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XBox (Games)

Microsoft Loses $126 Per Unit on XBox 360 725

Posted by CmdrTaco
from the so-we-should-buy-more-right dept.
ahess247 writes "BusinessWeek has taken a look at the insides of the XBox 360 and with the a little help from market researcher iSuppli determined that Microsoft is continuing its tradition to taking a big loss on the console in hopes of making a profit on games. From the article: "An up-close look at the components and other materials used in the high-end version of the Xbox 360, which contains a hard drive, found that the materials inside the unit cost Microsoft $470 before assembly. The console sells at retail for $399, meaning a loss of $71 per unit -- and that is just the start. Other items packaged with the console -- including the power supply, cables, and controllers -- add another $55 to Microsoft's cost, pushing the loss per unit to $126."
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Microsoft Loses $126 Per Unit on XBox 360

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  • Selling The Hook (Score:5, Insightful)

    by ackthpt (218170) * on Wednesday November 23, 2005 @01:19PM (#14101418) Homepage Journal

    OK they lose money selling the hook. If buyers purchase enough games or buy into XBox Live, for a nominal monthly fee, they get it all back and then some. The business model pioneered by Atari, Sega, Nintendo, Sony and before that drug dealers all the way back to the days of the opium trade.

    What's actually funny (ironic, maybe ha-ha, too) is these sales [ebay.com], assuming the sales actually go through, will enable people to profit at Microsoft's expense. When was the last time you did that?

    Oh, and beyond the cost of parts and assembly, don't forget packaging (a good box with packing material is much more than you think, especially if boxes are damaged in transit and need to be replaced, small wonder HP ships expensive Athlon64 laptops in plain brown wrappers) plus the cost of transporation and logistics, and adverising, and development costs. The loss is a bit more than that $126. Why does the fascination with loss-per-unit only focus on parts?

    I tend to think Sony still has significant advantage over Microsoft, thanks to economies of scale, they make many other consumer electronics items and can combine channels, where Microsoft will be selling this one thing.

    let me know when they have a network version of m.u.l.e. or mail order monsters

    • Re:Selling The Hook (Score:5, Interesting)

      by gormanly (134067) on Wednesday November 23, 2005 @01:23PM (#14101462)
      The whole Xbox division of MS loses money - $391m last financial year, on sales of $3.2b.

      They're not selling a hook, they're burning money in an attempt to beat everyone else out of the market and pwnz0r your home entertainment forever...
      • by ackthpt (218170) * on Wednesday November 23, 2005 @01:31PM (#14101553) Homepage Journal
        The whole Xbox division of MS loses money - $391m last financial year, on sales of $3.2b.

        They're not selling a hook, they're burning money in an attempt to beat everyone else out of the market and pwnz0r your home entertainment forever...

        It's the cost of establishing a market. The problem for them is, as I said before, these are game machines and gamers are not loyal. Once a new, better, shinier game box comes out these will be retired. Sure a few will become illicit Linux boxen and some will be used in the manner Microsoft intends, but they're hardly pwn1ng the american home. Seems like they still don't get it.

        Good thing Windows, Office and Server divisions make a pile of cash to underwrite these follies.

        • by cbreaker (561297) on Wednesday November 23, 2005 @02:37PM (#14102195) Journal
          "It's the cost of establishing a market."

          No. The market already exists. This is the cost of doing things the Microsoft way - push your way into an established market because you have billions of dollars to cover the losses.
          • by notasheep (220779)
            OK...It's the cost of establishing a position in the console gaming market. Their business practices aren't different from any of their competitors. It is ridiculous to portray them as doing something wrong here.

            For any game publisher, on any platform, there's only a few games that are truly profitable and those cover the costs of publishing all of the other games in their list. Are all game publishers evil because they lose money entering new niches in the game market?

        • by GregWebb (26123) on Wednesday November 23, 2005 @03:05PM (#14102448)
          User loyalty is irrelevant to MS.

          All they have to do here is to eventually get enough developer mindshare (and not just for games, but for the general home uses as a 'digital entertainment hub') to squeeze Sony out of the market as a serious player. Then, they can do what they want at the price they want because they own the mainstream market, and they've got the same level of control over the home entertainment market as they have the desktop OS marktet. It's not like they even have to necessarily deliver, there's been enough cases of innovative companies being stopped by the word getting out that MS might come into the market eventually.

