Console Pricing Economics 515
Red Mercury writes "Red Mercury has just released a new installment of Monday Morning CEO. Today's topic: XBox Economics. The article explains some of the myths and realities about game console pricing, how the current price war is playing out, why Sony is winning, and why Microsoft is losing." Interesting piece about all the recent console price cuts.
Loss of $80 Per Unit... (Score:4, Informative)
This doesn't matter (Score:4, Informative)
The point of the XBOX is to allow Microsoft to break into the home entertainment industry. Whether or not the XBOX makes money, it will be followed up by XBOX II and X-HOME-THEATRE system, or whatever they will be called.
Right now, profit on the XBOX would be nice. But the bottom line isn't necessarily the bottom line.
Re:This doesn't matter (Score:3, Insightful)
Yeah, but read the article:
The comparison is incorrect (Score:3, Insightful)
Sega was a one-trick pony. If the Dreamcast failed, Sega had no other game system to fall back on. In the end, the only strategy for survival was the one that Sega eventually adopted: sell software, not hardware. If Gord could figure this out (and he's just a games dealer), don't you think EA figured this out LONG before that? So game developers were afraid to support it, so Sega lost more money, so eventually everybody knew that Sega would have to get out of the hardware business, long before they publicly announced it.
Microsoft, on the other hand, isn't about to go out of business; so, even if XBox software sales are miserable, developers will continue to target the XBox. After all, if a title flops on the XBox, they can always repackage it as a $20 PC game. I mean, a game developer might abandon the Dreamcast's dev platform and GD-ROM hell, but nobody but nobody is going to stop developing for the Intel-and-DirectX world...
Re:The comparison is incorrect (Score:3, Informative)
No, it doesn't work that way.
The most expensive things in selling computer games is not programming, it's artwork, marketing and the retail-channel.
That's right: It's pretty irrelevant how easy things can get ported, the only advantage is that you can put out ports faster, but porting isn't that costly compared to the other cost positions.
For many XBox-games, it's questionable wether XBox games other than Halo can support the retail channel. That means, even if you get the development for free, it's unclear if you will make a profit.
XBox is dead.
Re:The comparison is incorrect (Score:4, Insightful)
I think you just made my point for me. All I was saying is that the major game development houses will be able to convince themselves that it's worth targeting the XBox, because the porting costs to the PC are minimal, and any game shop that can afford to develop for the XBox will be targeting the PC already. If a XBox title fails miserably, they can just port it and slap a sticker on their ad campaign that says LamerzX: Now available for the PC!
The point I was making that the continued existence of the XBox doesn't depend on XBox software sales (or the perceived lack thereof), any more than it depends on MS making a profit on hardware sales.
The XBox is a Trojan horse, plain and simple; and by convincing game developers that it's "a lot like a PC", they've managed to enlist them in their scheme as well.
None of this matters (Score:5, Insightful)
Once Windows is the embedded OS in a Microsoft-controlled hardware product, many good things (for Microsoft) happen:
There is no threat from any other OS.
There is no cry of "Unfair middleware bundling!"
There is no issue of different licenses for different hardware makers, or of rogue hardware makers loading a non-M$ approved desktop.
Everyone who writes software for the box has to pay Microsoft a royalty -- guess what this does to the Free Software folks?
Microsoft can provide ever-greater improvements just by re-flashing the ROM via your (required) Internet connection (don't have one? sign here for MSN for just $5/month more than you're paying now).
Oh, did I mention manditory software subscriptions?
Want more storage space? We'll rent you more for a slightly higher subscription (no hardware upgrade needed)
This this is all a pipe dream? Think nobody will buy this? Think again [slashdot.org].
Re:None of this matters (Score:3, Interesting)
But where is the proof that MS intends to do anything besides play games on this machine? I realize the next one down the road might be 'fancier', but MS is going to be in for a shock if they try to release a game console that tries to be more than just a game console. There have been game consoles in the past that nobody has heard of because they tried to be movie players, or internet machines, and so on. For some reason, it just doesnt work.
One major problem is price. Once a game machine reaches past the $200 mark, it is really hard to convince mom and dad to buy one. How many of us geeks here with our own income would say "Hmmm.. Im gonna buy this to do work with"? I dont think a lot of us would.
The alternative strategy would be for MS to make a new set top box that does something like Tivo, but IM having a hard time envisioning that selling very well right away. I can imagine buying a Tivo (which may happen before too long...), but I cant imagine buying a Game machine and then wanting to do Tivo stuff on it.
Hmm I dunno, even if MS does attempt to make their own platform to make their money on, it'll be a huge challenge for them to turn it into a worthwhile business. Im not saying this because I dont believe MS can do it, Im saying this because lots of other companies have tried.
