Microsoft Loses $126 Per Unit on XBox 360 725
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."
Selling The Hook (Score:5, Insightful)
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)
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...
Re:Selling The Hook (Score:5, Insightful)
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.
Re:Selling The Hook (Score:4, Insightful)
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.
Re:Selling The Hook (Score:3, Insightful)
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?
Re:Selling The Hook (Score:4, Insightful)
Is Microsoft only allowed to sell Operating Systems and Office Suites? For every $1 they spend they have to immediately make it back two times over? They're "investing" in a new market. It doesn't matter where the money comes from -- it is their money to spend. If they lose it all or make it back, it doesn't matter. It is their money, not yours.
Other companies are free to spend their money on whatever they want. Or they can get VC to give them money to spend.
Re:Selling The Hook (Score:3, Interesting)
Re:Selling The Hook (Score:5, Insightful)
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:4, Informative)
To be predatory, they would have to sell the X-Box cheaply enough that almost nobody would want to buy anything else. That's clearly not what they are doing here.
Actually (Score:5, Informative)
Merrill Lynch looked at both the 360 and the PS3 and found these results [next-gen.biz].
The short end of it is that the "full" version of the 360 costing $400 at launch is actually making money.
Re:Actually (Score:4, Insightful)
The story's analysis seemed pretty good. There are companies out there who make their living estimating the cost of products. M-L isn't one of them.
Re:gamers are not loyal (Score:3, Insightful)
All it takes is a newer, flashier g
Re:gamers are not loyal (Score:3, Insightful)
Firstly:
The reason consoles sell so well is that they appeal many people who are NOT hardcore gamers. Flats of students now consider a console in the living room a must, much like the TV they plug into.
Secondly:
Are you saying that the majority of consoles sold are to "hardcore" gamers as opposed to casual players? I would seriously doubt this.
Re:gamers are not loyal (Score:3, Informative)
Re:Sony (Score:3, Informative)
"IBM also has designed chips at the heart of the competing video-game systems -- the Playstation 3 from Sony and Nintendo's forthcoming Revolution system, both of which are due next year. Crotty expects that Sony's loss on the Playstation 3 may be even wider, as the cell processor that IBM, Toshiba, and Sony designed for the system is more complex.
Estimates vary as to how much the cell processor will cost. Richard Doherty of Envisioneering Group in Seaford, N.Y., expects the cell chip to cost abou
Re:Sony (Score:3, Insightful)
Re:Sony (Score:3, Funny)
Apparently that's what they're doing. [slashdot.org]
Re:From Sony, I put that down to hype (Score:3)
You're ignoring 2 things:
Or don't you remember 2000/01?
Loss is much higher than $126 (Score:4, Insightful)
There may be more to this, though. We can't tell yet if the reports of 360's having problems is a general issue, or if it is just the result of a few really vocal complainers. If there are actual design problems, the cost goes up yet again. If they're really bad, the console could falter in the marketplace (no one really wants to fight with overheating or random crashing.) If that happens, the opportunity to recoup costs with games is in trouble too.
Funny. A couple of days ago, I was musing to myself that Sony's DRM idiocy might actually affect the viability of the PS3 if Sony manages to reach the status of corporate pariah and the public holds them to it. Now I wonder if Microsoft has managed to give them back an opportunity by missing the reliability mark. Interesting times. :-)
Re:Loss is much higher than $126 (Score:3, Insightful)
are they daydreaming or just drunk over there ? microsoft doesnt pay anyone 21$ for a dvd-rom, the raw price for the item is under 10$ , microsoft will get it with around 10. the same logic applies for most of the components there. ati gives em a special deal and all the others.
power supply, cables, and controllers -- add another $55 the producer is lucky if he gets 10-15$ for these.
amounts count, being microsoft counts too
bill gates may be a h
Re:Selling The Hook (Score:3, Funny)
Atari was late to the game. I'm guessing that you weren't around in the Magnavox Odyssey vs. PDP-11 battles. Magnavox CREATED the market.
PDP-11 had superior hardware but their controllers sucked and didn't have the licensing that Magnavox had.
Magnavox Odyssey was THE console from 1 to 2 until Kerplunk then Atari vs. Intellivision battles began.
Re:Selling The Hook (Score:3, Interesting)
Re:Selling The Hook (Score:4, Interesting)
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: (Score:3, Insightful)
Re:Selling The Hook (Score:3, Informative)
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?).
Re:Selling The Hook (Score:5, Insightful)
Speaking personally, and of several friends, bullshit. Weed, yes. Hallucinogens and E, possibly. H and coke, no way.