          Look what they've done elsewhere. They'll work really hard to stop someone else getting a big market, then slow down hugely when the competition is gone. IE being a prime example.

          The difference here is that I can't think of another occasion when they've been against an opponent as big as Sony. Question is, will Sony consider the PlayStation division important enough to underwrite the losses of the fight? If not, MS have got the market.
      • Re:Selling The Hook (Score:3, Interesting)

        by Paul Slocum (598127)
        I wonder if they write it off as marketing, trying to build a "cooler" image for Microsoft. Partly for when young XBox gamer nerds get out of college and start their IT job.
      • Re:Selling The Hook (Score:4, Interesting)

        by Mr_Huber (160160) on Wednesday November 23, 2005 @02:29PM (#14102135) Homepage
        The difficulty is, being a game console, they have to keep the price point down. $300 to $400 seems to be the most that can be extracted for a console. But if they can do it, so can Sony and Nintendo. The games, of course, are not portable, but to truly lock the home entertainment customers in, they'll need something else.

        As for XBox Live, it is still too easy to switch ISPs. And I'm guessing it will be just as easy to switch multiplayer game services. Again, those addicted to a particular game will be easy to hold, but other households will bolt if MS begins anything monopolistic.

        So, how do you lock people down as thoroughly as the OS does? It can't be downloaded data (movies, etc), as the hard drive is small and the optical drive can't burn. It can't be contracts, as make it too hard to jump and people won't bite. It can't be content, because Sony has deep enough pockets to fight back with its own content. Not to mention their own movie studios.

        Honestly, I don't see any way to lock the customers in at this point. Worse, since they are competing at the same price point, they're not going to drive out Sony with low pricing. Currently, they seem to be genuinely competing on merit. And that is quite an interesting thing to see.
    • Re:Selling The Hook (Score:3, Informative)

      by mikael_j (106439)
      ...and before that drug dealers all the way back to the days of the opium trade.

      Actually, I've never met a drug dealer who did anything like that, I've only heard it referenced in "Think of teh CHILDRUN!!!111"-speeches and government pamphlets about the horrors of smoking pot even once (it leads, without exceptions, to heroin addiction and then death... Did I mention I live in Sweden?).

      /Mikael

    • Also forgot labor and overhead, which could add substantially.
    • Re:Selling The Hook (Score:5, Informative)

      by Godeke (32895) * on Wednesday November 23, 2005 @01:26PM (#14101499)
      Actually, until Microsoft and the X-Box, the "lose money on the hardware" idea was a myth:

      http://www.actsofgord.com/Proclamations/chapter02. html [actsofgord.com]
      • First of all, did you read the article yourself? Sega sold the saturn at a loss, that was before the xbox.

        Second, he pretends that sega lost money on the dreamcast. They may have sold the console at a loss at first (I'm not sure), but the dreamcast and its games made sega millions. They didn't leave the business because of the dreamcast, they left the business cause they were already screwed, the dreamcast just couldn't save them.
      • by garcia (6573) on Wednesday November 23, 2005 @01:53PM (#14101789) Homepage
        Actually, until Microsoft and the X-Box, the "lose money on the hardware" idea was a myth:

        Crazy, all of my cell phones have been sold to me at a loss so that I would buy the service.
        • Re:Selling The Hook (Score:4, Informative)

          by oGMo (379) on Wednesday November 23, 2005 @02:18PM (#14102035)
          Crazy, all of my cell phones have been sold to me at a loss so that I would buy the service.

          Wrong. The hardware manufacturer sells them at cost. The service provider may subsidize the phone for you, but the manufacturer isn't losing money. (With the price of phones, they're probably making ridiculous profits.) The service provider has just adjusted their prices so you pay the $200 back in the plan.

      • by CDPatten (907182) on Wednesday November 23, 2005 @02:29PM (#14102138) Homepage

        Its interesting, irritating, and I guess expected. When an op-ed for a newspaper puts out financial numbers the post subject is fact. But when Merrill Lynch, one of the countries biggest financial institution puts out a report, Slashdot has a "?" to it. Check it out here [slashdot.org].

