Why Are iPods So Expensive: Secret Apple Tax

Wonder why the iPod is so expensive as compared to other MP3 players? Well, sure - it looks and works great - but is quality necessarily the main driving force behind its high prices?

Perhaps not. Here’s an article in Popular Mechanics about the secret "Apple Tax":

Last year, when Apple introduced the original iPhone and the latest generation of iPods, another new product came out of Cupertino, Calif., but this one received little fanfare. It was a proprietary authentication chip. The chip works like a silicon key that unlocks streaming video functionality on iPhones and iPods and generally authorizes the devices to work with approved accessories. The advent of the “auth chip” made it impossible for any third-party company to produce iPod-compatible gadgets without dealing first with Apple—the only company selling the chip. Previous-generation iPods could output video over a generic $2 iPod video cable, but new phones and iPods require officially licensed Apple cables—and these can cost up to $50.

The chip has become a headache for many accessory manufacturers, who complain that they sometimes have to compromise on quality to pay for the chip and other Apple licensing fees, while still maintaining price points consumers can afford. “If we didn’t have to pay Apple for the dock and auth chip, we could have made a much better speaker for the same price,” said an official at a major electronics maker, who, like several sources for this story, requested anonymity because of fears that speaking with the press could jeopardize his company’s relationship with Apple.

--Sam P.