Re:Selling The Hook (Score:3, Funny)
While there clearly exist animalistic individuals who are devoid of self-control or rational planning capacities required to use heroin and cocaine responsibly, many of us find that these, like numerous other less vividly painted chemicals, are useful adjuncts in living rich and fulfilling lives, with high productivity, minimum pain, robust mental health, and good social relationships.
Re:Selling The Hook (Score:5, Insightful)
Speaking personally, and of several friends, bullshit. Weed, yes. Hallucinogens and E, possibly. H and coke, no way.
I kind of second this idea... I've learned that there are lots of different drugs, and it's silly to try and generalize about them in the "drugs are bad, mmmkay" style. I mean, look at the legal drugs caffeine, alcohol and nicotine. They have wildly different effects on people, and accordingly they are used in very different situations for very different reasons.
I sort of agree with the parent that hallucinogens are somewhat 'safer' and 'better' than the other kinds of illegal drugs, but even that kind of generalization can be badly misleading.
Re:Selling The Hook (Score:3, Interesting)
I had a friend who was a dealer and absolutely she used weed as a lead in to other drugs. She was against legalisation for that reason.
And contrary to the GP poster's experience, it's not at all uncommon for a dealer to offer cheap introductions to harder drugs to hook someone, and then jack up the prices later.
Re:Selling The Hook (Score:3)
Re:Selling The Hook (Score:5, Informative)
http://www.actsofgord.com/Proclamations/chapter02
Two problems. (Score:3, Interesting)
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.
Re:Selling The Hook (Score:5, Insightful)
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)
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.
Re:Selling The Hook (Score:3, Insightful)
Not True. Just more FUD. (Score:5, Informative)
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.
I have a cunning plan... (Score:5, Funny)
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.
Re:I have a cunning plan... (Score:3, Funny)
Re:Current Prices (Score:3, Insightful)
Re:Current Prices (Score:5, Interesting)
All game machines start out at several hundreds of dollars until the sucker market is exhausted and you have to start targetting people who are only willing to pay $200, then the ones who will only pay $150, then the ones who will only pay $100.
The machine's price will fall at a faster rate than the cost will.
Re:Current Prices (Score:3, Interesting)
this is precisely what didn't happen with the Xbox - in fact, the Intel CPUs actually went up in price, as they became obsolete and unlike anything else Intel were producing...
Re:Current Prices (Score:5, Insightful)
Not really. Sony was able to drive down the cost of their console because it owned all of the pieces and could integrate them. However, with the original XBox the manufacturing costs basically stayed level over the entire life of the console. Microsoft still loses over a hundred bucks when it sells an original XBox today. Microsoft's problem with the original XBox was that it specced what were basically commodity parts when it launched. It chose the least expensive hard drive that it could find, a processor that was already in the sweet spot for price/performance, and a graphics chipset that was made by a competitor of its processor. No integration was possible, and the only component that hadn't had all of the profit squeezed out of it was the memory. While it is certainly true that these components get cheaper over time, there is a floor price below which the price doesn't drop. That's why newer XBoxes come with larger hard drives than the original run of XBoxes. Microsoft would happily purchase 8G hard drives if someone was offering them at a lower price than 20G hard drives, but no one is. Likewise Intel is still charging almost the same price for the XBox processors that it did when the XBox first came out. Microsoft's XBox bought Microsoft a spot at the table, but it did so because Microsoft was willing to give away billions in hardware. The XBox has lost nearly 3 billion dollars over its lifetime, and it is still losing money.
It appears that this time Microsoft has essentially made the same mistake with the 360. It's possible that IBM's Cell processors will drop dramatically in price over their lifetime, but both Sony and Nintendo will also be using variants of the same chip (and Sony owns enough of the technology that it will probably benefit most). You can guarantee that if Microsoft comes close to making a profit that Nintendo and Sony will simply undercut them. Microsoft has also tied a great deal of the functionality of the XBox to a hard drive, and the price on those is not likely to drop substantially over time.
Microsoft is giving away too much hardware yet again, and it is going to bite them.
Re:Current Prices (Score:3, Informative)
I don't think so. Microsoft has their stamp all over the hardware this time. Microsoft owns their variant of PowerPC and graphics card as much as Sony owns theirs. Looking at the initial hardware costs is deceiving. If you remember, the Playstation 2 sold for a huge loss in the beginning too. It was only later that they optimized production to the point that they were making profit off the system itself.
