"Delusional Nice People" - Kessler still on a rampage

TheMadMilkman said:

This is no longer true for Jason Stoddard. He sold his marketing firm and works full-time at Schiit now.

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As does Mike Moffat.

And by the way, to those getting all angry, upset and red-faced about me quoting the opinion of Jason Stoddard from Schiit about the current state of high-end audio, please note the caveat that I posted (emphasis):

Al M. said:

Talking about Schiit, here is Jason Stoddard from his book "Schiit Happened". It sounds pretty much like Ken Kessler. It is of course up to the individual readers if they agree or not:

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My personal take:

1. I mostly agree with him about the current sad state of high-end audio. High-end gear tends to be ridiculously over-priced these days. And among audiophiles it seems indeed often to be about "my price is bigger than your price", as he says.
2. Expensive audio has gone from pure functionality to often (not always) audiophile jewelry, where the hyper-expensive packaging has nothing to do with the actual performance of the gear.
3. The high price of some extreme audio gear probably can be justified. Here I may disagree with Stoddard. And while he thinks that buying a Ferrari is more worthwhile than buying hyper-expensive audio gear, I'd say that depends on someone's priorities. It's just a personal preference, after all.

KeithR said:

Ken is right - alot of it is bullsh$%.

The Goebel room at Munich was hilarious - the cables alone were almost 300k euros. FOR WIRE.

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That IS indeed ridiculous.

Al M. said:

Hello 853guy,

While you make excellent points about exploitation that are worth considering, I don't see how hyper-expensive prices in high-end audio have anything to do with a provenance via a process of lessened exploitation. This justification seems a real stretch. There are better ways to justify some (not all) hyper-expensive high-end products. By the way, Schiit products, including the Yggdrasil, are made in the USA.

Al

PS: in order to preemptively answer a question that will inevitably come up among some readers,
here is Schiit from their website:

Q: Do you seriously make your stuff in the USA?
A: Yep!
Q: But wouldn’t it be cheaper doing it in China?
A: Maybe. But we’re not going to find out.
Q: Well, hell, all your parts are probably Chinese anyway, right?
A: Um, no. The vast majority of our parts, on a total cost basis, come from right here in the USA, from companies manufacturing their products in the USA.

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Hi Al,

My take? Stoddard’s value system - at least as he's articulating it from the quote you provided - is top-down. That is, he looks at some of the most extreme examples of pricing and considers anyone nuts who would pay that sort of money for something he can provide for much less. In other words, he’s targeting value specifically against the upper end of the bell curve, rather than against the lower end. It says, “You spent $250K on a stereo? You’re nuts”.

However, if one took a bottom-up perspective, and looked at the Yggdrasil, it would say “You spent two-thousand two hundred and ninety-nine times the daily wage of a child miner on a stereo? You’re nuts.”

See? Perspective matters, and Stoddard’s is mostly a reflection of his value system and where he chooses to look from (1).

Do I, personally, think $250K is a lot of money to spend on something of limited utility value relative to something one-tenth the price? Yes, I do. Do I think $2299 is a lot of money to spend on something of limited utility value relative to something one-tenth the price? Yes, I do.

But irrespective of whether my total system cost comes to $250K, or $2299, in an absolute sense, both amounts are still an “insane” amount of money when contextualised within the reality of the world’s one billion people who live on less than a dollar a day (2). If that's my chosen perspective and a reflection of my world-view, then like I say, I need to make informed decisions on how I assemble the components that comprise my system of which the price itself will only ever be one variable of many, and probably not the most important one. It might, for instance, lead me to pay more for a component that delivered equivalent performance to another component of lesser cost, simply because the more expensive one was of greater ethical provenance.

Does Schiit pride themselves on the fact that their products are made from parts mostly sourced from the USA and are designed and assembled there? Good for them. Does that differentiate them from manufacturers whose products are made from parts mostly sourced from Switzerland and designed and assembled there? Or from Cyprus, or Poland, or China, or Taiwan?

Not for me. A high standard of ethics regarding the provenance of materials and how their workers are compensated relative to the standard of working conditions can be achieved in any of those countries. Whether it is or not, is part of what makes consumer awareness a complex undertaking to evaluate, but can be done nevertheless.

