Slashdot Mirror
Microsoft Loses $126 Per Unit on XBox 360
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."
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, 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
A feeling of having made the same mistake before: Deja Foobar
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.
Linux this baby.
"It's so convenient to have a system where everyone is a criminal" - A. Hitler
Sell enough and the per unit loss approaches zero.
So why is it that there was so much controversy about Microsoft killing Netscape by bundling IE with Windows, but everyone seems cool about them doing this (and indeed predicted it)? Is it just because Sony and Nintendo will inevitably do the same, so we don't have a true underdog to root for?
Let's all buy an Xbox!
I'll make you a deal, Microsoft. If you send me 100 bucks, I won't even buy an Xbox.
Electric Monkey Pants
When the PS2 was first released it was a loss leader for Sony too..
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.
...if it even sponsors their new line of machines to the tune of $126 per unit? ;-)
I always thought this was amazing when they did this with the original Xbox, but I never heard of if it paid off or not. Perhaps it did by providing this kind of market share, but I've never heard any hard numbers of it the games made up the difference in the end. Regardless, with the crashing reports it seems like this is another rush to market item trying to be everything for everybody (iPod phone I'm looking at you).
fak3r.com
It might be worth while to know that some of the bundles out there go for well over $470. Perhaps Microsoft was hoping more people would buy these instead, as some stores only offer these. http://www.ebgames.com/ebx/categories/systems/xbox 360/
The core bundle runs for $599.93 and the Ultimate bundle runs for $699.92.
now that's a business model that is imitatable!
In other news, Longhorn's price structure just increased my $126...
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.
____
~ |rip/\/\aster /\/\onkey
So Microsoft has lost something like $378 already.
Of course, all the prices they quote are current prices. These prices will go down with time. In fact, it won't take very long until Microsoft does make a profit just selling the hardware.
Billy Boy can probably look between the cushions of his couch and find more than that.
Microsoft has been out of the "making money" business for so long. All Gates really wants is attention at this point.
Does Micorsoft make any licensing or royalty money on after market accessories? Seems they could since they have locked drivers down/out of the X360. It's also confusing why they would not add a keyboard and mouse to that line up.
Because teenage pranks are fun when you're about to die!
Note to self: read up on this eco-nom-ics thing.
"We are here on Earth to fart around. Don't let anybody tell you any different!" -- Kurt Vonnegut
They wouldn't do it if it didn't help them (evil) selves!
MS isn't getting the retail price, they are getting a wholesale price. Isn't retail markup usually in the 100% range? So MS is losing more like $325 per unit.
It's actually worse for Microsoft. The $126 loss statement doesn't take take the fact that stores make a profit into account. Thus the full retail prices does not go back to Microsoft.
Add in marketing, shipping, beta testing, opportunity cost and everything else, and I bet that the real loss per box is much higer.
What are you eating? isItVeg?.
Don't like Microsoft? Just don't buy the damn thing....
Buses stop at a bus station
Trains stop at a train station
On my desk there's a workstation....
So they have a massive shortage of the product before the holidays and are selling it at a loss? Methinks someone sold at the wrong price point. It should have started $50 higher and then dropped in January or February, or they could have done a $50 rebate with a tight deadline.
400$ a price for which you can you can buy 3 x Playstation 2's... and they are loosing money?
If it keeps crashing like a windows95 box, MS will lose much more than $126 per unit... pfft
Support NYCountryLawyer RIAA vs People
Seeing that they are selling for over $800 on ebay, they seem to be losing a bit of money ... not that they need it or anything.
Of course, all the prices they quote are current prices. These prices will go down with time. In fact, it won't take very long until Microsoft does make a profit just selling the hardware.
MS won't get $399/console. For most products it would have to live with about half the selling price or only $200 for a per unit loss of more than $300 a unit.
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.
A lot of companies do this sort of stuff deliberately. For example, Wal-mart will sell 2 liter pop bottles at a loss because they know if they can get people to buy the pop they are more likely to think, "Oh I think I should get X while I'm here." It's a business method that ironically works too well for these companies to just ignore. They obviously wouldn't do it if it didn't work since they are all in it for a profit -- but this can easily be a slippery slope. Since MS nets around $24 million/year at least I don't think they'll be too worried. The essential question is, who would buy the system if they weren't going to game with it?
Maybe they just know their product suck and just want to get rid of all those broken Xbox...
Heh, looks like they're not subsidising the price anything like as much in UK:
UK price: £280 inc tax / $482
Sales Tax: £49 / $84
Net price: £231 / $398
Build price: £273 / $470
Net loss: £42 / $72
Ironic really, especially considering the historically high console sales in UK / population, and relatively efficient distribution available.
Maybe the difference is retail margin? I'd expect it is, given that Game Group has a near monopoly on videogame sales here.
Don't forget to factor in the retail markup. I doubt the retailers are selling this with no markup, but I suppose it's possible.
If you , me and 175,000,000 of our closest friends all but one this weekend, we'll bankrupt the buggers! w00t!
If brevity is the soul of wit, then how does one explain Twitter?
They make their money on volume.
This tagline is copyrighted material. Please send $10 for an affordable replacement.
BUT ALL TEH XOBX #60's!!!!11 LETS TaKE DOWN ETH MAN!!!
I have an order for 1000 already!!! Bye BTE GATES!!!!
I guess that's one way for them to hit their sales targets.
Note to anti-msft-/. readers - even if you buy an xbox and throw it out without ever buying a game it won't hurt microsoft - this won't work because their costs will come down as their economies of scale ramp up; and also because the bigger the installed base, the more they can tell game publishers that there's a lot of demand.
That price is ridiculous. I've read on IGN that the license fees for games tend to be around $10 per disc. This would mean that to make up the lost money on each console sold, each customer would have to purchase 13 games.
I'm thinking that the average box doesn't have 13 games sitting next to it... (not at first, at the very least).
A community-oriented lyrics site
GM (General Motors) has the same thing.
They are only making money when they sell an SUV or a truck, and the loose thousands for each car they sell.
But lets not forget that GM is in big trouble, and MS does not appear to be anywhere near GM's boat.
Microsoft is continuing its tradition to taking a big loss on the console in hopes of making a profit on games. ...just like every other console manufacturer in the last decade.
Yes, but they make it up in volume!
that people are reporting the instabilities. With such a de-motivator to buy the unit, they'll need to strengthen the market campaigns for the games.
The whole thing is redundant... From the little math I know, the "360" part should bring it right back around to where XBox started from.
they can call it what they want, but I think, the proper term is "dumping".
I guess as an official monopoly under absolutely no oversight, this is just business as usual.
must be nice not having to complete on QUALITY
The real question is if Microsoft is selling XBs at a loss to get more subscribers into the "pay for service" business model, or if its to snub their competitors, as MS has more money than anyone else. Price gouging? Starving the competition? Good business practices?
Does it matter?
