I crossed the finish line at the LA Marathon in just under 6 hours last Sunday. Not as fast as I wanted (is it ever?) but I did make it from Dodger Stadium to the Santa Monica Beach to receive my medal. Then I took a long nap, had a great meal with my wife and oldest son, and took Charlie for a short bike ride. The marathon is behind me for another year.
As part of the aftermath on the whole cablegate incident, I decided to do a little research in to the cable business. I’ve spoken to cable manufacturers, manufacturers representatives (mostly from China), fabricators (large and small), high-end suppliers, and retailers. Many of these individuals agreed to speak freely to me on the condition that I wouldn’t identify specific brands or individuals. I agreed. My goal is to try and understand what the dynamics are behind this business. What I’ve learned so far isn’t pretty.
Let’s start with the cost of goods. I certainly understand that it costs a great deal to do the research and development necessary to design and test a product line, but I’m going to ignore those costs because they get amortized over the entire life of the product. What I asked several people in positions to know was how much does it cost to actually build a cable? How much do the materials cost and how much labor is involved? Of course, there are cost differences between different materials including copper, silver, and gold but in the final analysis does a one meter USB cable use enough metal to warrant costs that easily get to hundreds if not thousands of dollars (and remember that digital cables have only one job…to deliver the bits from the source to the destination).
The information I received placed the cost of goods for a mid level USB cable at around $8 supplied by a Chinese maker. If the same cable were made in the United States, the number increases to around $15. And what is the retail cost of a digital cable that costs the company so little? It turns out the final retail price depends on how many marketing and promotion dollars are added to the “cost of goods”. A retailer will sell the cables for between $200 and $1000…and they will get these very high prices because of the pseudo-science spewed on their own company websites, nonsense reviews and awards on audiophile sites (“…is a little quieter and renders micro dynamic aspects of the music in a clearer fashion…”), and through testimonials offered by individuals that refute the basics of digital information theory and practice.
The breakdown of costs associated with a 1-meter USB cable should go something like this. The COGs (the cost of getting the raw materials into a retail ready product) is around $20 (fancy packaging, printing included). Then you add in the costs of running your company (salaries, office space, utilities etc), marketing and advertising, and then some profit (maybe a 10-25% margin would be fair). This establishes the wholesale cost of the cable…maybe $50. This number if then doubled by the wholesaler to $100 and doubled again by the retailer to $200. So the original $10 cable retailers for 20 times the original cost.
So how would you feel about spending $3500 for the same $15 1-meter USB cable? Especially when you come to understand the “micro dynamics” of the expensive cable and the Monoprice $5 USB cable are identical. What a crazy world it is.