Accepting products from manufacturers commanding “hyper expensive” prices may actually be commensurate with the true cost of material provenance and worker compensation and their country of origin (3) relative to those offered by Schiit might be a stretch to you, but “hyper expensive” as a descriptor tells me nothing about the provenance, ethics, compensatory practices of the company's products in question, nor anything about their performance, but rather, is mostly revealing of the world-view of the one for whom the product is “hyper expensive”.

Again, perspective matters, and Stoddard and Kessler are no more or less bound by theirs than you or I.

Best,

853guy


(1) This is of course why value is considered relative, dependent mostly on the position you choose along a continuum and whether you’re looking up or down. “You spent $2299 on a Yggdrasil DAC, when I bought the Fostex HP-A3 for $299 that also comes with a headphone amp…?” “You spent $299 on a Fostex when I spent….” Yada yada yada.

(2) Millennium Project figures, 2006. The same report indicated 2.7 billion live on less than $2 a day.

(3) Margins and profitability notwithstanding.

KeithR said:

Ken is right - alot of it is bullsh$%.

The Goebel room at Munich was hilarious - the cables alone were almost 300k euros. FOR WIRE.

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Was it at least blingy?

853guy said:

Hi Al,

My take? Stoddard’s value system - at least as I’m reading it from the quote you provided - is top-down. That is, he looks at some of the most extreme examples of pricing and considers anyone nuts who would pay that sort of money for something he can provide for much less. In other words, he’s targeting value specifically against the upper end of the bell curve, rather than against the lower end. It says, “You spent $250K on a stereo? You’re nuts”.

[...]

Accepting products from manufacturers commanding “hyper expensive” prices may actually be commensurate with the true cost of material provenance and worker compensation and their country of origin (3) relative to those offered by Schiit might be a stretch to you, but “hyper expensive” as a descriptor tells me nothing about the provenance, ethics, compensatory practices of the company's products in question, nor anything about their performance, but rather, is mostly revealing of the world-view of the one for whom the product is “hyper expensive”.

Again, perspective matters, and Stoddard and Kessler are no more of less bound by theirs than you or I.

Best,

853guy

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Thanks, 853guy, for explaining your thought-provoking perspective further. I can agree with a lot of what you are saying in this post.

Al

Al M. said:

Thanks, 853guy, for explaining your thought-provoking perspective further. I can agree with a lot of what you are saying in this post.

Al

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Cheers, Al. Take care.

853guy

I agree. I have well off friends who think I was crazy for spending $2,300 on an Yggy. I know one guy who has a McLaren who thinks I am nuts. Go figure,

Al M. said:

(...)

My personal take:

1. I mostly agree with him about the current sad state of high-end audio. High-end gear tends to be ridiculously over-priced these days. And among audiophiles it seems indeed often to be about "my price is bigger than your price", as he says.
2. Expensive audio has gone from pure functionality to often (not always) audiophile jewelry, where the hyper-expensive packaging has nothing to do with the actual performance of the gear.
3. The high price of some extreme audio gear probably can be justified. Here I may disagree with Stoddard. And while he thinks that buying a Ferrari is more worthwhile than buying hyper-expensive audio gear, I'd say that depends on someone's priorities. It's just a personal preference, after all.

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1. Sad state? Do you notice that you are writing to a forum where most users seem to be conscious of performance, independently of price? Where people openly debate their equipment and beliefs, irrespective of price?

2. IMHO one the reasons of high prices is the individualism of high-end - many products become expensive because they are manufactured in very small numbers, not because of hyper expensive packaging. And most of the time packaging that looks luxurious and expensive is more reasonably priced than we think. But yes sin exists in the high-end, buyers should avoid it.

3. Nice that we agree on my main argument against Stoddard anti-high end quote.

Joe Whip said:

I agree. I have well off friends who think I was crazy for spending $2,300 on an Yggy. I know one guy who has a McLaren who thinks I am nuts. Go figure,

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Surely he can afford drugs too...

