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How Much Will Google Glass Cost? The Price of Production Offers Some Clues

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Glass is one of the hottest Google's gadgets on the market, but its production cost is less than one-seventh of its current retail price. That is likely to change.

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Google Glass (NASDAQ:GOOG), the much-hyped augmented reality device, looks like the most promising foray into the wearable tech market by a major company thus far. IHS iSuppli (NYSE:IHS) forecasts that the smart Glass market will hit the $6 billion mark by 2016, with up to 9.4 million units sold by then.

First announced in spring 2012, Google Glass is now in use by a limited group of Google employees, developers, and about 10,000 early adopters (known as "Explorers") who were chosen by Google.

It costs to belong to that last category; as an Explorer, you have to pay $1,500 for the device and you cannot resell it. In fact, it's cost that might be one of the decisive factors to make or break Glass's market prospects. As the popular technology blogger and Glass Explorer Robert Scoble puts it, "The success of this [device] totally depends on price."

In public talks, he has asked audiences about their willingness to purchase a Glass headset, and found that most people were reluctant to buy the device at $500. But, he says, when he asked crowds about whether they'd purchase Glass at $200, "literally every hand went up."

"This was consistent, whether talking with students, or more mainstream, older audiences," Scoble said.

So how much will Glass cost? And what does it cost Google to make one?

We asked experts and we did some math ourselves. Based on the components used, it should cost less than $210 to produce one device.

The retail price will therefore all depend on what margin strategy Google will choose to use. So far, a Topology Research Institute analyst predicted that the device would carry an initial price tag of $299.

A Question of Price -- and Timing

Google has promised to expand the number of Glass Explorers this year, and the company has said that it will offer "even broader availability next year," which means that regular customers in the US will have to wait until 2014 to buy the device at a retail outlet. (There has been no news about when Glass will be available internationally.)

Google chairman Eric Schmidt delivered a slightly more specific message about the timing of a retail launch earlier this year. "Thousands of these [devices] will be in use by developers over the next months and then, based on their feedback, we'll make some product changes, and it's probably a year-ish away," he said in an April interview with the BBC.

By the time Glass makes it into the mass market, the price is expected to drop.

But Google has yet to provide any hints about the price tag for Glass. In 2012, Google employees were quoted as saying that Glass would be sold at roughly the price of a contemporary smartphone. However, the company did not respond to Minyanville's multiple requests for comment.

How do tech firms set a product price? Aside from taking into account the most obvious factors, like components used and margins imposed, the price of the product usually reflects the scale of production, special discounts (or lack of thereof), shipping, and customs fees as well.

And let's not forget about contractors' margins, too.

Google is reportedly outsourcing Glass production to Taiwan-based Foxconn Technology (TPE:2354), although speculation could not be confirmed. A Foxconn representative said in an email that Foxconn was not commenting on any existing or potential customers and their products.

Another possible production partner for Google is Shenzen, China-based PCH International, a third-party supplier of product development and production services, which also has offices in Ireland, South Korea, Japan, and Hong Kong. Last October, PCH International opened a new US location in San Francisco, just 35 miles away from the Google Campus in Mountain View. PCH International declined to comment on any possible relationship with Google, quoting internal policies that ban discussion of any individual companies or clients.
No positions in stocks mentioned.
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