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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.
As far as I can see, the X-box when used with Linux or other suitable OS is the best way to get computing to the poor. It is a short matter of time that any protection will be cracked (sure it allready has) and the X-box will be the PC for the third world. Every poor fuck can afford a TV, can't they?
the xbox lasts 5 years then it IS actually possible that a large number of owners WILL buy those 20-30 titles. Put simply the XBoxs greatest advantage is the ability to port PC games to it quickly and easily...smaller development teams to do this means a greater ROI for those titles that have done the port. In theory this will mean cheaper titles for the XBox appearing very quickly and a distinct possibility that the number of available titles will outstrip those available for any other console.
Dont write MS off too quickly...
A fair point, especially given Microsoft's past ability to weather poor early releases of software products. (Of course, hardware has a per unit manufacture cost that software doesn't, leading to one of those amusing "losing $100 on every sale but making it up in volume" situations.)
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.
SO YOU'RE GOING TO DIE: The Comic for Dealing with Death
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....
"It is a greater offense to steal men's labor, than their clothes"
Here is a website debunking the notion that console makers have been selling below cost for years.
a pter02. html
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.
But remember Microsoft has TONS of money. If their goal is to own the living room, then by god they will own the living room. Just wait till they day they say the hell with it, drop the Xbox, come out with the Y box, sell that for about $10, and wait until everyone owns one and Sony and Nintendo are out of the console business.
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.
No I don't have any three of the consoles yet, but the choice of which to purchase is getting harder and harder...
Eddy.WriteLinux.Com
Verily, it is truly as the Gord hath prophesied. Indeed, in this particular writing, the Gord reached pretty much the same conclusion as this fellow, only quite a bit earlier. Neat to see he is being proved right.
Editor Emeritus and Senior Writer, TeleRead.org
That's why Microsoft is seriously looking at VIA for both the processor and graphics for the XBox II (which from what I can tell is just going to be a new form factor for the XBox, not a whole new platoform). The Register has also been following reports that MS is investing heavily in chip design personel. I wouldn't be surprised if they try to do the entire Xbox in house.
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.
This was a helpful analysis to correct the one concerning Microsoft's battle with Sony from the "Beating Bill" article at Business 2.0 . In that article, the author felt that Microsoft was succeeding against Sony because:
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
...and one reason only; the name Microsoft is on it. If this were the Sega xbox, it would be kicking the ever loving shit out of the PS2 in sales in the US, Eurpoe and Japan.
I think we are approaching a price level where the average game players will be able to afford 2, or even all 3 of the current consoles.
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.
A pizza of radius z and thickness a has a volume of pi z z a
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
XBox software sales in Europe
People with XBoxes are selling them second hand already, so they can get PS2's, like their friends have, so that they can have good multiplayer fun - i.Linked up gaming, etc.
Microsoft look like they will take a few billion dollars in losses, and end up with 15% of the market. They have an all-in-one unit that costs a lot. They are selling the razor and the shaving cream, shaving oil, facecloth, etc, all at the same time for a large loss. Sony are selling the razor, then consumers can buy the shaving cream (hard drive), shaving oil (broadband kit), facecloth (blah) later if they want them. Lower upfront costs rule. Microsoft should have sold a smaller, sexier box without a harddrive to start off with, and allow a harddrive add-on later on (and make money on it!).
Sony and Nintendo are not worrying at all, believe me.
Interesting perspective. :)
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.
"Derp de derp."
But couldn't Sony just give away some of their movies for free with THEIR home theater system? And force MS to pay ridiculous licensing fee to bundle the latest Sony movies with their Xbox. That could be a nice Sony freebie, buy a Dreamcast and get a DVD of some latest release, or a special Director's Cut DVD that ONLY comes with the Dreamcast. (Sony will probably do this and I won't get any credit. Damn.)
I agree that MS has a lot of money but Sony has a very high reputation in the audio/video/home theater world. Heck they worked with Philips to develop the CD format.
Sony is not going to roll over so easily just because XBOX might be a little cheaper. Also, if XBOX is actually being illegally dumped (sold at a loss) then we might to see a lawsuit from Sony. More likely, though, Sony will just continue to develop and sell better consoles and be more innovative. XBOX on the other hand isn't very innovative, it's too much like my home PC without a HD.
Sony also has the "home field advantage" a.k.a. Japan.
Online service is coming along nicely for the XBox. I'll be happy to pay $10/month to access all XBox games online instead of having to pay $5/month per game on a PS2's.
Also how about the XBox communicator? I'll be able to voice chat with my friends while gaming. It's just like Roger Wilco on PC. No console has ever done that.
Don't forget that over 200 games are in development for the XBox.
Anyway, they can say whatever they want. I'm more than extremely happy with my console.