I guess I'm out of date on the Schiit guys. Either way, I think what they do is neat, but I'm not going to consider them very high end, just high end. You can't even buy the parts for some things at the price they sell entire items for.

But the point still stands that to even get to where they are now it took a lot of subsidy from other income. That's how hard it is to sell stuff affordably.

853guy said:

And why are our smartphones so cheap compared to the Yggdrasil or an interconnect or a low-output MC cart, not to mention “worth more” in utility value?

Because the labour practices, ethics, environmental impact and economic devastation wrought on nations mining the basic materials and assembling the components that go into every smartphone comes at the cost of the world’s poorest (yet mineral rich) countries, in which many of the workers are not only paid between $1 and $2 a day for twelve to twenty-four hour shifts, but an estimated 40000 of them are children (1) (2) (3).

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I don't know where this analysis came from. Did you just think it or actually know what is involved in making a boutique product vs mass volume? The fundamentals of these businesses is very different.

Take the sales channel. If the manufacturer sells through a rep company, they take 10% profit. The dealer is going to want 40% margin if not higher to carry such high priced items and pay salesman to sell them. The manufacturer itself would want 40 to to as high as 65% margin for themselves. In other words, the material/manufacturing cost of products in boutique, low-volume may be just 10-20% of the overall retail price.

Then there is the issue of market size and elasticity. If you are only going to sell 200 of some product, and you price it at $2,000, you only make $400K. By the time you pay all the expenses, you may be paying yourself minimum wage. Now, make the retail $20,000 and now you have a $4M top line revenue if you can maintain the same unit sales. Now you could have a business.

Then there is the issue of no-man-land in the mid price category. You either have frugal people or people who have the money and value is not very important. The former is the mass market. The latter, the high-end. You have to be very careful to try to slice your way into the middle category and then search for customers and distributors. No one wants to dedicate the same sales effort to sell a $3000 product when you can sell $15,000.

High volume manufacturing like what Apple and Samsung do is in a completely different league with its own rules of universe. Take components that are bought below cost of the manufacture just to use up manufacturing capacity or have bragging rights to sell to others ("my flash memory is in iPhone; surely you want to buy this part from me than someone else."). Automation is at maximum here with tons of efforts gone into DFM (design for manufacturing). If you are selling billions of dollars of products, you can afford to build fully automated test jigs. If you are building 200, not so much.

On and on.

Folsom said:

Surely he can afford drugs too...

I guess I'm out of date on the Schiit guys. Either way, I think what they do is neat, but I'm not going to consider them very high end, just high end. You can't even buy the parts for some things at the price they sell entire items for.

But the point still stands that to even get to where they are now it took a lot of subsidy from other income. That's how hard it is to sell stuff affordably.

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Listen to one in what you would call a very high end system and then decide.

Joe Whip said:

Listen to one in what you would call a very high end system and then decide.

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Aside from that, the notion seems to be hanging around that Schiit is still more or less a struggling garage start-up. According to Robert Harley who reports the latest numbers in his Yggy review they currently sell 65,000 units a year (not bad after 7 years). Sure, much of their stuff is $ 99 DACs and headphone amps, but not all of it, making them probably a +10 million/year company by now. And that with almost no marketing.

Jason wouldn't have sold his ad agency to go full time if they weren't doing well. Expansion plans are in place

amirm said:

I don't know where this analysis came from. Did you just think it or actually know what is involved in making a boutique product vs mass volume? The fundamentals of these businesses is very different.

Take the sales channel. If the manufacturer sells through a rep company, they take 10% profit. The dealer is going to want 40% margin if not higher to carry such high priced items and pay salesman to sell them. The manufacturer itself would want 40 to to as high as 65% margin for themselves. In other words, the material/manufacturing cost of products in boutique, low-volume may be just 10-20% of the overall retail price.

Then there is the issue of market size and elasticity. If you are only going to sell 200 of some product, and you price it at $2,000, you only make $400K. By the time you pay all the expenses, you may be paying yourself minimum wage. Now, make the retail $20,000 and now you have a $4M top line revenue if you can maintain the same unit sales. Now you could have a business.