        What is the difference you ask? Well one doesn't say MS sucks and the other does. One compares both PS3/Xbox with numbers and the other doesn't give any. Anyone interested in more accurate PS3/Xbox 360 breakdown you can go here [macworld.com] (or here [next-gen.biz] to get the chart). Again these numbers are according to Merrill Lynch a leading investment firm, (not a newspaper or an op-ed).

        Take a look at them before you flame me.

    • by sgant (178166) on Wednesday November 23, 2005 @01:50PM (#14101764) Homepage Journal
      1. Buy 200 billion Xbox 360s.
      2. MS loses 25.2 trillion dollars.
      3. No one buy any games for these 360's so no royalties go to now bankrupt MS.
      4. Port OSX and Linux to Xbox 360.
      5. Network together all 200 billion 360s to make ULTRAMAX, the supreme overlord computer that controls everyones daily lives.
      6. ??? (who knows what the future will hold then).

      Let's get going on this people.
  • by dada21 (163177) * <adam.dada@gmail.com> on Wednesday November 23, 2005 @01:20PM (#14101421) Homepage Journal


    Some with the "MS=monopoly" opinion may call this an anti-competitive move, yet I wonder about the loss-leader aspect of the console itself.

    Could some of the suppliers actually buy 1M X360's, tear them down and resell the parts to Microsoft for a profit?

    How much, per title sold, does MS receive in licensing fees? $5? $10?

    Did MS ever recoup any money (or even profit at all) from the original X?

    Do MS shareholders approve of the loss? If so, it is their money to lose.

    If you look at MS' "monopoly" use of the loss leader and see that Nintendo and Sony were both still able to compete, why do people still complain about these tactics? It seems to me that it is not anti-competitive but it actually brings more gamers into the market.

    This gives Sony and Nintendo a constantly fresh group to entice into their systems.

    The hard cost in the article also doesn't take any net costs into account: R&D, technical support, marketing (x10) or updates. I bet the actual loss per unit is double the figure.

    I'm surprised we don't see cell-phone-like sales tactics: Buy an X360 for $99 with a 2 year X-Box Live commitment. Maybe it is because the market is too young to sign a contract?

    I own multiple X's, but only maybe 8 titles (6 were 2nd hand). The X is a great MCE extender. That is my sole reason for wanting an X360.
    • by gormanly (134067) on Wednesday November 23, 2005 @01:35PM (#14101602)
      Did MS ever recoup any money (or even profit at all) from the original X?

      No. They lost nearly $400,000,000 last year on the Xbox division, including games sales.

      They're probably around $4,000,000,000 out on the whole Xbox venture, so far.

      Their only profitable quarter was the one due to the release of Halo 2.

      They're damaging Nintendo (a pure games company) - do you really think Nintendo were or are able to compete? If not, then how is this not anti-competitive? And is this behaviour good for gamers in any case?

      Keep buying the Xboxes new and the games secondhand - together we can kill Microsoft!

      • I'm not sure that the statement "they are damaging Nintendo" is accurate. As you point out, MS's XBox division lost BILLIONS. Nintendo still makes billions. Sure, they are a close 3rd in the overall units sold count, but they started losing ground WAY before MS got into the market, when Sony released the PS1. Sure the Xbox might be canabalizing some GC sales, but it's tough to say wether or not the Xbox's 'success' is taking away more from Nintendo or Sony. (IMO, XBox and PS2 demographics seem to overlap MU
  • by panxerox (575545) * on Wednesday November 23, 2005 @01:21PM (#14101430)
    Linux this baby.
  • by sizzzzlerz (714878) on Wednesday November 23, 2005 @01:21PM (#14101434)
    Sell enough and the per unit loss approaches zero.
  • by Jetekus (909605) on Wednesday November 23, 2005 @01:21PM (#14101437)
    So why is it that there was so much controversy about Microsoft killing Netscape by bundling IE with Windows, but everyone seems cool about them doing this (and indeed predicted it)? Is it just because Sony and Nintendo will inevitably do the same, so we don't have a true underdog to root for?
    • It's a perfectly valid and legal business model, as long as you don't have monopoly power in the market.

