When you think of how much something costs, or how much value a purchased item has, step back and think bigger than merely the price tag you see.
IPHONE: WHAT’S THE REAL COST?
Consider, as just an example, the Apple iPhone. Apple has been in the news for setting records with their last-quarter profits around $18 billion from all of its products, including the latest iteration of the iPhone. Yeah, that’s “billion” with a “b.”
Before we jump to condemn the greed and selfishness of the people at Apple, however, let’s step back and think bigger: If you were to start all on your own and tried to make your own smart phone from scratch, how much would it cost you? This is a wild estimate, but I’m going to guess around a million dollars. That’s probably way too low, but let’s just run with it.
Let’s estimate that it would cost you around a million dollars to hire all the scientists and engineers, build all the infrastructure, buy all the raw materials and process them and make them usable, do all the research and design necessary to come up with something like your own version of an iPhone. Let’s also estimate that all that work would take at least ten years, if not more, to complete.
So, you’re free to invest a million dollars and wait for a decade with the uncertainty that you may or may not end up with a functioning smart phone. Or, you can walk into an Apple store and plunk down a couple of hundred dollars for a brand spanking new iPhone.
IPHONE: WHICH IS THE BETTER END OF THE DEAL?
In that transaction, what does Apple get from you? Apple gets a few hundred of your dollars. But what do you get in exchange? Something that would’ve cost you a million dollars and many years to make on your own. Wow. Just, wow.
Let’s put some numbers to the matter. If we suppose, as we suggested above, that it would cost most people no less than $1,000,000 to design and build their own smart phone, then consider:
Approximately 74,500,000 iPhones were sold in the last quarter. If each phone was bought by an individual customer, and it would’ve cost each customer $1,000,000 to design and build their own smart phone, then:
74,500,000 customers X $1,000,000 = $74,500,000,000,000
That’s right: Apple iPhone customers, all 74.5 million of them in aggregate, would have spent over $74 TRILLION—probably more!—to try and make smart phones on their own.
Instead, those 74.5 million customers spent about $200 each for a new iPhone. That means iPhone customers spent something like $14.9 billion dollars in cash, in exchange for new iPhones. And while $14.9 billion is not a small number, it’s much smaller than $74.5 TRILLION.
APPLE’S BILLIONS ARE SMALL POTATOES COMPARED TO OUR TRILLIONS
If we consider what those customer would’ve spent to develop a smart phone on their own, at least $74 trillion (not to mentions years and years of time-consuming research and development), and we subtract the dollars those customers actually spent to but new iPhones, about $14.9 billion, we find that those who bought iPhones received at least $74.485 trillion of value FROM Apple. The profits that Apple made from customers, a few billion dollars, seem like small potatoes in comparison, yes?
If Apple makes a few billion dollars in profits by selling iPhones, and iPhone customers receive tens of trillions of dollars in value from Apple along with a slick new phone to boot, who’s getting the better end of the deal?
MORE PROFIT FOR BUSINESSES MEANS MORE VALUE FOR US
So the next time people want to criticize what they consider “obscene corporate profits,” let’s remember: Those profits are only a partial reflection of the real value WE received from THEIR work! Whatever profits Apple, for example, has made recently, the millions of people who have bought iPhones, all over the world, in aggregate, received hundreds, thousands, or even millions of times the value from Apple that Apple received from them.
This is true of any business. Consider whatever are your favorite stores, gadgets, cars, clothing line, restaurants, entertainment venues, or anything else offered by a business of any kind, think about what would be required to make those things happen on your own, versus what it costs to buy it from a business that makes it available. The buyer always wins because he always gets more value than what he pays in cash for any product or service that he cannot easily or cheaply make on his own. If that’s not philanthropy, I don’t know what is.