Re:Current Prices (Score:4, Interesting)
Why do you say that? It seems pretty clear to me that IBM owns the PowerPC (in conjunction with Apple and Motorola although I am unsure as to the state of that alliance at the moment). MS did not develop, design, or have anything whatsoever to do with that chip. On the other hand, Sony designed the Cell with IBM in partnership. That will make a difference down the line.
Also as an aside I don't think Sony ever lost money on a PS2.
Re:Clever Marketing Campaign (Score:4, Funny)
Still, you could have fun smashing it in public [smashmyxbox.com].
Re:You ever been to Wal-mart? (Score:3, Funny)
come for the soda, stay for the ecstasy? sounds like a good business model.
Re:You ever been to Wal-mart? (Score:3, Funny)
Re:Not Atari (Score:3, Insightful)
Sell at a loss in a free market... (Score:3, Insightful)
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.
Re:Sell at a loss in a free market... (Score:4, Informative)
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!
Re:Sell at a loss in a free market... (Score:3, Interesting)
Cmon Modders (Score:3, Funny)
Re:Cmon Modders (Score:4, Insightful)
If Redmond is already losing Y dollars per sale, why not let them bleed more by not purchasing a unit in the first place?
Is the satisfaction of knowing that Grub is booting Gentoo on Billy's Baby worth that much?
Yeah, but they make it up on volume. (Score:3, Funny)
Re:Yeah, but they make it up on volume. (Score:5, Insightful)
So why are they allowed to? (Score:3, Informative)
Re:So why are they allowed to? (Score:3, Insightful)
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
Some common examples (Score:5, Insightful)
Tell you what (Score:5, Funny)
I'll make you a deal, Microsoft. If you send me 100 bucks, I won't even buy an Xbox.
And? (Score:2, Interesting)
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)
It paid off enormously. (Score:4, Insightful)
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.
Re:It paid off enormously. (Score:3, Insightful)
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
Bundles Are More Than $470 (Score:2, Informative)
News? Really? (Score:5, Insightful)
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.
Current Prices (Score:2)
$126 times 3 million units = $378 million (Score:3, Funny)
Microsoft has been out of the "making money" business for so long. All Gates really wants is attention at this point.
But still don't buy one (Score:2)
Don't calculate the loss from the retail price (Score:4, Insightful)
Re:Don't calculate the loss from the retail price (Score:5, Informative)
Re:Don't calculate the loss from the retail price (Score:5, Insightful)
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.
It's actually worse (Score:5, Insightful)
Add in marketing, shipping, beta testing, opportunity cost and everything else, and I bet that the real loss per box is much higer.
Re:It's actually worse (Score:4, Insightful)
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.
Please don't say buy more.. (Score:4, Interesting)
Don't like Microsoft? Just don't buy the damn thing....
But... (Score:3, Interesting)
Re:Please don't say buy more.. (Score:3, Insightful)
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.
Only $126 ???? (Score:3, Funny)
Now's our chance! (Score:5, Funny)
The power of Marketing and Economics (Score:4, Insightful)
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.)
License Fees? Royalty Fees? (Score:3, Interesting)
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)
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.
Microsoft ethernet cable is 30 euro (35 us dollar) (Score:5, Interesting)
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)
*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.
Sony and Nintendo sell boxes at a profit (Score:5, Interesting)
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)
You can't measure the raw goods price (Score:5, Insightful)
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.
Microsoft NEEDS to lose money....and here's why! (Score:4, Insightful)
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.
This is definitely a scam (Score:3, Funny)
People just post these XBox money-loss stats to speed development on the Linux port. ;^)
numbers suspect (Score:5, Interesting)
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)
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)
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)
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)
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
The Linux Game (Score:4, Funny)
Comment removed (Score:3, Interesting)
Not fact (Score:3, Insightful)
ooh! (Score:4, Funny)
Is that before or after you factor in the cost of (Score:3, Funny)
Just curious. I'd sooner Microsoft lost money big time with this little venture.
Re:Dumping (Score:5, Insightful)
2. If this is "dumping" then you should jump up and down about gas stations (gas is often sold at or near cost), Coke and Pepsi (with a true monopoly, fountain drinks are sold at or below cost), all cell phone companies (my cell phones were all free), etc.
3. They're not competing on quality? I don't exactly have $400 burning a hole in my pocket that I have to spend on a game machine. Considering that the XBox 360 is the most expensive console out there right now, there is absolutely no dumping going on.
Idiot.
Re:The Numbers Don't Add Up (Score:4, Informative)