Graphics specialist NVIDIA (NASDAQ: NVDA) confused a lot of people when it introduced its latest GeForce GTX 1070 and GeForce GTX 1080 graphics cards. In particular, the confusion came from the fact that the company listed two prices for each. The first was a price for Founders Edition" models and the second was a manufacturer suggested retail price, or MSRP.
The Founders Edition versions of the 1070 and 1080 will sell for $449 and $699, respectively, while the MSRPs for these sit at $379 and $599, respectively.
As it turns out, though, the Founders Edition models are really nothing more than what has been widely referred to as the "reference model." For several product generations now, NVIDIA has been selling its graphics processors mounted onto an NVIDIA-designed board and cooled by an NVIDIA-designed cooler.
In the past, these were sold at MSRP, but with the Founders Edition, NVIDIA is now asking for a premium; $100 in the case of the GTX 1080 and $70 in the case of the GTX 1070.
What's going on here?
The rationale behind the higher-than-MSRP pricing
Here's what Jeff Fisher, NVIDIA's GeForce chief, had to say about the rationale behind the pricing during a Q&A session at the launch event (emphasis mine):
We have customers who have asked to buy this product downstream, after the initial launch of the product. We would like to find a way to be able to take this product and keep it in production and supply throughout the life of this product, keep it as one of the 1080s.
The problem is, at the reference price it is very painful to do because of the cost of the thermals and everything else. If a partner were building this board, they would sell it at a higher price.
With previous products, NVIDIA put out its own reference designs and sold them through its add-in board partners. However, it wouldn't be too long afterward when those boards were removed from production and ultimately stores in favor of custom boards from NVIDIA's add-in-board partners at a wide range of price points.
Makes sense, but customers may not understand
From a business perspective, NVIDIA's explanation is perfectly reasonable: a product's price should track its cost structure.
However, the problem here is that some gamers who are used to being able to buy these cards at the reference price at launch may not understand the rationale. From their perspectives, a product that would have cost $599 in the past (albeit for a limited time only as NVIDIA took a temporary financial "hit" to get product into the market) now costs $699.
If NVIDIA's partners go ahead and announce variants at the $599 (GTX 1080)/$379 (GTX 1070) price points soon -- perhaps at the Computex trade show in early June -- then no harm done.
As long as gamers have the option of getting product at the quoted MSRPs, then I see this as a non-issue and actually a win, as there will be some customers who appreciate being able to buy the official NVIDIA-designed cards.
However, if there is a large time gap between the availability of the Founders Edition products and the cost-down cards sold at MSRP, then that could frustrate some customers, particularly as $100 and $70 differences for the 1080 and 1070, respectively, for many gamers is quite material.
What's the bottom line?
CEO Jen-Hsun Huang said on the company's most recent earnings call that he expects that "the vast majority of the add-in cards will continue to be manufactured by [NVIDIA's] add-in card partners."
I think Huang is correct. For the value-conscious, the cheaper variants of the 1070/1080 will be the way to go. For those who want the absolute best performance and are willing to pay for it, the add-in board partners will certainly put out faster cards with more bells and whistles.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.