===
"...the gingerbread man even says - you're a monster!!" -Kanye West
When you're a big player and can afford to loose money, doing this makes perfect sense. Sure you'll make money off of royalties and accessories and subscriptions, etcetera, but that's not the point. The object is not to make money at this point, what they're gunning for is market share.
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.)
We're all hypocrites. We all have hidden parts, it's the contrast between them that make us more a hypocrite than others
I hate articles like this.
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.
http://www.maxineudall.com/2010/02/should-economists-be-sued-for-malpractice.html
It seems like a large amount per unit. They all calculate the average number of games a person will buy and multiply that by the amount they get back per game. I read somewhere the average console user buys 6 games. That would mean Microsoft would have to get $20 per game just be break even. If I were a game publisher selling a $50 game knowing that Microsoft got 40% of the cut I wouldn't be happy. I can't imagine Microsoft gets $20 per game. So they must be assuming people will buy more than 6 games per console on average.
Although they did say they're willing to lose up to $5 billion just to get the console into people's living rooms. Even after all the consoles and games are sold they'll still be happy to lose billions as long as more people put their hardware and software near a couch. Kinda scary considering their motives are more than just making money selling games.
Developers: We can use your help.
So we should buy lots of them, and no games, so Microsoft takes a bath?
I don't think Atari every lost money on a per machine basis. The old Atari 2600 was VERY cheap to make and sold I believe always sold for more than it cost to make.
The Atari 5200 might have been close to a lose but only after sales where so slow and of course the controllers failed all the time. The Commodore 64 really killed it since you could buy a computer for just a little more than a game machine.
Too bad really since it was a nice system for the day and IMHO better than the Nintendo that came so much later.
The Atari 7800? Who knows. I guess there was the Lynx and Jaguar and those might have been sold at a lose but so few of them sold it would be very hard to tell.
See my blog http://ilovecookes.blogspot.com/ for light hearted technical information.
Don't underestimate m$ pricing. E.g. see what a
ethernet cable
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
Bram Stolk http://stolk.org/tlctc/
power supply, cables, and controllers -- add another $55
*Retail Price* *Maybe* - The estimates given for the raw materials cost sound suspect. I'm pretty sure that a contract to deliver parts for the XBox comes with a much lower price per unit than your average trip to the computer superstore.
Just like ink cardridges for printers. They sometimes cost the same amount or even more that the printer itself. (Exactly why I have a laser one, myself...)
Dependency hell? =>
Why do i believe that Microsoft MIGHT get a better discount that whats shown on Isuppli, and just MIGHT be getting some quantity deals?...
There's nothing Intelligent about Intelligent Design.
What I don't entirely understand is that in many countries it is illegal to sell something below the cost it takes to manufacture it. This is to prevent monopolies, antitrust issues and makes a penetration pricing entry strategy infeasible.
But look a the UK, it has this kind of economic system setup however, M$ is selling the Xbox360 at the comparable US price.
Peter Corcoran
init 11 - for when you need that edge.
It's an interesting business model. I wonder how badly the RMAs are going to affect thier costs.
Buying an XBox does not actually make Microsoft lose money. It only makes them lose less money.
It cemented their place as a solid second in the video game market -- a market already quite a bit bigger than the film industry. It got them so recognized as a powerhouse that they have a real chance to gun for first in the next round.
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.
They are Microsoft, they buy the parts in bulk, I would readily assume they get a slight discount on the parts, and are at least breaking even on the sale of the console.
Arguing with an engineer is like wrestling a pig in mud. Soon, you realize the pig is dirty, and he likes it.
No, you have them send you $100, then use it to buy an XBox $360. They're then going to be out $226, you only have to pay $299 for the premium edition, AND you can sell it back on eBay for $800 or more! (This is what one of them is selling for as I type this.)
Cha-CHING!
The Overrated mod is for reversing inappropriate, positive mods, not for voicing disagreement with a post.
Games? What games??? I thought the XBox was a cheap computer to put Linux on...
Sony's CEO recently promised they would sell in the PS3 for $300-$400, which puts them at an initial loss of $200-$300 per unit.
Comment forecast: Bits of genius surrounded by a sea of mediocrity.
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 if Microsoft got out of the game console business. It's a money drain.
I would pay the $399, plus the extra $126, just to be able to run my own software on the damn thing!
People who stood in line to get their X-Boxes are making $500-1000 on each box they sell online.
Someone's making a profit on these.
The title should actually read "Business Week pulls some numbers out of it's ass".
Merrill Lynch did the same calculation in This Slashdot story and came up with a $61 profit per console, and they guessed $170 as the cost of the CPU compared to Business Week's $106.
Neither set of numbers include marketing, design and development costs, or the higher profist from less competitive pricing abroad - but hey, what's a few billion between friends?
A pizza of radius z and thickness a has a volume of pi z z a
How much companies lose for every copy of Windows XP (about $126) they buy?
I love sarcasm.
Success is not the result of spontaneous combustion, you must set yourself on fire.
What is also not clear to me is if they compared retail prices of the components or the manufacturers prices, because if they used the former it would not imply that Microsoft is really losing money, because the profit margins on retail components differ a lot.
See, I never buy these numbers. They're always based on "Average" costs, not the price of the inputs. Anyone who took Econ 101 knows that "Average" costs is a manufactured number; the real measure of cost is marginal costs, i.e. the actual cost of the inputs that go into making a single unit.
So it is possible to sell a unit under what the market perceives as your average cost and make money, because, by definition, if you raise the denominator (units), then your "costs" go down. Lots of people in other industries have done this (e.g. Lexus) - figure out what you think you can sell at a various price points and then price accordingly.
This is not to say that MSFT is not making a loss on its consoles, but I suspect it's significantly less than $124. Figuring that an average console owner buys 20 games over the life of the console, and MSFT gets $10/game in royalties (ignoring MSFT games and console licensing costs for now), MSFT stands to earn $200 from software over the life of the console, for a total gain of $76 over the life of the console. Given that that period could be 4-5 years, they wouldn't be selling at a loss of $124 per console - the ROI would not justify the investment (for a company that is MSFT's size, anything less than 15% ROI - maybe even higher - would be untenable).
You would think a business rag would get that, but apparently not.
Could some of the suppliers actually buy 1M X360's, tear them down and resell the parts to Microsoft for a profit?
No, for several reasons. First, they use multiple suppliers, so you'd have to form a cabal (they're not going to be buying microprocessors from a capacitor company!). Also, the cost to disassemble would eat your profits in no time. Lastly, if you sell used components as new, you are committing fraud.
You know Microsoft wants you to think that they are loosing money but I am sorry no company would do that. There is no way MS is loosing money on the Xbox I don't believe they ever have or ever will.
CyberCPU.net
i have to agree. there's alot of bear poop in the woods today
Supreme executive power derives from a mandate from the masses, not from some farcical aquatic ceremony.
and Inkjet Printers.
Even after losing $216, now they will lose even more recalling defective XBoxes.