Re:None of this matters (Score:3, Informative)
> But where is the proof that MS intends to do anything besides play
> games on this machine?
Try this CNet article for some of your proof:
http://news.com.com/2100-1040-818798.html
Xbox was always supposed to be a home
"It'll soak up every last bit of data." Miasaka, Godzilla 2000 Millenium
Re:None of this matters (Score:4, Insightful)
Perhaps I didn't make myself clear. Microsoft has already said, in court, that if forced to open up Windows the way the non-settling states propose, then Microsoft will simply stop selling Windows. Add to this Sen. Hollings' attempt to force all PCs to have closed content protection systems and I think you're wrong when you say "The only way they can get me or anybody else to buy one is if they can convince me that it is lots better than what I already have today." You will have no choice. Well, maybe the iMac is your choice, but your choice won't include Dell or HP or Gateway or any other brand, because Microsoft won't sell them Windows and the law won't allow them to run Linux. Sure, you and I will continue to use our old hardware, but at work we will either use a Mac or a M$ box.
And no, it won't require a TV -- it'll use a monitor just like your PC does today. I'll say it again: X-Box is just their way of gaining experience in the closed-hardware business. Microsoft has a history of doing crap in release 1.0, OK in release 2.0, and winning the market with release 3.0. This goes for hardware as well as software: look at how their mice have improved and taken the majority market share. X-Box isn't the target device, it's just release 1.0.
Re:This doesn't matter (Score:3, Insightful)
Don't count on it. Microsoft might have deep pockets to absorb the loss, but the companies that make games for it don't. If interest is less than enthusiastic then there are relatively (compared to PS2 and Cube) few consumers to buy the software. And I, as a software developer, am not going to bother to write software for a platform that doesn't have enough paying users.
So, even if Microsoft can afford the losses, unless they start PAYING companies to write software for their platform (which contradicts the idea of selling the hardware at a loss), I don't think MS' gaming bid is going to last long.
Re:This doesn't matter (Score:3, Interesting)
Still, they've already learned from one mistake of having a huuuuge controller and have brought a smaller version to the US market; if they do the same with custom chips ala Sony and/or reducing the size of future units, as well as keep up their relatinships with the game makers, they'll still be a force to be reckoned with.
Re:This doesn't matter (Score:2)
They're somewhat screwed right now. I'll be interested to see how all this plays out because it's a new scenario for MS to be in. I'd also be interested in hearing if they've considered using their monopoly power to bundle a special XBox application in the next version of Windows so you can play games on your regular PC too.
Only if it works. (Score:3, Funny)
Remember a billion here, a billion there and you start talking real money.
It does matter (Score:2, Insightful)
Some seem to think that it doesn't matter if Microsoft loses millions or billions on the XBox, because they will just release the XBox 2, and everybody will buy that, according to some larger Microsoft "strategy" to "own the living room". Game consoles don't work that way, for some reason. If the XBox goes the way of the Dreamcast, nobody... NOBODY is going to be clamoring for the XBox 2 (how many millions of people are eagerly awaiting Dreamcast 2? That's right, zero million.)
If I were in their shoes I wouldn't have dropped the price. Instead I'd have launched a multi-million dollar ad campaign targeting why the XBox is so much better and how the other consoles were slashing prices in fear. Too late.
Re:It does matter (Score:2)
Re:It's a credibility issue... (Score:2, Informative)
ms owes it's existence to a) ibm's stupidity + hubris and b) extremely unethical + underhanded + illegal use of monopolistic power (starting w/ DOS).
what's amazing about all of this is that none of these facts are in contention.
Re:This doesn't matter (Score:2)
Re:This doesn't matter (Score:3, Insightful)
I think actually the reverse is probably true. Hardcore gamers used to buy PCs, for which MS would get $100 per unit, more or less. If they buy an X-Box, why should they buy a PC? And MS loses maybe $100 per X-Box...
Thinking long-term (Score:5, Insightful)
But of course, they're losing money. They've publicly stated that they plan to lose upwards of $2,000,000,000 before they start making a profit. So how do they plan to do this?
It's the old tent and camel's nose thing. Microsoft has more or less stated as much. So what if they lose a couple billion bucks in the process? (What else are they going to do with their cash - put it in the stock market??)
Re:This doesn't matter (Score:4, Insightful)
There seems to be a common meme that Microsoft can just throw money at ventures for years and it doesn't matter a jot if they make big losses. This isn't the case. No company can do this. Not even Microsoft. It doesn't matter that they've got billions in the bank.