      MS had (and still has, though I believe it is eroding) monopoly power in the desktop OS market. It does not in the gaming-console market. They think they can make money this way: let them try. If it's a viable strategy, their competetors can use it as well. If it isn't, their competetors will laugh all the way to the bank.

      (The reasoning behind why it isn't legal for a monopoly is that the monopoly pow
    • by Silver Sloth (770927) on Wednesday November 23, 2005 @01:38PM (#14101632)
      • The price of a new Gillette Mach III razor is only slightly more than the cost of the razor blades enclosed - but they want you to keep buying Gillette blades.
      • Practically any cheap ink-jet printer - they get you with the cartridges.
      • Free mobile phone - just sign this contract.
      • As someone else said - 'Here - have this smack/coke/crack for free'
  • by Paladin144 (676391) on Wednesday November 23, 2005 @01:21PM (#14101439) Homepage
    Other items packaged with the console -- including the power supply, cables, and controllers -- add another $55 to Microsoft's cost, pushing the loss per unit to $126.

    I'll make you a deal, Microsoft. If you send me 100 bucks, I won't even buy an Xbox.

  • And? (Score:2, Interesting)

    by MSFanBoi2 (930319)
    When the PS2 was first released it was a loss leader for Sony too..

    You really think the PS3 won't do the same?

    Oh yeah wait, I forgot this is Slashdot, home of supposed Linux fanatics, yet more than 70% of the visitors to the site are still Windows users... imagine that.
  • Loss leader... (Score:3, Interesting)

    by fak3r (917687) on Wednesday November 23, 2005 @01:23PM (#14101450) Homepage
    I always thought this was amazing when they did this with the original Xbox, but I never heard of if it paid off or not. Perhaps it did by providing this kind of market share, but I've never heard any hard numbers of it the games made up the difference in the end. Regardless, with the crashing reports it seems like this is another rush to market item trying to be everything for everybody (iPod phone I'm looking at you).
    • by tgd (2822) on Wednesday November 23, 2005 @01:39PM (#14101640)
      It cemented their place as a solid second in the video game market -- a market already quite a bit bigger than the film industry. It got them so recognized as a powerhouse that they have a real chance to gun for first in the next round.

      They may have lost billions doing it, but thats the cost of entry into a market that big. Especially when it gives you a prime position in the living room at a time that all home entertaiment is going digital, pipes are getting bigger and bigger, and people are starting to get used to shelling out hundreds a month on their various digital services.

      • It cemented their place as a solid second in the video game market -- a market already quite a bit bigger than the film industry. It got them so recognized as a powerhouse that they have a real chance to gun for first in the next round.

        Well, to be fair, 'solid second' might be a little generous. They are a little ahead of Nintendo in shipped units, and several dozen million behind the PS2. IIRC the number of PS2s in the world is over 100 million; contrast with something like 30 mil Xboxen and 28 mil Game

  • It might be worth while to know that some of the bundles out there go for well over $470. Perhaps Microsoft was hoping more people would buy these instead, as some stores only offer these. http://www.ebgames.com/ebx/categories/systems/xbox 360/ [ebgames.com] The core bundle runs for $599.93 and the Ultimate bundle runs for $699.92.
  • News? Really? (Score:5, Insightful)

    by TripMaster Monkey (862126) * on Wednesday November 23, 2005 @01:23PM (#14101455)

    Everyone knows you don't make money on the pipe...it's the stuff you put into it that provides the real cash. Cell phones and razors have been using this model for a while now.
  • Of course, all the prices they quote are current prices. These prices will go down with time. In fact, it won't take very long until Microsoft does make a profit just selling the hardware.
  • by voice_of_all_reason (926702) on Wednesday November 23, 2005 @01:23PM (#14101461)
    Billy Boy can probably look between the cushions of his couch and find more than that.