Then there is the issue of no-man-land in the mid price category. You either have frugal people or people who have the money and value is not very important. The former is the mass market. The latter, the high-end. You have to be very careful to try to slice your way into the middle category and then search for customers and distributors. No one wants to dedicate the same sales effort to sell a $3000 product when you can sell $15,000.

High volume manufacturing like what Apple and Samsung do is in a completely different league with its own rules of universe. Take components that are bought below cost of the manufacture just to use up manufacturing capacity or have bragging rights to sell to others ("my flash memory is in iPhone; surely you want to buy this part from me than someone else."). Automation is at maximum here with tons of efforts gone into DFM (design for manufacturing). If you are selling billions of dollars of products, you can afford to build fully automated test jigs. If you are building 200, not so much.

On and on.

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Hi Amir,

Yes, well aware of many of the factors of what it takes to bring a product to market, distribute and market it, and the differences that exist when comparing how revenue streams are generated and sustained across companies manufacturing consumer goods. And though I appreciate the points you raise above, they neither address the opacity of the supply chain nor the rights of the workers who perform final assembly, both of which make up only a tiny fraction of the actual costs of production.

In the infographic below, we can see the final assembly and testing, carried out by workers in factories that are non-automated, is equivalent to 5.53% of the total manufacturing cost (or $12.62 of $228.07) for an iPhone 6, while final assembly and testing for a Galaxy S5 is equivalent to 5.01% of the total manufacturing cost (or $10.80 of $215.44). However, given each worker at Apple’s Pegatron factory in Shanghai earns only $1.60 US an hour and 62% of those workers had over eighty-two hours of illegal or forced overtime per month, it’s clear these workers are not remunerated sufficiently enough in order to avoid having to work overtime to earn a living wage, an exploitation of their labour rights.



Were these workers paid the average minimum wage of $7.25 US per hour, and worked forty hours per week in which their rights were protected, final testing and assembly would jump to $57.18 for an iPhone 6, or 25.07% of the (current) total manufacturing cost versus 5.53%, with 51% less iPhones being produced each week. Taking into account these two variables, were the iPhone produced in America in which workers were compensated at the allowable minimum wage working forty hours per week, the manufacturing cost of an iPhone would then jump to a total of $411.56, or nearly double its current manufacturing cost.

That is, if Apple sought to maintain its profit margin for each iPhone 6 sold based solely on increased manufacturing cost (i.e. labour), the retail price would jump from $649 US to $1171 US. If they wanted to maintain supply for current demand by increasing workforce output by 51%, it would retail for $1768.96, a 280% increase over its current RRP solely in order to address labour costs. It’s just maths. And that’s not even taking into account the compensation nor working conditions abuses of those mining the cobalt that’s essential to every battery installed in every phone.

Like I mentioned in my previous two posts, of all the costs associated with the manufacture of a smartphone, the ones that come at the greatest human cost are the ones related to those who mine the cobalt for each battery, and those who spend an average of 60.5 hours per week working for $1.60 US per hour doing final assembly. To bring up issues of the sales channel, target market, market size and elasticity, is to choose the variables in which human rights are least relevant, given that the only way an iPhone costs $649 retail is to outsource the greatest burden of labour to those whose voices are suppressed and rights are abused.

That many of our high-end audio components are not made is such a way, or at the least, have a more transparent supply chain and manufacturing process, means the consumer is given a far greater variety of choice in whom they select should they wish to look for companies with a degree of ethical and sustainable business practices, and accordingly, a commensurate increase in price relative to consumer goods in which the supply chain and manufacturing process is opaque, and ethical abuses are rife.

These additional links below may provide you some context for my comments, should you choose to click on them.

853guy

http://spectrum.ieee.org/static/interactive-apples-and-samsungs-changing-smartphone-recipes

https://www.wired.com/2014/12/apple-isnt-one-blame-smartphone-supply-chain-abuses/

http://digitalethics.org/essays/ethical-smartphone-oxymoron/

https://www.amnesty.org/en/latest/campaigns/2016/06/drc-cobalt-child-labour/

http://fortune.com/2017/03/03/apple-cobalt-child-labor/

http://fortune.com/2016/08/26/apple-pegatron-abuses/

https://news.vice.com/story/apple-p...als-to-make-iphones-it-just-isnt-sure-how-yet

microstrip said:

1. Sad state? Do you notice that you are writing to a forum where most users seem to be conscious of performance, independently of price? Where people openly debate their equipment and beliefs, irrespective of price?