Microsoft's profit growth has been gradually slowing over recent years. They still are basically a two product company - Windows and Office. And sales of these two products are under increasing threat - both from the installed base and from newcomers. If Microsoft's profits start to go into reverse (and this seems perfectly possible within the next few years) then their shares are going to be really affected - even more so if the city sees that they are throwing money away on projects like the X-Box. Once this happens, it will become very obvious to all these people that say "Microsoft can loose money for ten years and still survive" that it is the city that controls Microsoft's destiny now, not Microsoft.
RTFA (Re:This doesn't matter) (Score:2, Interesting)
It's not about an XBox II (Score:5, Funny)
So instead of the XBox II, we will have the YBox, and then the ZBox.
At that point, Microsoft will already control all three dimensions in space. Add the TBox, and they control the universe!
Re:This doesn't matter (Score:2, Informative)
That's not true. The previous article about their billions was specifically referring to cash reserves, which are not stock. Why do you think they have never paid a single dividend? [fool.com]
I know the answer. (Score:5, Funny)
And Slashdot, of course, represents the American public as a whole.
Gamers know better (Score:2, Interesting)
Re:Gamers know better (Score:2)
In short, the mainstream agrees with you, and this is yet another reason the Xbox isn't selling as well as MS thought it would.
And yes, there's the point that this gets Microsoft into the mainstream living room. But as the article notes, if people don't buy the games, they won't buy Office for Xbox, either.
It's almost enough to make me feel sorry for ol' Bill.
Almost
D
Re:Gamers know better (Score:5, Informative)
Is this the article [salon.com] you where referring to?
Good article indeed!
Re:Gamers know better (Score:2)
Hello subjective concept! (Score:3, Interesting)
Or take Counterstrike. Some people say it's fun because it's realistic. But these people would never play "Revolutionary Fighter", the musketeer FPS where your gun takes 45 seconds to reload, you can't fire if your powder gets wet, and your gun randomly explodes. If you ask a CS fan why they love the realism they say, "Oh, I just like the realism for the things that don't make the game boring." Another way of saying that is, "I like the realism because it makes the game fun, except for the realism that makes the game boring." Go Go Gadget Tautology!
Lets be honest-- people can't logically describe what makes games fun for them. At best we can see general trends like "Many people like Halo" and "Few people like non-Halo XBox games".
-Ted
.COM Strategy for a .NET world (Score:2)
That way, the work-at-home-jobless can improve their resumes WHILE playing games
good pop analysis (Score:2, Insightful)
The other side of Moore's Law is that quite a few people are going to be demanding better hardware, more quickly. That's why Sony already has the PS/3 in the pipeline.
PS1 v XBox... (Score:2)
How old is the PS1, very old, and its still selling if you can be the last man standing in this game then you can start doing things like
Selling it to Car manufacturers to entertain kids (they've done that)
Try and replace the SNES on those lucrative airline contracts.
And many more, PS1 is still selling pretty well out there, and there are still Games, Moore's law says the power increases... not the quality. While the graphics get better, and sometimes the playing gets better but... well Tomb Raider II is still cool to play.
Last man standing in the current war will get to own even more than the PS1 is currently looking at.
Re:good pop analysis (Score:3, Informative)
The Sega Genesis was released in 1989 and was also going well when the Saturn was released in 1995. The Saturn and the Dreamcast never became winning systems.
The Playstation was released in 1995. 5 years later in 2000, the Platstation 2 was released. As the article states, there are games still being made for the first version, and PSOne sales are still moderate. I feel that the PS2 backwards compatibility will carry the first platform for a while.
Re:good pop analysis (Score:2)
Before you argue with me about it, consider Sega's attempts to get ahead of Nintendo: Sega CD, 32X, Nomad, and their incredibly expensive SuperFX Clone.
Sega's biggest failing was that their in-house games, though high quality, weren't as exciting as Nintendo's. What was the difference between Sonic 1 and 2? About a year. What was the difference between Super Mario World 1 and 2? Day and night. Sega didn't have a whole lot of incentive to keep people coming back to their machines.
Not to mention... (Score:2)
Early adapters bought console packs... (Score:2)
Most of those early adapters bought XBox 'packs' (action pack, all star pack, adrenaline pack, etc...) that had 2-3 games included. With the huge profit margins on games, this probably helped MS sell those packs at close to cost.
Re:Early adapters bought console packs... (Score:2)
The article notes that they get $5-$10 royalty on each game, so if there's a pack including three games, the most that would have helped them is $30. That's not going to plug a $90 hole.
You're also leaving out retailer margin entirely. The retailer probably takes at least $50, so the net to Microsoft would have been $250 or less. Add up the game pack with about 50% margin and you probably give MS about $50 more overall. So the net to MS is back to $299, with the product itself costing $389 to produce, and the game pack maybe adding another $30-odd of material and amortized development costs. And this is only if all the games on offer are MS-developed games, which I don't think is the case.
