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Console Pricing Economics
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.
An interesting comparison to the Red Mercury article is this one which claims M$ lost $80 per XBox sold at the original price...
Microsoft can afford to lose money on the XBOX. They've got enough extra cash lying around to buy a dozen space shuttles.
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.
The sucessful ones do last this long and longer. The Nintendo Entertainment was released in 1985 and was still going strong in 1991 when the Super NES was released. The SNES eventually failed to the Genisis, but it some games being made for it 5 years later when, in 1996 the N64 was released. With the N64 behind the playstation, the GameCube was released in 2001.
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.
-no broken link
Did you even read the article? Only microsoft is loosing money. Everyone else has been making money all along. Only Microsoft and Sega have been shown to have ever sold a console at a loss.
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.
The better chance to get PCs to the 3rd World is the VIA Eden Platform. 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.
Knowledge is power. Knowledge shared is power multiplied.
This is one of those articles that takes present strategy (as viewed from the outside looking in) and runs it into the future.
The whole article assumes that MS will never fab it's own chips into an Xbox... that might not be entirely true.
BOSTON SUCKS!
hand me a monopoly and i can look pretty savvy as well. especially if the "gubment" doesn't have the balls to shut me down.
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.
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.
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?
The wheel is turning, but the hamster is dead.
It's nearly impossible to have any gauge at all of how much (if any) MS is losing on hardware sales, and here's why:
MS is not naieve, they are a software company before anything else so they contracted the hardware out. The X-Box is being manufactured for MS by a company called Selectronics at facilities in Guadalajara. MS has already "bought in" to have a certain number of units manufactured at (what is likely to be) a ridiculously low price by garunteeing Selectronics a certain amount of business. MS doesn't need to worry about the price of the parts, labor, or anything else really - they're all Selectronics' concerns.
If the X-Box is going to fail, it'll be in a year or two when MS has to renegotiate its contract with Selectronics (whom I suspect are eating alot of this cost). Of course, by then Moore's Law really SHOULD have kicked in and (MS and Selectronics should hope) demand will be higher for the hardware.
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.
A well-crafted lie appears unquestionable - Dama Mahaleo
Don't forget that over 200 games are in development for the XBox.
IIRC, the Dreamcast had "100 games in development" when it was *cancelled*.
NanoGator wrote:
.Net terminal. Microsoft ran in to trouble getting developers to develop for it in that form, so they marketed it as a game console, figuring they could work in .Net later. The way things are going, there won't be a later. ;)
> 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
I've got two words for you - "Resident Evil".
Sam: "That was needlessly cryptic."
Max: "I'd be peeing my pants if I wore any!"
So the author of the article, Red Mercury writes that Microsoft makes $5-$10 per 3rd party title sold. The average person buys 7 games, so that's $35 to Microsoft.
Well, say that Microsoft makes $40 on every 1st party title sold (Halo, Project Gotham Racing, Amped, Fusion Frenzy, Munch's Oddysee, NFL Fever, NBA Drive, Rallisport Challenge, Bloodwake, Azurik, Nightcaster, and I think I forgot one or two others...)
So if you buy 7 Microsoft 1st party games, then that's $280. Many of the games people are buying with the XBox are Microsoft games, and Microsoft is making games feverishly. Regardless of all the 3rd party development, Microsoft intends to win this war by making great games. Microsoft is a software company. Hardware is given away because it allows MS to sell console software at 100%.
Chew on this for a while. The XBox is just a lever to allow MS to make money on Software in another market without paying another company a hardware tax.
When this gets into your heads, and you stop making stupid slashdot anti-microsoft comments, you might be enlightened to know that Microsoft doesn't intend to produce shitty games, nor is it in this business to lose money, or give away hardware to run Linux on. For $300, you can buy yourself a real computer.
Is it just me, or has the number of people who think they know everything increased today...