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.

Comments

The only way Microsoft

[Kaypro]

can even remotely have a chance at competeing with Sony and Nintendo is to drop the price of XBox, right now, to $99.99. I know this may seem desperate at first, but I think Microsoft should be desperate. Gamecube at $149.00 is already stepping up the price wars, and while in theory XBox may be superior in hardware, the PS2 will probably be chosen over Xbox if one were to choose between the two solely on the game choice. For 99.99, a console with built in NIC, hard drive, optional DVD playback kit, and in game 5.1 surround, many would choose to limit themselves to XBox's mediocre game offering.

No I don't have any three of the consoles yet, but the choice of which to purchase is getting harder and harder...

Re:Embrace and Extend?

[FatRatBastard]

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.

Interesting corrective to Business 2.0 article

[burgburgburg]

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

XBox is in trouble: Flextronics

[bryanbrunton]

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