So in fact, once we balance out the game packs, our scenerio is a little worse than what the article claimed, since they left out retailer markup entirely.
Make no mistake: This is not good news for our Redmond pals. They tried to make a PC into a game console, without realizing the high cost of PC components would kill them.
In short, they had too much faith in the PC business model, since it had served them so well in the past.
D
Re:Early adapters bought console packs... (Score:2)
The $10 per game that microsoft gets already takes the retailers margin into account. I'm guessing that they make a tidy sum on the accessories as well as the games. Still, 15 games and 3 extra controllers is still alot for someone to buy. They should have left the hard drive out and sold memory cards. Sony had the right idea there.
Getting PCs to the third world (Score:2, Interesting)
Re:Getting PCs to the third world (Score:5, Informative)
Point one: the BIOS is distributed over several chips, not contained in one EEPROM.
Point two: the operating system itself is encrypted with strong crypto. It uses a species of crypto related to the EFS encryption infrastructure first released in Windows 2000. Since the OS is in ROM and thoroughly encrypted kiss the thought of booting the XBox with Linux goodbye.
Point three: their DVD-ROM has a reversable motor. XBox game DVDs spin BACKWARDS, and the content starts at the second layer.
Point four: Even the peripherals are non-standard. The XBox implementation of USB means that plain-jane USB periphs WILL NOT WORK with the XBox. There will be a keyboard and mouse for the XBox when hell freezes over.
Microsoft made DAMN SURE the XBox would not end up like the IOpener [adamlotz.com].
The better chance to get PCs to the 3rd World is the VIA Eden Platform. [via.com.tw] There are already products using the Eden Platform out, and more are on the way. VIA might not attract the power users (The nForce+Athlon is more appropriate for them) but they will 0wn China with this platform.
And no, not every poor fsck can afford a TV. Some can't even afford a bowl of rice. In places like this, technology is the least of the populace's worries.
if... (Score:2, Interesting)
Dont write MS off too quickly...
Re:if... (Score:5, Insightful)
Most PC games out today don't support 5 year old hardware. 5 years ago, almost no games required a hardware graphics accelerator. Nowadays, you'd be hard pressed to find one that doesn't.
So, 4-5 years down the line, M$ won't be able to dump games to the XB because the technology will be too dated.
Just my $2/100.
Re:if... (Score:2)
ports from pc == vapor (Score:2)
you make a good point, but we're 7 months into this thing, and there really are very few pc ports to speak of. if this is genuinely a strength to be exploited to ms's advantage, one is being nice to say that they haven't done a very good job at convincing developers and publishers to get on board.
i think a valid question raised by this failure is whether we need to start talking again about whether there's not a qualitative difference between console games (and gamers) and pc gamers. if so, there's no reason to believe that the supposedly-simple porting of pc games to xbox has very much value at all.
F*ed (Score:2, Redundant)
This, my friends, is why competition is grand! (Score:2)
Regardless, a $199 XBox is great, even if I never plan to buy one, because it is responsible, in part, for a $199 PS2 and a $149 GameCube...
Hmm, and a GBA costs $70 now? Hmmm
Re:This, my friends, is why competition is grand! (Score:2)
Hard Disk Drive Costs (Score:3, Insightful)
Re:Hard Disk Drive Costs (Score:2)
and when will this be - 2010??
not sure if you have been watching the PC market or listening to the people running the industry but:
1) HP just bought Compaq
2) Gateway is bleeding cash like an ebola victim
3) Dell continues to lower prices and kick the sh|t out of every company in the industry
very doubtful we will see Seagate doing any price raising.
oh yeah - HDDs cost per gig is now around $1.20-1.50 for non-OEMs...what you think it is for companies that buy them in 100,000 lots?
Re:Hard Disk Drive Costs (Score:3, Insightful)
In the big pond now.... (Score:3, Funny)
CEO of Nintendo " Sonny we were getting sued for anti-competitive behavior while you were still trying to secure your first round of VC funding. Don't try to teach this old hound how to hunt."
Bill Gates " whimper"
The punch line (Score:3, Interesting)
Some seem to think that it doesn't matter if Microsoft loses millions or billions on the XBox, because they will just release the XBox 2, and everybody will buy that, according to some larger Microsoft "strategy" to "own the living room". Game consoles don't work that way, for some reason. If the XBox goes the way of the Dreamcast, nobody... NOBODY is going to be clamoring for the XBox 2 (how many millions of people are eagerly awaiting Dreamcast 2? That's right, zero million.)
Now if only we can get MS to keep throwing money away....