-=-=-=-=
I know life isn't fair, but why can't it ever be un-fair in MY favor!?
I think I would prefer it if they sold it for full price and included a couple extra controllers and games for free. I have no problem with the "first ones free" marketing tactic. But in terms of value, if they are willing to take a loss, I think i'd get a lot more out of the equivalent amount of loss in free games and playability accessories, than out of the amount they knock off the box iteslf.
... what did you expect, something profound?
Has anybody considered the possibility the Microsoft marketing might be behind these "Xbox sells at a loss!" rumours, in an effort to boost Xbox sales? Has anybody considered the possibility that if you are an 800-pound gorilla like Microsoft and buying in huge quantities, you might be able to get components a lot cheaper than the normal retail price?
I've abandoned my search for truth; now I'm just looking for some useful delusions.
I've been known to typically buy maybe 3 or 4 games at retail price, and maybe a few more at markdown when they are cheap and stores are just trying to get rid of old games...... That's how I did it with the n64 and PS2. Can't say I've even bought a game yet for my set-top XBox....
In undeveloped countries, the consumer controls the market. In capitalist America, the market controls you.
How are outside parties supposed to know really what kind of deals Microsoft is capable of getting on bulk-orders? Maybe they have "minimum order" deals with their suppliers, that are of magnitude and duration that are unheard of. Who knows what a behemoth like MS could have negotiated. I question any estimates that are based on every-day ordinary numbers. I'm sure MS is capable of promising to buy much larger quanities of parts than most average companies can.
Because they released the Xbox with those bugs, and they crash. Now they have to apply a patch somehow, which is gonna cost a lot.
I have mod points and I am not afraid to use them.
1. Buy 200 billion Xbox 360s.
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.
"Leo Fender was in a 'state of grace' when he designed the Stratocaster." -- Paul Reed Smith
For those that hate MS and buy and xbox to put Linux on it, these aren't customers who will later have an MS-centric media center. If you're only buying the hardware and using it for your own software you're hurting Microsoft. It doesn't get Microsoft any closer to controlling your living room.
Developers: We can use your help.
Knowing MS, they didn't pay what everyone else pays for these parts. They probably got a huge volume discount on the parts. The article mentions that it took into account that MS got a discount on some of the parts, but I wonder if they understand how much of a discount this kind of volume (and Microsoft's pull) gets you. I'm sure they still lose money on each unit, but not as much as the article indicates.
First of all, did you read the article yourself? Sega sold the saturn at a loss, that was before the xbox.
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.
I wouldn't be surprised if Microsoft is taking a loss, but can we really believe the numbers in this article? How would they POSSIBLY know what kind of deal MS has with the parts suppliers?
I would expect that MS is paying absolutely bottom dollar for every component in the 360. I mean, if you were a supplier and MS came in and said "Yeah, we want to order 10 million units of X", you give them a hell of a deal.
$399 is NOT appealing. It's not even enticing. For that, you can get a decently decked out PC and rig it to the TV with pretty much the same results (Esp. in light of the recent stability woes the XB360 seems to be experiencing...). A lower price point would have been appealing- but they really don't want to shoulder over 2/3rds of the cost for the machines- they're shouldering probably half right now as it is. (The figures given are off- they're using the MS cost and the MSRP for the boxes, which typically accounts for anywhere from a 50-300% markup for retail profits to make it appealing to stock the things in the first place (You don't think Wal-Mart, Best Buy, etc. would stand up for stocking the things at their cost do you?)).
I see Sony coming in under that price point, if only slightly, just to turn the screws on Microsoft here.
I am not merely a "consumer" or a "taxpayer". I am a Citizen of the State of Texas
Sony tends to lose a little money on each console for the first 6 to 12 months of sales and then as production volumes and process improvements come into play, they start seeing a small profit on the consoles, even as the prices get cut through the lifespan of the console. They're willing to eat a little of their potential profits to get the box out into the market. Now, Microsoft's blowing money left and right by comparison.
I am not merely a "consumer" or a "taxpayer". I am a Citizen of the State of Texas
http://www.anandtech.com/systems/showdoc.aspx?i=26 11 6 11
http://www.anandtech.com/systems/showdoc.aspx?i=2
now if everyone bought a xbox360 and trashed it perhaps we could put MS loose enough money to either shutdown many of their unprofitable divisions and stick to OS and Office programs... or perhaps if we are lucky we could put them out of business if enough people unit for this goal.
Not so subtle subtleties of the American-English (as apposed to that other kind) language are not your strong suit are they? Saying "in their boat" is akin to saying "in their situation" Maybe this is more slang that a subtlety.... anyways if you missed my point
MS has to be losing a lot more than 126$ per console. I'm pretty sure MS is not selling the 360 to retailers for 399$, and in turn the retailers are selling it for the same price. I'm sure there's probably a 10-50% markup. Then take into consideration all the non-physical stuff like promotions/marketing costs, R&D costs, etc... and I'm sure the number is much much higher than 126$ loss on each box.
It's better to burn out than to fade away
Retail stores don't usually make much of any proffit on computers and such (consoles included) if any at all. They basically sell them at cost, and then charge you out the rear for accessories, extended warantees (Best Buy especially), etc...
Not to mention that Microsoft is paying a lot less for a products than the guy who wrote the article would get. Also, Microsoft is manufacturing a lot of stuff in-house, so that makes it even less.
Interestingly, the original goal for the 1st X-Box was for Microsoft to just make the OS and APIs, specific design specs, etc... and then sell the software to hardware manufacturers to build the actual consoles based on those specs (plus other stuff). Nobody wanted to do it though.
I'll be surprised if Sony doesn't sell at a loss too. They are putting technology into their console that hasn't even hit the consumer market yet. According to the article the expected price in Japan is equivalent to about US $450. They may have to shave that price even more and sell at a loss to be as competitive since their production costs will be high.
Not sure if anyone knows about this yet because I haven't seen any coverage on the news networks. But there seems to be a lot of problems with the Xbox's crashing/hardware failures/etc. I was fortunate enough to get one last night and my xbox actually crashed while fooling around with the new dashboard while trying to load a game..
Other people have stated their xbox's are completely unusable and now have to wait 4+ weeks for a replacement..
On a side note I have to admit I'm very impressed with the new dashboard. I know people bitch and whine that shouldn't matter because they want the xbox to PLAY GAMES ONLY. But it truly does add to the overall experience of the game and the unit.. So far i'm happy with it, PGR3 looks amazing in 1080i mode, it literally feels like you are actually driving when in the cockpit view..
MrJynx
People who buy PS's and Xboxes might not be but there's quite a bit of loyalty among Nintendo buyers. This is probably going to be significant when Nintendo release their next round of hardware which I expect to be slightly underspecced compared to the competition. Interestingly Nintendo, unlike Sony and MS, are a games company, and can't afford to burn cash establishing a market. But that's fine, because of their customer loyalty they have an already established market.
