Slashdot Mirror
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.
at $10 a month for internet gaming on the X-Box.
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See the earlier slashdot story
http://slashdot.org/article.pl?sid=02/05/20/051
It's not the razors or the blades; it's the shaving cream!
The only problem with that line of reasoning is the fact that computer hardware will continue to advance, while the XBox is a static platform.
Most PC games out today don't support 5 year old hardware. 5 years ago, almost no games required a hardware graphics accelerator. Nowadays, you'd be hard pressed to find one that doesn't.
So, 4-5 years down the line, M$ won't be able to dump games to the XB because the technology will be too dated.
Just my $2/100.
I wish I had a kryptonite cross, because then you could keep Dracula and Superman away.
Look, I love a PS2 and love it. I bought it the day I saw the Xbox. I won't buy an Xbox anytime soon, as long as my favorite games are on the PS2.
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.
There are two kinds of people in the world: Those with good memory.
To put the numbers in perspective... there have been 20 million 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 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.
I was never sure about how much a console was but I always expected that Sony and Nintendo were always making a profit, even razor thin ones. Always have and always will. In fact the only time when you can get away with "selling at a loss" is when you *creapy organ music* have a monopoly...
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?
and this is the important part. Microsoft's strategy here is just to bleed its competitors over the next few years to make them very unprofitable. As XBox gains marketshare, the other two vendors will give way. This will then increase the box price for the other two vendors (less volume) and the software available for newer units will probably be less, as vendors will make stuff for the Xbox first. And then the network effect kicks in...
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.
I thought this article brought up two very interesting points which oddly enough I was discussing this AM with my wife after we learned of the GC pricedrop (we have a PS2 and "classic" PSX):
:).
.
* 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. 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). 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 . .
But, you're assuming that MSFT can buy out Sony. With the consent decrees and the hanging antitrust decree in Europe, it is highly unlikely that the FTC, SEC, or the EEC would permit any such monopolistic buyout to take place, especially during an attempt by MSFT to dump xBox on foreign markets is ongoing.
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 $30 USD?
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--- Will in Seattle - What are you doing to fight the War?
Once Windows is the embedded OS in a Microsoft-controlled hardware product, many good things (for Microsoft) happen:
There is no threat from any other OS.
There is no cry of "Unfair middleware bundling!"
There is no issue of different licenses for different hardware makers, or of rogue hardware makers loading a non-M$ 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.
If all this should have a reason, we would be the last to know.
The most expensive things in selling computer games is not programming, it's artwork, marketing and the retail-channel.
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.