Re:The punch line (Score:2, Insightful)
truth of below cost selling (Score:2, Interesting)
Acts of Gord - Legend Vs the myths
http://www.actsofgord.com/Proclamations/ch
What is particularly intersting to me was that as a Hardware manufacturer Sony can effectively write off the chip developement costs as work they were going to have to do anyway, and it is a great way for them to sell CD players too.
Re:truth of below cost selling (Score:3, Interesting)
Side note: the author of the MMCEO mentioned that Sony & Nintendo could start a software war. I think it's already begun. Sony has employed the same "Greatest Hits" tactic with PS2 games that we last saw on PS1. Gran Turismo 3, Twisted Metal Black, ATV offroad Fury, and Dark Cloud are now $20 (USD). I can't wait for GTA3 to go on sale! The author also noted a 6 or 7 year turnover in game consoles. The PSX's 5 year endurance was unheard of at the time. I think a 2 or 3 year turnover is more accurate.
Re:truth of below cost selling (Score:2)
Re:truth of below cost selling (Score:3, Informative)
The author also noted a 6 or 7 year turnover in game consoles. The PSX's 5 year endurance was unheard of at the time. I think a 2 or 3 year
I'm not so sure about that. The Atari 2600 and the original Nintendo Entertainment System were each at least 6 year consoles. The Super Nintendo vs. Sega Genesis may have only been a 3 or 4-year affair, but the PSX is still going strong (it's been outselling the X-Box for the past few months anyway).
As a side note; the article cites the Dreamcast as evidence of a failed unit; but the industry is littered with them (Pippen, NeoGeo, Turbo16, 3DO, Coleco, and a few dozen others). The console war is very unforgiving, and highly-geared towards growth; if you're not growing, you're toast. Many of these systems were technically superior to their competitors (3DO, Coleco, Intellevision, Dreamcast) -- but they still ultimately failed due to the second derivative. The XBox needs to keep growing base at any cost now, if they stop, then history says they're dead. Perhaps we'll see a Dreamcast-esque US$99 price-point before next christmas as a last-ditch effort?
He forgot about Subscriptions (Score:5, Insightful)
See the earlier slashdot story
http://slashdot.org/article.pl?sid=02/05/20/051
It's not the razors or the blades; it's the shaving cream!
We laugh now... (Score:3, Interesting)
At this point they use their monopoly in the console market to force TV manufactures to make TVs that support some sort of "innovation". Then it will daisy chain from there until MS software, and possibly hardware, runs your entire house.
Of course the flaw in this paranoid delusion is for it to work MS has to offer more than a cheap console and a bunch of crappy games. If all they have to offer for the $10 Ybox is Halo2: More shooting then the gamers will still probably flock to the PS3 with GTA4: Killing some more Hos.
Re:We laugh now... (Score:2)
Dumping is really quite common. It's been happening in the steel industry for years. Sell your product below cost until your smaller competitotrs whither away. If you have the cash reserves to last that long and no one calls you to task on it, you're home free.
Re:We laugh now... (Score:2)
Kintanon
The only way Microsoft (Score:5, Interesting)
No I don't have any three of the consoles yet, but the choice of which to purchase is getting harder and harder...
Re:The only way Microsoft (Score:2)
The Prophecies are Coming True (Score:3, Interesting)
Re:The Prophecies are Coming True (Score:3, Funny)
I dont have 50 Karma.
I could really do without being marked down as redundant and having my meagre karma further decimated.
http://slashdot.org/comments.pl?sid=32900&cid=3
I disagree (Score:4, Insightful)
Having said that, I disagree with the article. Simply put, XBox is technologically superior to the PS2 (and I'm talking game experience here, not specific specs), and although right now it's not a huge issue (although it is for some people), as time goes on, it'll be more and more important
Pretty soon people will look at PS2 games and then look at Xbox games and PC games and say "why can't my ps2 do that!", and THEN, only then, people will start considering an Xbox again.
If by that time the PS3 is not out yet, Microsoft will get enough momentum to either go ahead and release an Xbox3 or do with the Xbox what the PS2 is doing today, at a much lower cost (as the article says, the cost goes down according to Moore's law)
Basically MS will have a small window of oportunity (6-12 months?) in the next, say, 2 years, that they might or might not take advantage of, and that Sony might or might not prevent. Bottom line, it's not decided yet.
Re:I disagree (Score:2)
So, while the Saturn might have had a ton of power under that hood, it doesn't matter if no one can utilize it. When Sony needed to design the Playstation 2, they knew what it needed to do: FPU/Matrix Math, 3D effects, and do them fast. It needed to do other stuff, but none of that was as important as the main things. They designed a new chipset just to do what the console needed. They didn't take a chip that had years and years of backwards compatibility so you could still run WordPerfect 5.0 on it because that didn't matter. Think how much that backwards compatibility, which is never used, costs the XBox in terms of price and performance? Even though the originial IDE for the PS2 wasn't great compared to the original Playstation one, it's design is still better than the Xbox design because it's all new, and will get cheaper as time goes on better.
