Google Glass is more than the sum of its parts: IHS

Is Google is bankrolling a stratospheric profit margin of 90 percent – one that would make even Apple blush – on each Glass sale?

(Source: Google)

A teardown of Google's Glass head mounted computer by analyst firm IHS suggests that the $1,500 device has a parts and manufacturing price tag on only $152.47.

Does that mean that Google is bankrolling a stratospheric profit margin of 90 percent – one that would make even Apple blush – on each Glass sale?

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Not by a long shot, says an IHS report.

"As in any new product—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," said Andrew Rassweiler, senior director, cost benchmarking services for IHS. "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."

In essence, what you're getting is not just the parts, but also the know-how behind putting them together to make a new and innovative product.

But you are also spending your money on what even IHS admit is essentially a prototype.

"Today’s Google Glass feels like a prototype," Rassweiler said. "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."

Take the main processor as an example. This uses the Texas Instruments OMAP4430, a chip built using 45-nanometer architecture that even back in 2012 was used in budget devices such as Amazons Kindle Fire tablet. A newer part built using a 28-nanometer architecture would not only offer more power but also be more battery efficient.

IHS also points out that the frame of the Glass, which represents the single most expensive component of the device at $22.00, or 17 percent of the total bill of materials, gives the product a premium feel. I'm a bit doubtful about this. A frame is a frame, and while titanium brings benefits to the table, there are frames out there using alloys that have features that titanium does not, for example, memory metals which retain their shape and are high resistant to snapping.

While Glass is no doubt a clever and interesting product, it's hard to escape the fact that $1,500 is still a lot of money to pay for a warts-and-all prototype product.

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