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← OEM Channel Economics - How to Build a Startup

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Showing Revision 3 created 05/25/2016 by Udacity Robot.

  1. So let's take a look at channel economics, but this time assume you are in
  2. original equipment manufacture and your product becomes some other customer's cost of goods.
  3. So let's assume this diagram on the top is a laptop computer sold for a computer reseller channel.
  4. And let's say this laptop sells for $3000 and like any other channel,
  5. the end user assumes they get a discount.
  6. The reseller is taking a profit but gee that reseller was actually buying these laptops
  7. from a master distributor.
  8. Now remember, back here the manufacturer of the laptop had their cost of goods
  9. sometimes abbreviated COGS, which include manufacturing costs, components, etc.
  10. And finally, they had their sales costs, their R&D costs, and their general and administrative costs.
  11. And finally, after all that, they make a profit.
  12. So where do you fit? This is just a laptop manufacturer.
  13. Assume this is Apple or HP. But in this case, you were a graphics chips supplier to Apple or HP.
  14. And you were just one single component on their motherboard.
  15. Well, if you really think about it, you were fitting in here in their costs of goods.
  16. And now your cost of goods; your sales, general, and administrative costs;
  17. your profit; and now your reseller costs.
  18. Now, in some cases, you might've been selling directly your parts in to HP or Apple
  19. and you would not have reseller costs but you would have more direct sales costs.
  20. Remember, this stands for sales, general, and administrative costs and so your profit is miniscule
  21. compared to what the laptop manufacturer is making but you might be selling millions
  22. of single chips and so that profit is multiplied by that high volume when you OEM a product.