I don’t know for a fact, but I always assumed that makers of single serve coffee machines make their money from the pods you have to buy for them.
This sort of machine:
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I recall first hearing about this with the Intel 386DX/386SX computer CPU’s. One chip had the math coprocessor built in, the other - you had to buy it separately if you wanted to upgrade your system. The story was that the two chips cost the same to produce, in fact the SX had the math coprocessor on board, but disabled – but marketing figured that they the market needed a “Base PC / Advanced PC”.
(Apparently the story was baloney – see the Wikipedia article about the i386.)
I’m guessing most people who buy the mop handle use genuine Swiffer brand refills (don’t risk your floor to anything else!).
There is undoubtedly enough leakage of people MacGyvering work arounds and using cheap knockoffs (look how dull and scratched your floor looks!) that they aren’t selling the handles at a loss, though (which is the actual business model under discussion).
Of course, you can also buy knockoff blade cartridges.
- Video game consoles. IIRC they’re sold at a loss, and the company makes up the difference selling games for them.
I disagree in part. With so many different companies putting out games a company cannot guaranty people will buy their games. How many Sony games have you bought for your PS5? The real money today for the manufacture is paying for the subscriptions for your machine.
I was a manufacturing engineer for 30 years and this is exactly correct.
A different example is flat screen tvs/monitors. There are only a small number of factories making panels. In the case of large tvs, for example, the top companies like Sony or LG will only allow a very small number of defects (pad pixels). The panels with more defects up to a certain amount will go to lower tier companies. If the factory has a particularly great run, they may fulfill their order to the big boys and the leftovers will go to the others. This is similar to all components. If you’re lucky, your cheapie tv will be pretty much the same as a Sony.
I think that it’s just out of date. It was probably true for early generation consoles.
Does Sony get a license fee for third party games?
Sony might not make the games themselves, but if it runs on a Playstation, then whatever company does make it is paying a license fee to Sony for every copy sold.
Back in the days of the original NES, it wasn’t too hard to make unlicensed games that would run on the console, and there wasn’t much legally they could do about it (which led to some reputation problems, with some games being not just bad, but reprehensible). By the next generation, though, they figured out a combination of technology and lawfare that did the trick: Every legit SNES game, the first thing it’d do on starting would be to display the Nintendo Seal of Approval, and the console would refuse to run any game that didn’t start by doing that. A non-licensed game could, of course, fake the seal… but that’s where the lawfare comes in, because they trademarked the seal, and so would have legal recourse against such a game.
Traditionally, yes, third party developers had to pay a license fee per game sold to use the developers kit, trademarks, and other stuff. It was also believed that the Xbox was originally sold at a loss, but I don’t know if that was true. If so then the Xbox would have met the requirements of the “razor blade” business model. There can be debate over whether Microsoft was just doing the razor blade thing, or if they didn’t care about making a profit on the Xbox, and were selling at a loss to gain market share.
A variation on the razor blade model is the service contract model. The company will sell or lease something very cheaply, with the requirement that the customer sign up for a service contract. Business copiers are often sold/leased this way.
And I almost don’t even need to mention that the cell phone industry used to follow this model, with the cheap/free phone, with the requirement of signing up for a 2 year contract.
Software-as-a-Service. Almost all vertical market players are now trying to sell their software as an annual service contract. It lowers the up-front costs and hooks the client into your ecosystem.
Adobe Photoshop is a free download with a free trial, but then it becomes a subscription.
Cocaine dealers. The first taste is free. Drugs as a service…Adobe probably hired some of them as consultants.
This is all very true, and it’s done with lots of products - make one type, but test for quality and sell at different price levels based on test results. But with computers it doesn’t have to be that way. For example, I believe it was the IBM 360 that required a technician to come out and remove a board if you bought a speed upgrade, The board was installed in ‘lower end’ 360s and its purpose was to inject wait states to slow the machine down. Don’t quote me on the exact computer - it might have been a VAX. Or maybe it was a common technique.
But this strays a bit from the ‘low initial price/high consumable cost’ model being discussed.
Keurig and Tassimo initially used this model, but at least for Keurig their K-cups either weren’t patented or went out of patent, and competitors flooded the market and killed the model. So they came up with new ‘advanced’ K-cups that had an identifier like ink cartridges to thwart knock-offs. They failed miserably in the market once people realized the tactic, So now Keurig machines are bloody expensive. We just threw out a broken K-Cafe machine that cost $200, and Keurig sells home machines for $300 or more. Even their little single cup machine retails for $100.
I’ve seen a few HEPA air filters where the replacement filter is close to the cost of the whole machine.
Thankfully they went out of business because their concept was insane - Juicero. The plan was to sell an overpriced piece of equipment that was supposed to be used with their proprietary, subscription only, bags of juice.
Talking about subscriptions, what about the growing trend where using features of your car require a monthly subscription? Believe it or not, this is not from The Onion.
No one has mentioned vacuum cleaners with disposable bags yet. Maybe they aren’t as common as they used to be (my Dyson has no disposable bags, you just empty the receptacle and clean the filters). But It was a PITA for years when I lived in Indonesia - my vacuum cleaners had to have bags that fit the exact model of machine, and sometimes they were almost impossible to find.
Juicero is out of business but I see commercials for a WiFi-enabled toaster oven called Tovala. The oven is only $49 but you have to subscribe to the meal delivery service. The meals have barcodes that instruct the oven how to cook them.
At least it can scan and cook Totino’s Pizza Rolls.
Personally, I am wary of anything that needs a subscription. 10 years from now will teenagers be going door to door selling toaster subscriptions to try and earn a trip somewhere?
Maybe they’re trying to avoid having peasants who actually care about keeping ongoing costs down or don’t want to have to keep track of more subscriptions than necessary buy their elite vehicles?
So…it seems that the razor blade model works best, or works at all, when the manufacturer has control of both the below-cost, initial device (e.g. razor handle) and the consumable part (the blade).
Let me add Brita, Pur or Zerowater* pitchers or tanks. They always seem so low priced, and come with just one filter. Replacement packs of filters always cost a lot, maybe $10-$20 per filter, depending.
Aside: the Zerowater pitcher even comes with an electronic sensor for gauging water mineral levels. And the manufacturing quality is really high. I could not believe they were selling the pitchers for so little money. Truly a “razor handle” situation. While their filters are really effective, sadly, they last a pretty short time, well under a month of what I consider normal use. And the filters cost a lot. Worst of all, if you use the filter past its “life” it starts putting a very strange taste and smell into the water, which I can only describe as “fishy.” Looking this up online confirmed it had to do with their filtration method.
Single Point Lubricators (SPL) for industry. There are two types, a disposable unit or a unit that uses a service pack with battery. Either way, once you start lubricating your motor, bearing, whatever, the SPL lasts for a month or two or three, maybe longer depending on the application. Then you have to replace the SPL or service pack.