Microsoft Readies Cheaper 360

Officially Microsoft is putting on a brave face, saying they won't drop the 360's price even in the console's weakest market: Japan. Just the same (probably in anticipation of Sony's PS3 price drop), the San Jose Mercury news says the company is secretly working on preparing a lower cost Xbox 360 SKU. Called 'Falcon', it's a cost-reduced system using 65nm chips instead of the at-launch 90nm electronics. This ties right into Michael Pachter's expectation of such a cut; it should be noted he doesn't see the DS or Wii prices moving any time soon. Related to all of this, Newsweek's LevelUp blog has two great interviews today: a Peter Moore discussion harkening back to last week's warranty announcement, and a chat with Jack Tretton about the price cut and the 360's hardware issues.

Okay....

"it should be noted he doesn't see the DS or Wii prices moving any time soon"

Ermmm... the wii is half the price! A Price cut is not necessary becauser the wii is sooooooooooooooo much cheaper anyway.

Re:Okay....

A price cut is not expected for the wii because it's still selling as fast as they can make it! Microsoft and Sony are having trouble moving stock at this point, so a price cut makes sense for them.

Doesn't make sense.

This really doesn't make economic sense.

Sure, after a while the prices of parts comes down. But in the meantime you've lost sales and market share to the competition. And since your revenue is dependent on game sales, this is only shooting yourself in the foot.

Furthermore, you get bigger discounts on parts when you order them in larger lots. So anything you might save is lost by buying in smaller quantities.

Finally, there is some truth to the idea that a modest shortage can help spur customer demand, but within limits. Too much shortage and people turn to the competition.

Nintendo claims that their problem is that they've contracted out manufacture and can't ramp up production as easily as if they had their own production lines. I don't think this is the entire story. There's tons of contract manufacturing capability in the world, and the Wii uses standard, mature (and therefore cheap) technologies. This has been going on long enough that they could have brought other manufacturers online if that were the only factor.

I suspect that the inability to ramp up production is related to the Wii's low price. It is certainly not the case that they could not have brought more production capabilities on line by now, but it may be that they can't build more at the price they need to build them. They may have structured their deal with Foxconn (the OEM) in such a way that it is cheap but not scalable. For example, they may have agreed to limit the number of units to a degree that can be produced by certain slack resources at Foxconn, that are otherwise engaged in higher margin work.

I'm talking through my hat here, since I know zilch about manufacturing. But I'm reasonably certain the problem is that they can't scale their production at the price they want to sell these things for. If they could, then they would, maybe not enough to keep everybody's shelves stocked to overflowing, but enough so that you'd consider driving around to find one. My son wants one for his birthday coming up, and I told him that while I'd be happy to shell out the dough, there was no way I'd spend the time it would take to track one down. They're losing market share to the competition because of situations like this.

Let the price wars begin

Considering how badly the consumer has been screwed this console war I'm glad to see some things which benefit us finally.

Redesign might be nice

If they redesign to use 65nm, and the end result is a 360 that runs cooler and doesn't need to blast the fan as much, I might consider replacing mine with one. But it would need to have the same hard drive space (preferably more) than the current non-Core system.

I think

they should focus on getting the HD-DVD right in a cheap package for the sake of killing blu(e?)ray. The Xbox 360 elite seemed to be a bit of a screwup making a slightly nicer new console and ruining the price advantage with the ps3 without much extra. Still you'd imagine this *has* to happen with more cost-effective building because even though the 360 is a very nice console they're still losing a lot of $ on the bottomline.

This is why...

I generally stay well behind the wave of new systems coming out. The least important reason is that the new systems go down in price within a year or two. Mainly, I like to stay back and see what games come out and wait for their prices to fall to a reasonable level. Plus, the price of previous generation games goes down, too. I know there were good games after SNES/N64 (lol) but I still have NES and SMS games I would like to beat.

I can get 300 (cheap) to 50 (rare) SNES/NES/SMS/PS1/DC games for the price of one PS3 or XBOX. For me, it's all about the dollar-to-fun ratio.

Sony is back to square 1

Imagine the losses Sony endures after they cut their price with additional $100. And now the competition leaves them in the dust again. Let's say MS puts the price with $50 down (let's be conservative right). Note, the prices have been de-retardified for better comparison:

Wii: 250 usd
360: 350 usd
PS3: 500 usd

And the killer feature for each console:

Wii: totally new way to control games
360: the best online gaming experience of all consoles
PS3: Blu-Ray

Notice: PS3's killer feature isn't gaming related one. One reason gamers aren't very excited about it...

Re:Sony is back to square 1

"Amazing! How can you keep talking while so much shit comes out of your mouth?"

2484 comments man. Practice makes perfect! Thanks for your concern though.

