weight and size. Future product revisions are sure to make strides in all of these areas.” He doesn’t speculate about the price coming down, though.
The Market Rules
In fact, high prices and low BoM and manufacturing costs are not all that unusual in products that enhance people’s physical performance. I wish my eyeglass frames cost only $17, although I must confess they’re darned rugged, and among my wife’s history of startups, one was a company that specialized in DSP hearing aids. In the end, you pay what it’s worth to you.