Interesting corrective to Business 2.0 article (Score:4, Interesting)
a) they didn't get it wrong right off the bat (as one former Microsoftie opines, "If version one of a product does not suck, it's game over."
b) the Xbox has more power hardware
c) it has an ethernet port intrinsically
d) it has the potential to be a future digital hub
e) a survey that states that 27% of PS2 owners intend to buy an Xbox
Putting the economics in perspective (Score:5, Insightful)
To put the numbers in perspective... there have been 20 million [news.com.au] Sony Playstation 2's sold since its launch. This article claims it costs Microsoft $320 to make an Xbox.
Microsoft has $40 billion in cash. That's not capital tied up in equipment, that's money in the bank. This means that, if Microsoft decided to contact every PS2 owner around the world, everyone who has bought a PS2 in the last three years, buy them a free Xbox, and send it to them with free shipping... they would be left with only $34 billion.
Microsoft could then buy a controlling interest in Sony Corporation [yahoo.com] for $26 billion, and then pay retail for a $50 free game for every child in America (from newborn infants up to the 17-year-olds). After doing all that, Microsoft would still have over four billion dollars in cash reserves.
Re:Putting the economics in perspective (Score:3, Insightful)
MSOFT stock owners don't get dividens so the only way they make money is if the stock goes up in value. For this to continue a requirement is tons of profit and keeping that cash egg around.
Real economics (Score:4, Insightful)
Fact is - until the price cuts, only MSFT was selling boxes below cost. Sony was at slight margin above breakeven, Nintendo was at a nice profit - and then add in the $50 USD game carts for gravy.
What we need is a price war on game prices, not game consoles. Why do they cost $50 USD - why not $30 USD?
-
Re:Real economics (Score:4, Funny)
'Hey EA, you know the way that Madden will sell 2m copies whether it's priced at $30 or $50?'
'Yes,' says EA, 'it's because we know this that we are the best video game company in the world.'
'Well, we'd like you to sell it for $30. What do you think? Err, hello? Is anyone there?'
Re:Real economics (Score:3, Interesting)
Re:Putting the economics in perspective (Score:2)
xbox is losing for one reason... (Score:3, Interesting)
Graveyard of Those Who Give Hardware Away (Score:5, Insightful)
I laughed at the accusations back when N64 and PS2 were scarce on shelves and both Nintendo and Sony where causually accused of shorting supply to create demand and future sales. What idiot in the retail market wants to sell something tomorrow where they might make a profit when they can sell it today and definately make a profit? Back then a PS2 would sell for $300 scarce as it would $300 plentiful. There is no margin to play with in the retail to speculate on so they don't do it. Same thing with what is going on now with XBox's woes. Gambling to turn a profit later in retail products often gets you squashed...
Lets see...other companies that bought into the "sell the hardware cheap, hook them in software" idea.
Off the top of my head, I remember seeing stuff from sources that suggested that SGI was selling Indy workstations and later O2 at a loss. Look where SGI is now unlike Sun and IBM who have stated policies about not giving away hardware just to get people to write software. As mentioned Sega bought into the idea with the Dreamcast and nearly crushed them. Luckily for them someone recognized where most of the money was bleeding from and cut it off.
Selling hardware at a loss just isn't a sound strategy. That is a highly dubious way to invest a company's capitial. So given that Sony invested $1B in actual, real hardware investments over MS just tossing units out the door trying to pay people to buy, which is a sound strategy?
Re:Graveyard of Those Who Give Hardware Away (Score:3, Informative)
Nope. Gross margins on Indy's were in line with SGI's traditional margins, although there were factions within SGI that wished they could have been sold at lower margins to raise volumes. I don't know about O2's, but I suspect the situation was the same.
And no, this is not speculation.
Losing money = winning? (Score:2)
It's a strange world where loosing money faster than your competitors is decribed as "winning". Seems to me that, not too long ago, that's how many
(Not that I expect to see Sony or Microsoft appearing on the pages of www.fuckedcompany.com [fuckedcompany.com] any time soon - they both have very deep pockets - but it's an interesting parallel. And yes, I know it's all about market share and the razors/razor blades business model...)