First off the numbers that are touted here are 1.) estimates 2.) done by a consulting company charging $1299 to see how the came up with those estimates 3.) totally unsupported. I too can pull numbers out of my ass that sound reasonable, and will prove Microsoft is making $20 per console sold from day 1. And I can make a hypothesis that IBM is covering much of the cost burden initially, in exchange for a 10 year commitment from Microsoft.
Much of the video game accounting has been pure crap over the years. What the press releases say and what the reality of the hardware business are tend to be very different. Like when Sony launched the PS2, all these analysis were rolling the cost of the fab they built up front into the cost of PS2 development, ignoring basic concepts like depreciation.
Now Microsoft can lose money on the xbox 360 launch, but they aren't going to lose money on rev B, and they sure as hell won't lose money on rev D. And saying they can reduce costs 25-50% from some analyst acquired anally, only means that the analyst noted gross inefficiencies in the first batch.
In perspective, I can go buy a AMD based destop at walmart.com for $288, the XBox 360 with similar hardware runs $399. Is walmart.com selling white boxed computers w/ linux to make up the money on some mythical linux game sales? Even adding another $124 at walmart.com for a Radeon 9550 w/ 256MB ram, I've then got a box whose processing specs, both graphics and CPU, Ram are comparable to the Xbox 360. And that is $412 at walmart. To get the same amount of storage space for the Xbox 360, I'd have to spend $498 to get a second harddrive. Oh and btw, these are costs, shopping retail, these aren't manufacture prices, and no one is selling any of this hardware for a loss.
I'd be very suspicious of these analyst numbers.
Comment removed based on user account deletion
Here are some direct quotes from the link you posted that contradict what you said:
Sega was not only losing money on the Saturn, but asked retailers to expect the same.
The Saturn was the first console that was actively being marketed and the company was losing money.
The Dreamcast was a money losing venture for Sega. Sega went for broke in building the best console they could buy with the Dreamcast, and sold them at less than cost. A lot less than cost.
So according to your own link Sega started the process in 1995, while the XBox didn't come out until 2001. At which point Nintendo also started taking a loss on their GameCube even though they had never done so in the past.
The summary doesn't mention this, but Toys R Us and Walmart aren't donating their shelf space. So the correct formula to determine the cost to MS isn't their cost minus retail price. It's the cost to MS to make the unit, minus whatever they sell the units to retailers for. So MS is losing more than the article summary states.
Really? If they lose that much, I'm going to go buy one right now!
What you really have to look at is the price that microsoft is paying for components, etc. There are many products where the sum value of the individual parts may in fact exceed the item value (for example, car parts individually can be incredible expensive).
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.
One must remember that the FDIC approached Microsoft a while back with the comment that they were sitting on tens of billions of dollars. And that they needed to a) give out a dividend and b) re-invest said capital as a responsibility to their share-holders or be fined for violation.
;)
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.
Yeah, but anyone who bought one is loosing $399 per unit, plus accessories, games, and sales tax.
Isn't it illegal ? At least in France I think it is, you can't sell a product with a lower price than it's production cost. Sort of anti trust law.
Alexis 'jeriqo' BRET
"An up-close look at the components and other materials used... found that the materials inside the unit cost Microsoft $470 before assembly"
umm... how do they know what it cost's Microsoft?
Like anyone can even know that
I know better than this, and really, so do you if you thought about this just a little bit...
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.
I am not merely a "consumer" or a "taxpayer". I am a Citizen of the State of Texas
Whatever the Xbox division "loses" will be offset by Office and Windows divisions' sales. What do you think the odds are of us seeing MS Office 360 edition on the new xbox?
...And if they are really smart, they will give you free versions of "productivity" apps and hit you up for $$$ if you want a full-blown version w/ tech support.
They will intentionally cripple it until MS can figure out how to rent applications without taking a bite out of their core OS and Apps sales.
I am pretty sure Sony will launch some or all of the following apps - Email, Web browser and a simple word processor. Since you will be able to connect PS3 to a PC monitor, I don't see why one couldn't use PS3 as a simple desktop substitute.
Both companies, MS and Sony, have their own internal problems - Sony is driven by music and movie divisions who demand ridiculous control over content and "protection" of their property (movies, music) which may spill over into games.
(No more game rentals from blockbuster?)
MS has problems with letting its other groups and divisions take sales (and profits) away from its main groups (cash cows such as Office and Windows are here to stay for at least another 5 years.)
Comment removed based on user account deletion
I really doubt these analysts have accurate information on the component costs of the XBox. You would be amazed at the discounts a large company can strongarm out of suppliers. It's likely that Microsoft has a cost+ model for some of the components or set it's own prices regardless of what price the supplier asks for or what the supplier price the sells the same product to other customers. Cost+ is where Microsoft would tell the supplier "It costs you $50 to make a hard drive so I will pay you $51 for your hard drive, you'll make your money on volume". Microsoft may even dictate the prices of the components they're buying. I've seen $300 processors turn into $75 because the customer was large enough to dictate terms "or else". The XBox is probably losing money per sale, but not as much as analysts estimate.
From TFA: The Xbox 360 uses a conventional DVD-ROM drive that costs $21.
and
a hard drive from Seagate (STX), which costs $53, and memory chips from Samsung at $65, iSuppli says.
Having worked in manufacturing, these prices sound high to me, especially given the size of the orders MS placed and the intense bidding process the manufacturers had to go through. Don't get me wrong, I don't doubt they're losing money on the console, but the iSupply numbers look high. $53 for a 20 gig HD when you're buying millions of them?
I also know packaging (cardboard, plastic, ink, etc.) with Chinese labor is literally pennies per unit.
Just about every gaming console created has been sold at a loss. This is nothing new.
Sell already assembled xboxs back to microsoft for $500.
Microsoft saves $50 over what it is currently paying for units.
You gain $101.
This is a perfect win-win situation for microsoft and the person doing the business plan.
PROFIT FOR ALL!
Just a point of view:
If MS makes no money on the box why not just develop games for other boxes.
As it appears the money appears to be in the ability to sell games - not the devices that runs them.
If MS just developed quality games for the most populate systems they could make tons-o-money and not lose money by restricting their game to MS designed game console.
My Sig indicates the end of the comment I posted.
The article stated costs of $106 for the chip and $53 for the hard drive ?
$53 dollars for a hard drive sounds pretty steep, maybe not if you goto best buy ot what not but call up seagate and tell em you want 500,000 hard drives and that price drops dramaticly im sure.
Does anyone on slashdot do purchasing for high volume components and can comment on this ?
To me it just sounds like marketing
"Buy this xbox 360 cause it costs us way more to make it than it sells for"
Plus the costs of $55 for the controller, cables and power supplies sounds kinda high also.
People just post these XBox money-loss stats to speed development on the Linux port. ;^)
Weaselmancer
rediculous.
