Hello Marginal Revolution reader!
I’ve removed the illustrative financial model from this page, after leaving it up for several days. Its intent was to answer a question about how quickly Apple would recoup its investment.
It helped illustrate the point that, even in an ultra-low probability scenario (“worst case”), Apple Watch is profitable very soon. So, even if pre-2015 R&D costs were high, and even if 2015+ units, prices, and gross margins are low, and even if expenses are high — the product is profitable.
The primary driver: very healthy gross margins. The base (Sport) model has good margins, and the others have even higher ones. Together, even if other metrics are dismally poor (again, very low probability), the product is profitable rapidly (2015).
I didn’t want to leave the model up longer because, as time goes by, there’s more opportunity for me to forget that it’s here, and more opportunity for misunderstanding it.