2. IMHO one the reasons of high prices is the individualism of high-end - many products become expensive because they are manufactured in very small numbers, not because of hyper expensive packaging. And most of the time packaging that looks luxurious and expensive is more reasonably priced than we think. But yes sin exists in the high-end, buyers should avoid it.

.

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1. Disagree. Many high end purchase decisions have low compare notes - lots of discussions, but low compares. In fact on this forum belief that price equates performance is probably the highest.

2. Disagree. The custom ones which are really good are bought direct, so they are cheaper than the ones that are distributed through channels or shown at Munich. A lot of high prices are just in order to be taken seriously. I got this from at least 2 people in Munich who had introduced high priced stuff this year, that the main reason was to be taken seriously.

I was told by a manufacturer in the states by his potential distributors in Asia that they couldn't sell his product as it was priced too low, at around $30,000 but that people would buy it at $80,000. So, he raised the price and he did very well. I just can't get my head around that mindset, that it has to be better because it costs more. I bet there is a lot of that going on in the "high end"

Joe Whip said:

I was told by a manufacturer in the states by his potential distributors in Asia that they couldn't sell his product as it was priced too low, at around $30,000 but that people would buy it at $80,000. So, he raised the price and he did very well.

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The sad perversion and decline of the High End seems worse than even I expected.

I just can't get my head around that mindset, that it has to be better because it costs more. I bet there is a lot of that going on in the "high end"

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Absolutely. As I said before, many audiophiles appear to be reflexively going for the more expensive item (or category of items). No or few questions asked about actual (contribution to) sound quality.

Joe Whip said:

I was told by a manufacturer in the states by his potential distributors in Asia that they couldn't sell his product as it was priced too low, at around $30,000 but that people would buy it at $80,000. So, he raised the price and he did very well. I just can't get my head around that mindset, that it has to be better because it costs more. I bet there is a lot of that going on in the "high end"

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Hi Joe,

If we take China specifically, it’s socio-culturally motivated. It’s important to remember that China underwent a massive economic reform under Deng Xiaoping beginning in 1978, with GDP growth estimated at between 9.5% to 11.5% annually up until 2013. Prior to that, China’s economic growth had been in decline under Maoist policies, with a decline of 13.2% between 1957 and 1978.

With reforms in privatisation, price flexibility, private business ownership, the reopening of the Shanghai stock exchange, foreign investment, and the reduction of tariffs, trade barriers and regulations, China suddenly had access not only to self-created wealth, but Western brands long considered taboo.

In a 2010 study carried out by McKinsey & Co, they found 45% of Chinese consumers equated higher price with better quality, largely because pricing was flatlined during the Maoist era and product development and choice was limited to state-owned production. With access to a market in which price varied enormously, and Western brands looking to capitalize on a growing and hugely populated economy, suddenly Chinese consumers could not only trade up, but for many trade up in ways previously unthinkable under Maoist rule, going from mass-market brands to premium ones. This has been boosted by consumers who have grown up during and after the cultural revolution, in which spending habits have changed enormously, with the burgeoning upper-middle class driving consumption and well as being more willing to allot a greater portion of their (increasing) income to discretionary purchases, becoming more sophisticated in their choices, and freedom of travel to Western countries. (1) (2) (3) (4)

Best,

853guy


(1) http://www.mckinsey.com/business-fu...s/our-insights/chinas-new-pragmatic-consumers

(2) http://www.mckinsey.com/industries/retail/our-insights/here-comes-the-modern-chinese-consumer

(3) https://www.weforum.org/agenda/2016/01/3-great-forces-changing-chinas-consumer-market/

(4) Income in China has been increasing at an annual rate of 11% since 2010.

That may all be true. However, it is driving up the costs for all of us. The irony is that you can still buy his product here for $30k if you get it it another color. That color is not available in Asia.