If people don't buy the titles, then they don't see further royalties as the studios won't press any more titles- $10/disc is pretty steep expenditures. If you do well, say like EA's stuff, it'll be okay. If you're a lesser publisher/studio, that'd be daunting. You could very well dump THOUSANDS on royalties up-front and see little of any return on an excellent but undersold (for whatever reasons...) game. It's a bloody balancing act and they know it.
I am not merely a "consumer" or a "taxpayer". I am a Citizen of the State of Texas
I'll buy one.
And because it crashes, I won't buy any games.
I'll wait until someone gets Linux working on it.
Then I can say MS helped pay for my Linux console!
There is, however, one key difference between the Xbox and the razor/cell phone/inkjet printer examples.
The manufacturer of the razor/cell phone/inkjet printer knows that for as long as you own the product you will be continually be paying for blades/minutes/ink at a more or less fixed rate because the minute you stop buying refills the product becomes useless.
With a game console, this is not the case. It is quite possible to buy a console and only ever buy a handful of games for it. I only own about 5 playstation 2 games, and I know another person who only owns 3. If Microsoft sells me an XBox 360 at a $150 loss, it's possible that many purchasers will never spend $150 total on the games for it, much less that Microsoft will ever see $150 profit off those purchases.
Personally, I'm just wondering whether I can pick up an original Xbox on the cheap now that the 360's are out, since aside from San Andreas (which I will probably buy once the price comes down a bit) the selection of Playstation games available for the last year or two has been rather disappointing.
If I don't put anything here, will anyone recognize me anymore?
I know MS lost money on Xbox, that was obvious just by opening one up. But this doesn't seem to be the same. Making that thing for $379 (wholesale price) is easy if you just count actual parts cost.
There's NO WAY they are paying $141 for a graphics chip. Graphics cards can be had for that, and they have markup, power supplies and connectors! And $55 for the accessories (exclusive of HD) in premium pack?
An ethernet cable, wireless controller and headset? I can buy the wireless controller for $50 retail, and it has a 55% channel margin plus MS profit! Ethernet cable is $1 tops. Headset is poop (I have it), I could get it made for $2-$2.50. Oh, I forget the video cable, it's a bit fancy, but again, it is available retail for $40 ($30?) at a 55% channel markup plus MS profit! I'd guess the video cable can be made for $8. Probably less, but it does have a switch and laser diode on it. So, $11.50 exclusive of the wireless controller, and the wireless controller probably costs $15 to make (I can't guess from parts, I'm going from margin on that one). Sounds like it's $27 for accessories, plus the HD cost, no way its near $100.
http://lkml.org/lkml/2005/8/20/95
From one of many articles, that apparently no one noticed, live is included with the *stripped down* version, so odds are it's included in all versions. Which will of course make hacking it that much more annoying
...
Microsoft offers two versions of the 360, which officially goes on sale today. A stripped-down core package includes the 360 console, a wired controller and a free Xbox Live Silver account. Our premium package included a 20 gigabyte hard-drive, wireless controller and headset, component cable, Ethernet cable and universal media remote. The additional goodies, which add $100 to the basic 360's $299.99 price tag, are too good to pass up. ...
the game shops seem to sell thier own brands of ethernet crossover cables marked up as suitable for the XBOX.
mind you even those sell at rip off prices compared to buying a similar cable from somewhere like dabs
note: i'm known as plugwash most places but i screwd up registering that here somehow in the past and now can't register
That's nothing. Wait for the loss per unit $ony's gonna get on that cell-based behemoth next year! I think I remembered reading someone that it costs over 150$ just for the CPU!!(not counting the gpu, sound chip, mobo, casing, power, peripheral, etc...)
?
That's nothing compared to what they'll loose if this instability thing turns out to be a production or design flaw :)
Chris
MS will file a bankruptcy protection if enough people buying xbox 360?
what do you buy then?
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.
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 (or here 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 was skeptical of this report before reading the article in depth, but now I am assuming they are just flat out wrong on some points. Namely:
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.
I'm not sure this study is correct.
Merrill Lynch looked at both the 360 and the PS3 and found these results.
The short end of it is that the "full" version of the 360 costing $400 at launch is actually making money.
"What do you despise? By this are you truly known." --Princess Irulan, Manual of Muad'Dib
/)
No! We automate all of our weapons systems, and write an AI system for ULTRAMAX that unbeknownst to us becomes self-aware and covertly launches a worm that quickly overtakes commercial and government networks. We then activate ULTRAMAX in order to combat the virus, but it instead takes complete control of our weapons, and unloads our nuclear arsenal on other nations with nuclear weapons, thus precipitating Judgement Day. Several attempts are then made to send humans and machines alike to destroy ULTRAMAX before the singularity, but ultimately we find that is inevitable.
So why doesn't someone just make a licensed "Linux Game" disc for XBox. A lot of people would enjoy playing that, and MS would get royalities. And you could still play game discs on it too!
"It's the height of ridiculousness to say for those 9 lines you get hundreds of millions."
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.
Razors don't count. How much material and technology is there in a stick to hold a blade? How much marketing goes into the stick? I hear them talk about the number of blades, the goo strip on the blades, maybe the stick will allow the blade to pivot.
If you have ever tried like me to save money on razorblades and buy the generics, you know that there is a difference between the real thing and the generic. There is engineering and quality materials that go into the blades. Oh, and I've never noticed a generic handle to take name brand blades. Being that I have bought maybe 1/2 a dozen handles in my life, and I go through a blade about once a week, I would guess anyone could figure out where the money is in that.
Cell phones are marketed as though they are sold at a loss. It costs you some money up front and a 12 month or more contract AND a cancelation fee if you break the contract that is probably the real cost of the phone. I don't pay for my cell service, but I bought my phone. The phone was $140. Most people I know pay at least $50 a month for cell service. I've paid about $150 to break my cell contract before. I don't see these as they are really sold at a loss. People like paying for free things. Its a fact.
It was this way for the original Xbox and probably Playstations as well. Consoles makers make most of their money on game sales and from things like Xbox Live. I'm sure Sony will do the same thing although I doubt we will hear about it on /.
Those were both EA games. Since EA is still in business, I wonder what it would take to get them to re-issue those games. I like what Firaxis did in updating Pirates! I think EA could do something similar with those games and bring them into the modern PC (and console) era.
First, manufacturers often sell things for less than the published prices, sometimes far less. Published prices are just that, published. They may be nothing more than public relations. Big companies always negotiate prices, and their negotiations are secret.
Second, consider Enron. The company was bankrupt, but thought by many to be extremely successful. How could that be? It happened because accounting laws in the U.S. are very, very loose. It is possible that Microsoft is not losing money on the X-Box, but merely reporting company losses and other expenses as due to the X-Box department.
It's good to remember that Public Relations has come to mean "telling any lie that people will believe".
Microsoft is analagous to a crack dealer. First: They give you a cheaper price on the crack (x-box 360) Second: Then once your hooked, they charge more for your addiction (the games). Sound like a crack dealer to anyone? Sure does to me.