Re:Sony is back to square 1

From what I've seen, HOME is a bloated way to hook people up online. I like the streamlined 360 online features. I don't want to have an Avatar walk around meeting other Avatars. It's pointless. I AM the Avatar. Just cut out the middle man and let communicate directly with people. And I don't want to walk my Avatar down to the shop to shop for something. Just show me a menu. That's why I shop from home for things. Web sites make it easy to find stuff in a 2D list. I hate going to a store to look for stuff. I'll hate it even more having to go to take my little Avatar to a virtual store and look for stuff there, too.

SKU

$rant = "Stop using SKU in everyday conversation."

For those of you who need it spelled out, run this at the command prompt: perl -wc split ('', $rant)

The correct term is 'model'.

Price Wars

Why is it considered a given that Nintendo will not enter into this price war? As the one company that we know for sure makes a profit on each console, it seems they could most afford to. While some might argue they are already the cheapest, the margin by which they hold that title may soon be eroded. I predict a good size price drop by Nintendo in time for the holidays.

Xbox division profitable when?

Back in May there were articles [blasteroids.com] floating around that Microsoft expected the Xbox division to be profitable in 2008. However, they've recently decided to offer an extended warrenty to customers in order to deal with the high failure rate of the Xbox 360. An earlier Slashdot article [slashdot.org] has this estimated to cost Microsoft around one billion dollars.

The earliest reports [joystiq.com] pegged the Xbox as costing about five hundred through seven hundred dollars to manufacture, a loss of a few hundred dollars on each console sold. This article [arstechnica.com] published around the time of the PS3 launch puts the cost of Xbox 360 components at around seventy dollars under the final unit cost (manufacturing and other costs were not calculated into this figure so it may be safe to assume that they were breaking even or close to it at that time).

With the costs of the new warrenty (in addition to any costs that can be associated with the honoring existing warrenties to cover the high failure rates [pcworld.com] of the console) and cutting the price which changes the profitability on each unit sold, when does Microsoft now expect their Xbox division to become profitable?

Performance drop?

Would this downgrade cause any overtly noticeable drop in performance?

you get what you pay for

i dont know any great studies about xbox 360 initial quality, but it seems that there were some complaints around. If the board/hardware was responsible for issues before, one can only assume that a reduction in price based on a cheaper board/electronics will result in more issues... this seems like a major problem considering microsoft is spending a billion already to boost the warranty service, etc. It's interesting to watch how their system issues play out a lot like what working on some microsoft-based software projects end up doing, i.e. various issues, cutting corners to save $ as issues persist and cause sales slump, and so on.

XBox 360 4.0?

Am I the only one out her that is sick of the 360 and PS3 coming out with different systems? I feel that if I buy a 360 or PS3 now it will be a mistake and they will have a new version out in a year that has a 200Gig hard drive and folds my laundry. I want a next gen system that is set in stone where I am not going to feel like I got riped off in a year when they tweak it again.

Re:XBox 360 4.0?

I would think that anyone who's paid attention the electronics/computer world for the past couple of decades would have come to terms with the fact that the "biggest and best" is a quickly moving target, and the fact that something newer comes out doesn't mean that what you bought six months ago suddenly stops working.

You might "feel" like you got ripped off, but you really didn't. It's definitely possible to not worry about such things, and so that's what I'd advise, because worrying about it isn't going to accomplish anything positive anyways.

Wow great

The 360 "Elite" didn't fix the reliability issues, what makes anybody think that this new version will be any more reliable? Microsoft has had 20 months since launch and they still can't ship reliable consoles.

New features

The built in power supply would be a nice benefit, and use a quieter DVD drive and I'll get one. Built in HD-DVD would be nice, but not many people would want it, and the addon HD-DVD drive is already under a $100 at some places, very smart not including HD-DVD from the beginning.

What other features could they build into it with the added room of smaller components? No one really thinks its too big, so changing the case probably isn't a good idea at this point, although it would be nice.

Wii

It makes sense that the Wii won't drop in price as quickly as the others, as 1) it's selling well, and 2) the hardware is more mature, so there won't be as drastic manufacturing process improvements in the short term.

The "cheaper" 360 may be better

I have actually been waiting for this "cheaper" 360. I don't like noisy fans, so I want a 360 that dissipates less heat. The new 65nm process chip will dissipate less heat and, I hope, will not require the fans to be as loud.

What I really want is the new 65nm chip combined with the improved heat-pipe cooling system, and quiet fans. If the new "cheaper" 360 still has noisy cheap fans, I hope Microsoft will introduce a "Mega Super Elite" version that has a bigger hard disk or something, and has more expensive fans. It should have a quiet optical drive too.

steveha

Falcon Hell!

Falcon? WTF?

If we're going to use Atari-based platform names, why not just name it the "Jaguar" and be done with it. That way it'll tie in well with the one-game systems (Halo3 for "MS Jaguar," vs "Tempest 2000" for "Atari Jaguar")

On the bright side, this would mean that MS only has about another 12 months in them before some hard drive company buys them for a USD$3M Stock-Swap. Freedom fighters rejoice!