Re:Losing money = winning? (Score:2, Informative)
An XBox sale is a sale Sony or Nintendo won't make (Score:4, Insightful)
So, it may cost Microsoft a few billion dollars in losses to crack this nut... who cares? In the end Microsoft will control the game market and it will become a monopoly; where each game manufacturer supports XBox, but none of the others. This is one half, and we haven't talked about how Microsoft's Venture Capital fund is sure to help out start-up game manufacturers who promise _never_ _ever_ to make a Sony or Nintendo game cartrige.
Bungie? Told ya not to sell out... (Score:2)
Ah, well. Maybe once the XBox goes tits up, the key Bungie people will bail and form a new game company.
Production & Platform Longevity: PS2 vs. XBOX (Score:5, Insightful)
* Production control
* Platform Longevity
When talking about hardware, it's all about controlling production and cutting costs whenever possbile. Since Sony controls the production, any increased efficiencies they realize in their PS2 chip fabs directly impact their profit margins. However, on XBOX, if Intel/NVidia become more efficient in creating XBOX components, they pocket the $$$.
In addition, and in the spirit of MS' campaign for "innovation", Sony is taking it to the poor XBOX team, which obviously isn't in this for the long run [gamers.com]. Nothing against Blackley and crew, but Sony plays consumer electronics for keeps, has teams dedicated to multiple PS product generation, and are showing it with how they control manufacturing process where, for Sony, a penny saved on costs is a penny Sony keeps (don't think Sony is selling the PSOne for a loss @$49USD
In addition to controlling its own production, Sony obviously employs a number of highly-talented hardware engineers (and yes, some of the Emotion Engine peeps belong to Toshiba) dedicated to creating mind-expanding and truly innovative hardware for the consumer market which will age gracefully and provide high-performance for years to come (For those who insist on comparing XBOX/PS2 from a MHz/RAM standpoint, see the ArsTechnica article on the Emotion Engine [arstechnica.com]). PS2 has lots of room to grow.
Sony knows consoles aren't like PCs: the majority of buyers keep the consoles much longer than a PC and periodically purchase additional software titles. When the next round of the Console Wars commences, you know Sony will be selling the PS2 around $99 . . . and it will still be making a profit on each unit. Will Intel still be making the P3? What about NVidia . .
Article doesnt make sense... (Score:3, Insightful)
The article mentions Moore's law and how Sony's investments in its own plants and R&D help, it doesnt mention that Moore's law is not prejudice it works for MS too, Xbox uses Nvidia and Intel true but a Geforce 2 goes up in price over time as the Geforce 4 is out? No it drops just as quickly as new R&D pushes GF2 down, if anyone Sony should be afraid since MS doesnt have to do any R&D. And Nintedo's Gamecube uses ATI, so its in the same boat as Xbox not Sony. Only thing is Nintendo is the MS of consoles they develop their own software and dont share with 3rd parties, only recently have they decided to change their tune because of the new Xbox competition.
I personally own PS2 and Gamecube. I dont love Xbox but I hate when dumbass reporters misinform their readers.
Re:Article doesnt make sense... (Score:3, Interesting)
So, for nVidia and Intel to continue producing the chips for the XBox takes up valuable resources that could otherwise be dedicated to fabbing GF4's and the eventual GF5's, etc. Their interest in the project goes down and so I'd imagine that M$ has either 1) contractually engaged them in such a way as to make it unattractive to start shorting production runs (civil fines, etc. for breach of contract) or M$ sweetens the pot in various and sundry "intangible" ways.
Many claims, but no supporting documentation (Score:2)
Many claims were made, the most important being:
- Microsft lost money on each XBOX sold
- Sony and Nintendo broke even, or even made money, on the hardware.
The author might be correct, but I wouldn't know, since, as written, these are just assertions, unsupported opinions. the rest of the article is the same -- hypothesize price drops, manufacturing costs, etc, without any hard facts.
Hopefully, the author will provide the appropriate documentation shortly.
Games aren't Microsofts game (Score:3, Insightful)
Great Article! except for the fact that it's wrong (Score:5, Informative)
The whole article assumes that MS will never fab it's own chips into an Xbox... that might not be entirely true. [theinquirer.net]
Would further cuts really give more market share? (Score:3, Interesting)
A price cut that makes a console affordable as a 2nd or 3rd machine will not guarantee the same level of games purchases the manufacturers are counting on... for example if the Xbox fell to half it's current price (as some are suggesting, I would buy it as a third machine, but I would probably only buy 1 Xbox game for every 3 or 4 that I bought for the PS2 and GC.
XBox is in trouble: Flextronics (Score:4, Interesting)
Any analysis of the XBox manufacturing story is incomplete without looking at how Flextronics (the XBox manufacturer) recently told us they will be pulling XBox manufacturing out of Mexico and Hungary (the two current locations of XBox factories) and going into China. Flextronics is taking a serious financial hit. They made a financial gamble on the XBox and they are losing it bigtime. The low margin at which they are manufacturing the XBox only made business sense if the XBox moved in volume and it isn't. Console prices go down and profits goes up when the volume of the pieces goes up. That isn't happening with XBox. It has flopped in Japan and flopped in Europe.