There is an interesting Wired magazine article which provides some idea as to how much M$ is losing on it's XBox. The problem is that according to the article the goal was to bring production cost down to $100 per box. Since this article was published in September 2001 it would seem reasonable that most of the loss could have been the result of retooling the manufacturing plant to produce the Xbox instead of joysticks, and that in fact Microsoft's losses have been greatly reduced since then. It would be hard to believe that any company, even Microsoft would continue absorbing huge losses without pulling the plug.
The sum of our knowledge today becomes the reference point of our ignorance tomorrow.
The tactic of "buying" a share of the console market is probably illegal as dumping and/or predatory business practice, and if it were working, and the PS2 wasn't kicking the crap out of the XBox, then Sony would probably press the issue in some court. Since they could choose to pursue a case in Japan, the US, or somewhere in Europe, I think they would have a good chance of winning something eventually. However, if you are winning in the marketplace, there is no point in going to the courts. Besides, the courts act so slowley, that any action they take is far too late to stop the illegal business practice. That is why you usually only see companies resorting to suits when they are desparate and have nothing else to lose. Look at Veribest vs. Intel if you want a good example. I think Veribest finally won, and will get some money, but Intel has already pushed them out of hardware and moved 3 processor generations past. The courts can't undo that.
However, as technology expands, there is less incentive to keep older fabrication technologies around. Why is it that (comparatively) few places sell PC100 RAM anymore? Because technology has advanced and there is less demand for it. Why can't I buy new 400 MB IDE hard drives anymore? Same reason.
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.
I wish I had a kryptonite cross, because then you could keep Dracula and Superman away.
I've always wondered that myself. Since the games are essentially non-pirate-able (at least by the general public), and the cost of piracy is included in the cost of the game, why can't I find any 20-30$ games for a console?
"Sometimes a woman is a kind of religion, she can save your soul & set you free from all your sins" - Bad Examples
Much like Microsoft pushed MSN by giving out $400 gift cards at stores for a 3 year agreement, Microsoft could do the same and require a 2 year agreement to stay with whatever online gaming platform they are currently using, and give you the Xbox for 'free.'
I'm surprised they aren't using this srategy, because it would be the end of Nintendo and PS2 unless they did the same.
One thing most /.ers are missing is that the XBox|PS|PS2|Sega are aimed at a different target audience than Nintendo.
XBox|PS|PS2|Sega are aimed at Boys aged 12-30. The game selection proves it. Most are shooting/Sports games.
Nintendo is aimed at KIDS aged 6-12. That's kids, as in Boys AND girls. As long as they have Pokemon and Mario, they will always have sales. My daughter (for instance) isn't interested in shooting games, but she does like Pokemon. And, she'll even play Super Smash brothers with her older brother, since the violence is not as bloody or gross as the PS2 games (etc.)
I would suppose that many parents, when looking for a console for their kids, take a look at what games are available, and base their decision on that. If they have young kids, they want non-violent (or at least, non-bloody) games. Those games are predominately for the Nintendo. So I don't think Nintendo is going to be dying anytime soon.
LongTail SSH Brute Force analysis tool is here!
It is official; Red-Mercury confirms: XBOX is dying
One more crippling bombshell hit the already beleaguered XBOX community when Red-mercury confirmed that XBOX market share has dropped yet again, now down to less than a fraction of 1 percent of all game consoles. Coming on the heels of a recent survey which plainly states that XBOX has lost more market share, this news serves to reinforce what we've known all along. XBOX is collapsing in complete disarray.
You don't need to be a Kreskin to predict XBOX's future. The hand writing is on the wall: XBOX faces a bleak future. In fact there won't be any future at all for XBOX because XBOX is dying. Things are looking very bad for XBOX. As many of us are already aware, XBOX continues to lose market share. Red ink flows like a river of blood
Let's keep to the facts and look at the numbers.
As the red-mercury states " The XBox hardware has been estimated to cost Microsoft $320 to $400 to build in 2001. They have been selling the box for $299, and this month they have dropped the price to $199 to keep up with Nintendo and Sony. Even after six months of cost reduction, they may still be losing $100 on each XBox sale. Nobody knows how much Microsoft is really losing, but they have confirmed that they are selling the hardware at a loss. Will they really be able to make up all of these losses with software sales?
"Microsoft is the only one that has bought in to this 'lose money on the hardware' idea."
All major surveys show that XBOX has steadily declined in market share. XBOX is very sick and its long term survival prospects are very dim. If XBOX is to survive at all it will be among OS dilettante dabblers. XBOX continues to decay. Nothing short of a miracle could save it at this point in time. For all practical purposes, XBOX is dead.
Fact: XBOX is dying
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