Physics is imagination in a straight jacket. ~John Moffat
That's a lot of money to be lost on a console. Hopefully they don't continue with problems or they're not going to sell.
[%] Cingular Ringtones
There have a been a few cases where consoles were sold at a loss, most notably the Sega Saturn and the Xbox 1. So far, that's it. Atari didn't sell consoles at a loss, neither did Nintendo, neither did Sony. But this is hardly the norm for console sales.
Women.
/. males and non-dating in 5, 4, 3, 2, .......)
Dates are cheap with lots of sex and BJ's for free, but then get married and that all stops and you pay for it for the rest of your life.
(cue the stereotype of
First of all, the article is bullshit. MS is not losing money on the XBox because they're paying too much for parts. That's a ridiculous myth that I'm sure Microsoft is delighted to perpetuate. Sure, the XBox division loses money, but it's not because they pay too much for parts. I'm sure their marketing budget outstrips their entire parts budget by a factor of four.
And printers, have you ever torn down an inkjet printer? I have dismantled several brands. They consist of a rubber belt that drives the print head along a metal rod connected to a motor that is worth much less than a dollar in quantities of a thousand or so. In addition there are a few tiny circuit boards and surface mount components. You could put those together in batches of a hundred for less than a few dollars. One can only imagine where the prices go when you run off a few hundred thousand. You've got generic USB and power lines and then you have the print heads themselves which are also nearly worthless. Now wrap the thing in a few pounds of injected molded plastic with a few springs attached here and there and silkscreen a logo on it. The total worth of the typical inkjet printer is probably five dollars including the labor for the malaysian factory worker that put it together and that is being generous. There's no way in hell those are sold at a loss. Of course the marketing department would love you to believe that, but you'd have to be a fool to do so.
(tongue planted very firmly in cheek)
and then put linux on it, without ever buying a single game for it. :)
The FDIC is the Federal Deposit Insurance Corporation. You mean the SEC.
That even after marketing, testing, production, distribution, licensing, and development, there's still a large, large markup to be made on games, it already has surpassed Hollywood in gross sales. What the per-disc-pressed model implies is that they can afford to eat a large licensing some one time, and still make a profit, even when you factor in units not sold and units marked down later (yes, this has a lot to do with the fact that the marginal cost is near zero, but it's nonetheless a complex model).
Is that figure daunting? Extremely. That's why you generally don't see very many smaller publishers for consoles; there certainly are some games made by lesser-known design companies, but video game publishing is very quickly going the way of the record industry half a century ago.
Of course, that's also why you see a lot of games cashing in sequels, brand/character recognition, and variations on the same theme/concept/engine, but we've already had that conversation.
--- What
MS isn't getting the retail price, they are getting a wholesale price.
On the other hand, MS is probably paying less for the parts than you or I or even most distributors do.
If M$ sells it direct they only lose $126. The fact that Best Buy will probably get each unit shipped at a minimum of $340, Micro$oft stands to lose $190 per unit ultimately.
"The problem for them is, as I said before, these are game machines and gamers are not loyal. "
Well, not to put too fine a point on it, but loyalty isn't built on nostalgia; its built on succesfully the game company ties the past with the future.
What I mean is that the PS2 was essentially a PS1 on steroids in the eyes of gamers. It could do everything the PS1 could do, but also played a newer, prettier game. It can also work that way for franchised games as well... I'll buy the next Nintendo console for the ability to play the next Zelda/Pokemon game that isn't possible somewhere else.
Look at XBox 360; backward compatibility is not worth talking about, so what have they got in terms of franchise? Halo is about it.
The only thing the XBox 360 has going for it at this point is the "microsoft" name.
Your analogy is much to simplistic. A DVD player is a generic device that will (hopefully) play any random DVD purchased at your local store.
Game systems are much more like the old saying, "Give away the razor, and sell the blades." If the razor you give away can only be used with your blades, you lock people into perhaps spending a lot more per blade than if you had purchased a razor that accepted generic blades.
It's not so much about economics as it is marketing. Economics only comes into play when deciding how much money Microsoft wants to lose, in the hopes of making it up on the games. Otherwise, it's all about making more games that people want to play.
Microsoft is to software what Budweiser is to beer.
Or even better: don't buy the console so they have a $400+ lose
the next phase of Xbox marketing will be to put "Plays for Sure" stickers on all the games so you think that Nintendo's games aren't guaranteed to work. ;-)
THIEVING BASTARDS!
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. :-)
I've fallen off your lawn, and I can't get up.
Do you mean the SEC (Securities and Exchange Commission)?
"They are putting technology into their console that hasn't even hit the consumer market yet"
Sony said that about the PS2 when it came out (the emotion engine), and yet their graphics are the same as the Gamecube and Xbox. I realize they like to hype their console like the hardware is special; remember the story about how Iraq was using them as a supercomputer?
But looking back at the PS2 a few years later, its pretty clear that the console was good enough, but hardly ground breaking.
You were mistaken. Which is odd, since memory shouldn't be a problem for you
Just wait.. soon they'll start bundling IE with Xbox so no one will be able to sell a competing browser, and they'll make sure they integrate MS Office: Xbox Edition so well with the OS that no one will be able to offer an office suite with similar integration since it makes use of so many unpublished API's and extends the OS itself. Then they'll charge you more for the Xbox Professional edition so that you can connect to an Xbox Server with authentication.. evil, just plain evil!
Why would the Federal Deposit Insurance Corp be interested in such things?
FDIC? I don't think they have jurisdiction over anything besides banks. Perhaps you meant the SEC?
Software sucks. Open Source sucks less.
Two years of Xbox Live: $120
Licensing fees for a single ($60, non-MS) game: $10
Even on just game controllers, faceplates, remote controls, battery packs, memory cards, headsets, wireless adapters, custom bags, xbox branded cables, etc.. some buyers could easily be leaving MS in the profit zone before they leave the store.
Of course, nobody is factoring in the development costs yet. They'll have to move a lot of games to make that back up.
I have researched this for a while and cannot seem to find the answer. What is the licensing fees for the three big console makers? How much do I need to pay the console maker per game I sell? I have been looking for this answer for a very long time.
well at least this time Microsoft managed to convert currencies correctly. I guess they've stopped using Excel? ;)
While Xbox 1 sold in the US for USD 299, in europe it went initially for EUR 480. A big big blunder and MS already had to slash its prices by 1/3 a mere six weeks after the launch and instate a bonus program for those silly fools that paid EUR 480 [including myself]
BTW: if you look at Macromedia's Dreamweaver: an upgrade download in the US will cost you USD 199. The same package in Europe will cost you EUR 235.....[purely based on exchange rates it should've been only EUR 167. A 40% increase in price for Europeans!!]
