New Economy: Can Hardware Rise Above Software? "Common Silicon Valley wisdom has hewed for decades to the business adage that to establish a successful business in consumer products, you must be willing to lose money on the razors and look for profits from selling the blades. A notable example has been Microsoft's money-losing Xbox video game business. By hemorrhaging money on each video game console (razor) sold and hoping someday to make it up on game software (razor blades), Microsoft's home and entertainment division reported losses of almost $1 billion last year.
Now, along comes Mr. Jobs, the chief executive of Apple Computer, who once again is standing the common wisdom on its head. For its fiscal first quarter of 2004, Apple sold nearly 750,000 of its palm-sized iPod digital music players (razors) for an average price of $400, while selling 30 million songs (blades) for about 99 cents each. While Mr. Jobs has repeatedly said that Apple makes little or no profit from each song downloaded, the company said last week that its iPod sales were crucial to Apple's financial resurgence."