    Microsoft has been out of the "making money" business for so long. All Gates really wants is attention at this point.
  • They wouldn't do it if it didn't help them (evil) selves!
  • by OldAndSlow (528779) on Wednesday November 23, 2005 @01:24PM (#14101470)
    MS isn't getting the retail price, they are getting a wholesale price. Isn't retail markup usually in the 100% range? So MS is losing more like $325 per unit.
    • by Detritus (11846) on Wednesday November 23, 2005 @01:27PM (#14101501) Homepage
      Not on game consoles. The markup is almost zero.
      • by Jarnis (266190) on Wednesday November 23, 2005 @01:54PM (#14101803)
        I can confirm this from first hand experience. Retail margins are in the 3-5% range, and don't improve much over time. There *is* a reason why best buy salesdroids have been trained to sell you accessories and games to go with that console. Those do have more normal markups (at least 15%, probably 25-35% especially on ripoff-priced cables and accessories). So anyone walking out of the store with just the console is a bad deal for the retailer, and rabid salesdroids will do their damnest to prevent that.

        Same goes actually for things like low end laptops - their margins can also be as low as 5%, and the real deal is the extras - carry cases, mouses, external hard disks, headphones, additional software, blank CDs, extended warranties... whatever the salesdroid can manage to pile up on top of the actual computer sale.

        The good salesdroids are the ones who can jedi mind trick you into spending few hundred bucks on top of the item you wanted, and that way drag up the total profit to the retailer from that 3-5% range to 20-30% (or more). Best ones can actually predict what your real needs are based on few probing questions, and actually make you want all that stuff he's peddling to bump up the profit margin.

        Master salesdroids have mad l33t jedi mind trick skillz. Poor ones come off as rabid dogs who refuse to let go even when you spell out in gory detail why you don't want anything else. :)
  • by ThatGeek (874983) on Wednesday November 23, 2005 @01:24PM (#14101474) Homepage
    It's actually worse for Microsoft. The $126 loss statement doesn't take take the fact that stores make a profit into account. Thus the full retail prices does not go back to Microsoft.

    Add in marketing, shipping, beta testing, opportunity cost and everything else, and I bet that the real loss per box is much higer.
    • by Lord_Dweomer (648696) on Wednesday November 23, 2005 @01:50PM (#14101762) Homepage
      What I'm wondering though is what effect on the loss does the negotiating ability of the MS Exec in charge of negotiating prices for these parts have.

      You can't calculate exactly how much MS is losing based on retail pricing of individual parts. If you think they are paying what some analyst asking for a quote would pay, you gotta be nuts. The reason those guys get such high salaries is because of how low they are able to negotiate the price.

  • by bakreule (95098) <bkreulen@ y a h o o.com> on Wednesday November 23, 2005 @01:25PM (#14101477) Homepage
    I have so many friends who bought the first XBox, who are also not fans of M$. They say: "Hahaha! Microsoft loses money! Everybody buy an xbox!" MS doesn't give a **** about making money on the xbox, or the games. They just want an xbox in every household, and they're willing to put a lot of money into acheiving that. Once they have an xbox in every household, and Sony and Nintendo are has-beens, they can start making the Xbox into the household entertainment center that controls everything. This isn't a conspiracy theory, it's their stated plan. In fact, the only thing preventing them from giving the damn things away is the howls of conspiracy theorists, anti-trust lawyers and people's distrust of things that are free.

    Don't like Microsoft? Just don't buy the damn thing....

    • But... (Score:3, Interesting)

      by truthsearch (249536)
      For those that hate MS and buy and xbox to put Linux on it, these aren't customers who will later have an MS-centric media center. If you're only buying the hardware and using it for your own software you're hurting Microsoft. It doesn't get Microsoft any closer to controlling your living room.
    • I have so many friends who bought the first XBox, who are also not fans of M$. They say: "Hahaha! Microsoft loses money! Everybody buy an xbox!"

      You need to select better friends if that's the limits of their logic.