So the behind the scenes story of the XBox is rather simple: the Flextronics gamble failed so at this point Flextronics is cutting their loses. Flextronics is losing big money on this deal and they are scared shitless at losing more.
Microsoft has also stated that they are looking at other manufacturing partners for the XBox. The only question here is can they find another sucker like Flextronics who will be willing to take the same plunge. Its highly doubtful. Who wants to work with Microsoft at this point when all they have to do is look at the Microsoft/NVidia mix up which basically amounts to Microsoft refusing to pay what they said they would.
Microsoft is poisoning the well and destroying all chances they have in the future of securing hardware partnerships for the XBox2. They are a fish out of water. They are accustomed to abusing their business parters and getting away with it because they are the monopoly.
And the entire fiasco from another perspective: no one cares about the human beings who lost their jobs (in Mexico and Hungary) because the international manufacturing juggernaut (Flextronics) decided to axe their livelihoods in order to "serve their customers better".
Links:
Hungary XBox plant shutdown [yahoo.com]
XBox software sales in Europe [elspa.com]
Re:XBox is in trouble: Flextronics (Score:3, Interesting)
As I worked with and know people in the contract manufacturing industry, I do have some knowledge of how it works.
The Flextronics XBox plants in Mexico and particularly in Hungary were not NPI facilities. I am not sure where you came up with that idea. The XBox plant in Hungary was newly setup and staffed by 1,000 workers who will shortly be sent packing.
And the costs incurred by moving production from those plants to China will be somewhat substantial. I expect Flextronics forced Microsoft to incur a bit of the hit there. And the BS about moving production to China because that is where the components are made is just that BS. They are moving to China because of labor costs.
The Microsoft XBox production volume is flat and declining. Everyone will tell you that. There is countless evidence from NVidia and Intel press releases, to anecdotal evidence that in Europe and Japan, XBox has only managed a meager 200,000 per territory.
So not true (Score:3, Interesting)
Also how about the XBox communicator? I'll be able to voice chat with my friends while gaming. It's just like Roger Wilco on PC. No console has ever done that.
Don't forget that over 200 games are in development for the XBox.
Anyway, they can say whatever they want. I'm more than extremely happy with my console.
Re:So not true (Score:3, Informative)
IIRC, the Dreamcast had "100 games in development" when it was *cancelled*.
Why Sony is "Winning" (Score:3, Insightful)
There are TWO reasons that Sony is winning the console war thus far. The reasons most people are listing (great games, etc) are just effects of their selling so many units. The cause of their success with the PS2 boils down to two points:
1) It's named "Playstation 2".
2) Big head start.
I defy anyone to refute that.
they ignored a few important variables (Score:3, Insightful)
Re:Embrace and Extend? (Score:4, Interesting)
Phase 1: use off the shelf shit to get the Box to market quickly
Phase 2: reduce the number of outside suppliers needed (i.e. graphics and processor supplier the same) to help reduce costs.
Phase 3: do it all in house for maximum savings.
Interesting strategy if its true, but unless they start getting some compelling games out there it'll all be moot.
Re:Un Patriotic Slashdot ? (Score:2)
Presumably Microsoft intend selling their X-Box elsewhere than just the US. Indeed promoting somthing as "All American", especially right now, would probably dissuade many people from buying it.
Re:You bring the marshmallows I'll bring the beer (Score:2)
It's a troll when the only person who thinks that it is makes it so?
that's fucking stupid
Re:I think we all know about XBox and MS (Score:3, Funny)
> slightly better graphics, and shortly after
> release an Office suite targeted to 'college
> kids'.
That wouldn't be hard for Sony to do with the PS3... "Hi is that Sun? Yeah, we want an office suite like thing to come free with every PS3 keyboard and mouse kit we sell, so that we can give the whack to Microsoft. What? You will let us give away StarOffice 7 free for the PS3 keyboard/mouse combo? Excellent, you guys rock."
You can bet:
1) The PS3 will be able to run Linux without a problem - stick it on a bootable DVD even.
2) The PS3 will be around 10x more powerful that the PS2 at least. The PS2 runs Linux fine.
3) So PS3 OpenOffice is extremely likely, shipped on a bootable Linux PS3 DVD, saving documents to either a built in hard drive or to MemoryStick cards (read your OpenOffice PS3 documents on a Sony Cleo!)
4) I bet someone will do this for the PS2 version of Linux now...
Astute analysis (Score:3, Insightful)