One must remember that the FDIC approached Microsoft
FDIC stands for "Federal Deposit Insurance Company" and insures checking and savings accounts. The FDIC has exactly jack squat to do with Microsoft. Microsoft doesn't even use savings accounts. So your premise is laughable.The US government doesn't care how much cash a company piles up, so long as all the taxes are paid and the accounting is up to snuff. Indeed, Micrsoft isn't even the record holder; back in the day, IBM had an even bigger pile.
And they can now point to such investment in order to avoid fines and legal lawsuits from the investment end.
This is incoherent beyond belief. Any time Bill Gates or his shareholders decide Microsoft has too much cash laying around they can declare a special dividend and simply give that cash to shareholders. Indeed, Microsoft did just that last year, to the tune of $30 Billion.
Microsoft is trying capture market with the old "lose money on the razors, make money on the razor blades" model. Mabye it'll work, maybe it won't, but the FDIC and goverment pressure have nothing to do with Xbox pricing.
"one treats others with courtesy not because they are gentlemen or gentlewomen, but because you are" --G. Henrichs
The conversion is *not* correct.
The 30 euro (== $35) is the european price.
The same cable is $20 in the US.
But even the US price is a hundred times the manufactoring cost.
http://www.stolk.org/tlctc
Microsoft does not make the Xbox 360, the cheapest contract manufatures do. Think they are dumb enough to own the factories and run production? Nope, they come up with the specs, give them to contract manufatures, and they make the product. Probably paid to start the lines up, then when you pay they money is split between Microsoft and the contractor. Just like all your wonderful Gateway and Dell laptops, made in the same contract factories, who just slap in son different componantes and nametags.
It's the old gilette model: sell the razors cheap, and make your money on the blades.
They need to establish a base. That's key. But, how many people are willing to buy a 400 dollar appliance in their living room? That's when microsoft marketing department comes in and surrounds it with 'hype'.
Selling hardware under the cost of manufacturering is a new concept. No, Nintendo did not do this ever. Sony did not either for the PS1 or PS2. Microsoft really wants to get in the market.
Oh, and I've never noticed a generic handle to take name brand blades. Being that I have bought maybe 1/2 a dozen handles in my life, and I go through a blade about once a week, I would guess anyone could figure out where the money is in that.
Actually I've seen lots of generic handles that take blades from multiple vendors. I find them handy as I've got 5 handles in my bathroom (a mix of Gillette and Wilkinson Sword and a generic one) and I still have problems locating compatible blades - so I almost always end up getting a bag of whatever disposable ones are in easy reach (unless they look really nasty like they might slice a chunk of my neck off, then I'll just look for pack of BIC's).
To avoid frustration, I usually buy a razor and a bunch of compatible blade packs at the same time, and just throw the razor away at if it's turns out to be one I've already got (or if I never end up seeing blades for it again because it's been 'discontinued' in favour of a newer design).
I expect that the idea that they lose money on the razor is now an urban legend (though it may have been true at one time). Personally I don't think I've never looked at the price of a razor (I assume it's about 5-10 UKP given the materials?), I've never assumed it would be expensive so I've just chucked it in the trolley/basket without a second thought.
I wouldn't care if one was 15 UKP rather than 5 UKP, maybe most other people do, but if not then it seems a bit pointless for them to compete really aggressively on price. I would have though that for them to deliberately sell them at a loss would actually be illegal in quite a few places, due to such behaviour being deemed as anti-competative.
Cell phones are marketed as though they are sold at a loss. It costs you some money up front and a 12 month or more contract AND a cancelation fee if you break the contract that is probably the real cost of the phone. I don't pay for my cell service, but I bought my phone. The phone was $140. Most people I know pay at least $50 a month for cell service.
Perhaps things are different in the US but I'm not aware of any phone that's marketed as though it's sold at a loss per se, just that you can them at a discount (or for free) if you agree to buy a service of a given value from a given provider, and the connection between the two is made very clear (with service A is say 100 UKP, with service B the phone is say 50 UKP and with service C the phone might be free).
I think your right in that people prefer not to see the actual cost of the phone (even if that means paying for it via higher monthly subsciption fees). I can understand people doing that with really expensive phones because they want to spread the cost, but people seem to prefer that approach even when buying basic low end phones I'm sure they could easily afford to buy up front (and so they spend 100-200 USD, or more each year than they actually need to for a given level of service).
I expect that to change and for pricing plans to keep falling as the market matures though (and people start to care more about their monthly subsciption costs, rather than just about getting a phone in the first place). This will probably happen a lot later in the US than in Europe due to differing market penetration rates (with that in mind I'm curious to know how the market is in Asia with regard to pricing though I expect, as with their broadband fix line service provision, it's much lower than on this side of the world).
I think Pay As You Go is typically a far better option for most people at the moment (except really heavy users - or people who want specialist services not avalible on PAYG such as GPRS/3G), even given the much higher per-minute rates for calls I expect most people's monthly outgoing for their mobile service would go down from 30-50 UKP to about 5-15 UKP, if they only bought a phone up front (and bear in mind most people go for pretty modest phones) they could save loads.
Those examples you quoted aren't examples of dumping. Dumping is selling below cost to attack competitors. A $6 razor costs what to make? 20 cents?! Cheap ink jets are the same, cheap to make, there's not a lot in an inkjet, mobile phones you sign up to pay in installements effectively.
So none of those are product dumping. Taking a 4 billion hit on a games console is dumping big time (if it's true, it may not be).
What I'd like to see is video game companies forced to open up the games markets on the consoles, so that any software companies can make games for them without license or fee. That would prevent dumping, but also the games are getting so damn repetitive, it would open the market.
I'm giving this round of consoles a miss. The same games with more polygons doesn't do it for me.
There are a lot of comments that say the same things, but I'm going to summarize because there are still lots of people posting repeat questions... Most electronics equipment sells initially at a loss, but with the hope that over a couple years the volumes and cost reductions will make up for it. So it is true that the previous generation boxes are not likely sold at a loss today. However, these game console makers can not actually sell for any profit because the competition keeps squeezing it out. Microsoft probably does get some better component pricing than what is estimated, but the conclusion sounds about right. And that is just based on component costs, the holistic cost to Microsoft includes shipping, inventory warehouseing, support, trade shows and events, advertising, prize giveaways, etc. Some of you might wonder why the console makers let them sell out of the stores (why don't they make more for Christmas?). It is not, as some suggest, a promotional ploy to generate excitement, but rather because they need to limit their losses this quarter. They would actually like to sell less! The reason why Xbox news is important to all /. readers (not just gamers) is that it affects the semiconductor industry (for example, the reason why Apple had to switch to Intel is because PowerPC makers wanted to focus on gaming), computer graphics, memory pricing, etc. and ultimately is another step toward the mainstream convergence of computing with the home theatre.
Microsoft probably doesn't care about making a profit on XBox franchise, even with game licensing because their real goal is to dominate all computing OSs in the home.
In Belgium it is forbidden to sell stuff at a loss.
Don't fight for your country, if your country does not fight for you.