      That's like overfeeding your enemy with your own supplies in the hope that they fatten up and die of a heart attack before your own troops starve to death.
  • by zappepcs (820751) on Wednesday November 23, 2005 @01:25PM (#14101485) Journal
    If it keeps crashing like a windows95 box, MS will lose much more than $126 per unit... pfft
  • by Shadow Wrought (586631) <shadow...wrought@@@gmail...com> on Wednesday November 23, 2005 @01:27PM (#14101513) Homepage Journal
    If you , me and 175,000,000 of our closest friends all but one this weekend, we'll bankrupt the buggers! w00t!
  • by Chabil Ha' (875116) on Wednesday November 23, 2005 @01:33PM (#14101581)
    When you're a big player and can afford to loose money, doing this makes perfect sense. Sure you'll make money off of royalties and accessories and subscriptions, etcetera, but that's not the point. The object is not to make money at this point, what they're gunning for is market share.

    When the market is crowded and there isn't much room to butt in, you have to sell it at a loss to attract buyers. Nintendo and Sony are already household names and proved their worth decades ago. But this is something relatively new for Microsoft. So, in order to grab a peice of the market share pie and get their name around, they have to make it attractive to purchase.

    Take for example the market of DVD players. How many brands are out there? Too many. Everyone wants a peice of that pie so they'll try to lower costs as much as possible and mark their price to get the lowest margins possible. The bet is to flood the market with enough units of your name so that when everyone else who makes DVD players has begun to die off, yours is the one people think of when they go to get a new DVD player.

    No, there isn't a conspiracy here, folks, it's just a company willing to take it in the shorts for bit until the have a big enough market share. (It's just with Microsoft that they want 99% of it.)
  • by mpapet (761907) on Wednesday November 23, 2005 @01:34PM (#14101591) Homepage
    I hate articles like this.

    They may give the reader a rough idea of the current BOM costs, but utterly fail to include many other sources of revenue.

    1. Developer Fees. I'm thinking you can't develop a commercial product for free. I know you can't with a Sony console, I would be surprised to find out MS is giving that away.

    2. Royalty Fees. I'm sure there's royalties per game sold back to MS. I bet it's the same for aftermarket controllers too. It's the "razor blade" market strategy.

    3. Manufacturing Costs. They will chop about a third off the manufacturing costs as components become cheaper and manufacturing becomes more efficient.

    4. I'm guessing their BOM costs are very well-negotiated and rock-bottom low, so I'm thinking the numbers they use are too high.
    • C'mon now... (Score:5, Insightful)

      by Svartalf (2997) on Wednesday November 23, 2005 @02:15PM (#14101999) Homepage
      I know better than this, and really, so do you if you thought about this just a little bit...

      Developer costs have to be kept low so that people will produce for a given console in the first place- if you extract part of the costs of the console losses even slightly from the developers, they'll very probably skip the console in question and go to another one. It's as simple as that. As a developer, if I'm not going to see a return on a run that ends up producing at least a wash on sales, it's just not going to get done as I'm supposed to be in the business of making money. I have to pay per instance just to run on the damn thing so people can play my game. I have to pay for a developer station so I can test for deploy. I have to pay for a runtime engine or roll my own that'll run on it. And, so forth... All this adds up. The amount of money they "recoup" on developer fees alone is in the noise floor here. It doesn't do anything for their bottom line- it does, however, regulate who gets to provide games and the quality level though. It has to meet with Microsoft's final stamp of approval or it doesn't ship for X-Box/XB360 and you have to pony up some cash and pay a portion of your profits back to them to be able to run on it. That's a bar against any Joe Shmoe wannabe game developer from producing something for sale that makes their console(s) look bad.

      Royalties is the only place they expect to really see a return on things at this point (No guarantees of production process improvements- and you'd better NOT be betting on that as that's counting chickens before they hatch...) so they need 13 titles to be sold per XB360 unit currently ever sold to begin see a profit. This means that in order to be profitable, they're going to have to stay the course for at least 2-3 years at minimum to start seeing profits on this mess.

      Production process improvements come over time, typically somewhere between 1-3 years of production. Sometimes within 6 months, but usually it's 12-18 months into it that you start really seeing anything out of that. And that's if you've designed everything right. Sometimes you get a design that won't see benefits from production improvements for years. You can't bet on that sort of thing unless you've designed them in from the start and they're more due to volume than device improvements when you run that play. At $400+ per unit, any volume discounts will also be in the noise floor for some time to come as they're already seeing those discounts with what they're producing in the first place.

      The numbers being high? Not really. These prices I'm seeing in the article are conservative, as in being close to what they're probably seeing in costs.
  • by Bram Stolk (24781) on Wednesday November 23, 2005 @01:36PM (#14101608) Homepage
    Don't underestimate m$ pricing. E.g. see what a
    ethernet cable [xbox.com]
    costs in Europe. That is 30 euros, mister!
    And for the Americans: that is 35 US dollar, for an ethernet cable.
    Damn! That is a profit margin of at least 10000 percent.

        Bram

  • Suspect (Score:5, Insightful)

    by Zebra_X (13249) on Wednesday November 23, 2005 @01:36PM (#14101611)
    power supply, cables, and controllers -- add another $55

    *Retail Price* *Maybe* - The estimates given for the raw materials cost sound suspect. I'm pretty sure that a contract to deliver parts for the XBox comes with a much lower price per unit than your average trip to the computer superstore.
  • by Animats (122034) on Wednesday November 23, 2005 @01:40PM (#14101657) Homepage
    Sony and Nintendo make at least a small profit on each unit. [actsofgord.com] While it's the conventional wisdom that Sony loses money on each PS2, their financial statements indicate they don't. Only Microsoft seems to lose money on every unit.

    That's not too surprising. The original xBox is, after all, an x86 PC, but sells for less than one. The PS2 is a low-end MIPS processor and some wierd vector units, hard to program but cheap to make. The xBox 360 is a new architecture, but not, apparently, a cheaper one.

    In the end, Microsoft stockholders would be better off [yahoo.com] if Microsoft got out of the game console business. It's a money drain.

    • Actually... (Score:4, Informative)

      by Svartalf (2997) on Wednesday November 23, 2005 @01:56PM (#14101820) Homepage
      Sony tends to lose a little money on each console for the first 6 to 12 months of sales and then as production volumes and process improvements come into play, they start seeing a small profit on the consoles, even as the prices get cut through the lifespan of the console. They're willing to eat a little of their potential profits to get the box out into the market. Now, Microsoft's blowing money left and right by comparison.
  • by phorm (591458) on Wednesday November 23, 2005 @02:12PM (#14101969) Journal
    What you really have to look at is the price that microsoft is paying for components, etc. There are many products where the sum value of the individual parts may in fact exceed the item value (for example, car parts individually can be incredible expensive).

    When they are buying at volume from parts sellers, they could be getting quite a cut on the cost of components. I doubt that MS is about to reveal the actual cost of components too, though they might be happy to go along with the idea of "selling at high loss" to make the 360 look like more of a bargain.
  • by PortHaven (242123) on Wednesday November 23, 2005 @02:12PM (#14101972) Homepage
    One must remember that the FDIC approached Microsoft a while back with the comment that they were sitting on tens of billions of dollars. And that they needed to a) give out a dividend and b) re-invest said capital as a responsibility to their share-holders or be fined for violation.

    In other words, Microsoft was basically told they needed to re-invest 50% of their cash hoard. So the Xbox gave them a strong "market" investment area. And allowed them to burn thru "investment capital" while at the same time building their portfolio. So when Microsoft loses $350 million a year on the Xbox. This is in fact not outside the scope. It is new market capitalization. And they can now point to such investment in order to avoid fines and legal lawsuits from the investment end.

    While at the same time, they buttress their core division by ensuring that if home entertainment consoles become the new "home PCs" they have a strong footing in the game. So it was both a protective and expansive move in a multi-faceted levels.

    I also imagine that the Xbox360 is going to do what many thought the original Xbox would (but never did). It's going to crossover. I expect in the third year you will see Microsoft offer a Keyboard, XIE browser, and Live accounts will include email and messenger compatibility with MSN Messenger. Oh...and possibly the following year if such is successful. Office lite....subscription service. ;)

  • by Weaselmancer (533834) on Wednesday November 23, 2005 @02:20PM (#14102056)

    People just post these XBox money-loss stats to speed development on the Linux port. ;^)

  • numbers suspect (Score:5, Interesting)

    by portscan (140282) on Wednesday November 23, 2005 @02:38PM (#14102205)
    I was skeptical of this report before reading the article in depth, but now I am assuming they are just flat out wrong on some points. Namely:

    20GB hard drive for $53 and DVD-ROM drive for $21. I can get better prices than this. Me. On one unit. Microsoft is talking about millions of units. I know that these are thin margin markets, but the exclusive contract from Microsoft is a huge win for any supplier.

    So the per-unit loss on each console is probably between 50% and 70% of what they reported. At the very least, you can probably remove $20-$30 for those two drive components alone.

    don't forget that if they succeed in knocking sony out, then they will be a monopoly in video game consoles, too, and can jack up the prices even more on the next round (like windows--$200-$300 retail--and office--$400-$500 retail). that way, they can profit on hardware and software.
    • Re:numbers suspect (Score:3, Interesting)

      by robertjw (728654)
      20GB hard drive for $53 and DVD-ROM drive for $21. I can get better prices than this. Me. On one unit. Microsoft is talking about millions of units. I know that these are thin margin markets, but the exclusive contract from Microsoft is a huge win for any supplier.

      You may be correct, but I've had some of those $10 DVD-ROM drives. They aren't worth bringing home. Xbox is a consumer level product, so Microsoft needs high quality components. If that $20 hard drive conks out in 2 or 3 years or quits worki
      • Re:numbers suspect (Score:5, Insightful)

        by AKAImBatman (238306) <akaimbatmanNO@SPAMgmail.com> on Wednesday November 23, 2005 @03:14PM (#14102532) Homepage Journal
        He's referring to bulk prices, though. So a $60 hard drive in the store can be had for $20 in bulk. If Microsoft is really paying $51 for a quality 20GB hard drive, then they need their heads checked.

        Same thing with the DVD ROM drives. Microsoft is paying for the drives in bulk with no special enclosures (because they're using their own), no burning features, no packaging, no driver disks, and no manuals. They should be able to get quality components for $10 easy. $5 if they're cheap.

        This entire "analysis" smacks of someone attempting to apply retail prices to bulk hardware.
        • Re:numbers suspect (Score:3, Informative)

          by robertjw (728654)
          He's referring to bulk prices, though. So a $60 hard drive in the store can be had for $20 in bulk.

          No kidding? I figured Microsoft was buying everything piecemeal from their local Walmart. Seriously though, there is power in buying in bulk, but that doesn't mean things are free. There are still minimal costs and the hardware providers will want to make a profit. There is also a difference in costs between something that's built to sell directly to a consumer and a product that's built for resale.

          I
          • Re:numbers suspect (Score:3, Interesting)

            by AKAImBatman (238306)
            Just checked newegg and the cheapest drive out there is $44.

            Exactly. And I can get a Western Digital 80GB SATA from MWAVE for $55. Someone else pointed out a $41 drive from TigerDirect. The point is that these are retail prices. Even if you assume that only the markup is removed, $51 is still rather high to be paying for a 20GB drive. In quantities of a million units or more, I'd have a hard time believing that the manufacturer wouldn't knock a few more bucks off the price. $40 I might believe. But $51? Con
  • by Nom du Keyboard (633989) on Wednesday November 23, 2005 @02:43PM (#14102242)
    So why doesn't someone just make a licensed "Linux Game" disc for XBox. A lot of people would enjoy playing that, and MS would get royalities. And you could still play game discs on it too!
  • by houghi (78078) on Wednesday November 23, 2005 @04:04PM (#14102945)
    In Belgium it is forbidden to sell stuff at a loss.
  • Not fact (Score:3, Insightful)

    by DaveCBio (659840) on Wednesday November 23, 2005 @04:28PM (#14103117)
    So many people here are taking this analysis as fact. It's an educated guess at best. Unless MS releases the true cost, no one knows.
  • ooh! (Score:4, Funny)

    by Greyfox (87712) on Wednesday November 23, 2005 @04:31PM (#14103144) Homepage Journal
    I'd like to see someone buy 10,000 of these and superglue them together into a statue of a giant penguin! Maybe Google would have the loose cash and artistic vision to do such a thing?
  • by crovira (10242) on Wednesday November 23, 2005 @05:46PM (#14103717) Homepage
    replacement for the house where the thing caught fire?

    Just curious. I'd sooner Microsoft lost money big time with this little venture.

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