Besides, unless they have an actual source for the actual parts cost inside MS, they're just speculating. MS could easily have a sweetheart deal with IBM or ATI or any or all of the suppliers, in exchange for future commitments on the quantities they're going to buy. A deal could also include little spiffs thrown in like mentioning the ATI graphics chip in every marketing piece.
Any sect, cult, or religion will legislate its creed into law if it acquires the political power to do so.
Let's play, "You're the CEO."
Your VP in charge of developing your next generation comes to you with to options:
Option A) be a player in the EXTREMELY competitive market with Microsoft and Sony. Sony is one of the leading manufacturers of consumer electronics and can bring costs down EXTREMELY well. Microsoft seems to have a bumbling idiot running their home entertainment division, but has a CEO that decided that $1b-$2b/year in losses is a small price to pay to make an effort... Sony's manufacturing and distribution might makes them the lowest cost player, guaranteeing them the only profit IF the market is perfectly competitive (it isn't, but it's pretty damned competitive), and Microsoft is the highest cost player guaranteeing them a loss as the market becomes competitive, which should indicate that they will exit, but they have made it VERY clear that they won't.
Option B) play in a related market where the only competition is your hand held toys (the youth/family market), price matters heavily (so you need to cut your costs down), but there is effectively no competition so you don't need to sell at a loss.
Which market do YOU choose?
If you chose Option A, you should run Pets.com. If you chose Option B, then you effectively cornered a near-monopoly is a lucrative niche.
Remember, Nintendo is an ALL GAMES company. They aren't a small company (number 708 on Forbes's Global 2000) with almost $5b in sales and $300m in profits. However, Microsoft ranks at 47 with almost $40b in sales and $10b in profits. Sony ranks at #123 with over $70b in sales and $850 in profits.
What does this mean? Nintendo, last year during the Console R&D year (remember, GAAP and International Accounting Standards require R&D to be expenses as incurred, so the R&D year should be MUCH worse because all the sunk costs for the generation happen then), only made $350m. Sony, only $850m...
The market that Nintendo plays in is smaller than Sony or Microsoft, but it is profitable, they make decent margins (non obscene like Microsoft, but few companies do), and continue to make money with each generation. Marketshare matters less than profits... Microsoft made NO money in games, Sony and Nintendo did similarly profitwise in games (supposedly half of Sony's profits are Playstation related, meaning $425m)...
So let's rank the companies from last year...
Sony Playstation Division: +$425m
Nintendo (all divisions are games): $350m
Microsoft Gaming Division: -$400m
Now, if Microsoft wasn't bleeding Sony's profits my selling at a loss, perhaps Sony would have made another $400m - $500m...
Being a monopolist is good. Being in a duopoly where the other player has decided that drain you of profits at all costs... not so good.
Alex
Don't forget, the Value Addition Tax (that has to be the most stupid name for a tax ever) eats a big chunk of the favourable exchange rates. But the cost difference still is pretty steep.
Wow, this is probably the best value you can get for a P.C. Just put Linux on it, yes I know this will not be that easy. You get the hardware for the price that Microsoft negotiated, minus the amount that they are losing per sale. You'll probably need to find a way to get it too cool faster, though. Considering this, I might just get into it's hype.
You're not going to kill Microsoft by buying Xboxes. The more people that buy Xboxes, the more the word Microsoft is mentioned and spread. A great example of this is they're current marketing strategy with the 360. Instead of selling 40billion consoles the first day, they only shipped a fraction of their inventory. While this may seem ridiculous to some, it's exactly what they want. 40billion or 2 million, all the customers/news/readers hear (or read) is "SOLD OUT". Microsoft would rather keep this "SOLD OUT" message plastered in the media and a persons mind for 2-3 weeks rather than 2 days. To the average Joe Blow who isn't aware of their scheme (alot of people btw) this makes the Xbox 360 look like the product they need, or the console EVERYONE has, which to some translates to the best of the best. Now when Joe Blow goes to pick an software, what company is he going to remember?
Fractured Element
the figure of $-126 per x-box 360 is inaccurate. There's also marketing, R&D, Sales Team salary, Shipping, middlemen, etc. So the figure should be somewhere like 250-300.
This is an inaccurate troll post. Don't feed the trolls.
"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."
Add F/OSS to that list.
So many people here are taking this analysis as fact. It's an educated guess at best. Unless MS releases the true cost, no one knows.
Then the prices go up, the innovation drops out, and everyone that was foolish enough to buy one gets mad. Don't get mad, buy something else.
I'd like to see someone buy 10,000 of these and superglue them together into a statue of a giant penguin! Maybe Google would have the loose cash and artistic vision to do such a thing?
I'm trying to teach myself to set people on fire with my mind... Is it hot in here?
In the study they set the price for bluetooth 2.0 at $10 per unit, and 802.11g at $5. So much for the predictions that bluetooth would get dead cheap...
Finally! A year of moderation! Ready for 2019?
This is certainly not limited to Microsoft.
For a not-brief-enough period of time I worked for a large computer retailer (I won't won't say which, but it rhymes with CompUSA). Customers that tried to haggle were surprised to find out that the retailer only made about $45 for each PC and that was the systems with larger margins. It was even less with printers. Everyone was catching on to the ink cartridge strategy, but they didn't realize was that the the super-duper, IEEE, bi-directional printer cable was priced at an obscene $45, compared to a cost of $2. Most retailers still sell the shortest ethernet cables and USB cables for $10.
A non-techie mother on a Christmas shopping mission is not going to risk damaging a $400 game system and hundreds of dollars worth of games and accessories by going cheap instead of springing for the branded $30 cable.
Hell, even some techies will insist that the premium on Monster cable is justified... (ducks and runs)
By the time the original Nintendo was released, the 2600 was pretty old in the tooth. I think the largest motivation was that kids wanted something new, with new game franchises, and better graphics.
Heck, speaking as someone that once gave themselves very painful blisters on the palm from Decathalon and then continued to play, resulting in torn blisters, the 2600 always had the worst graphics, but I considered it to have solid games, lots of choice and a good controller. So the idea that people left the console because it had bad games, is incorrect from my experience. Unless bad is functioning as a synonym for old.
Given that retail markup is usually around 100%.
Even if substantially less, there is no way that Microsoft is actually getting $399 on a unit sale.
-- it's ridiculous how many people misspell ridiculous... (damn, damn, damn...)
Microsoft does not "loose" money, they just would like you to think that.
Congrats Slashdot, you've been socially-engineered by some PR firm promoting Microsoft. There's no way the numbers are legitimate.
As many here have pointed out, the highly-speculative costs of the XBox360 are only slightly more competitive than what a smart consumer might expect, and this doesn't take into account Microsoft's tremendous buying power. Anyone with any amount of knowledge of the market knows the numbers are completely phony, and likely a PR plant to encourage consumers to snap up this console as if it were a "bargain."
To illustrate what I mean, everyone should watch The PBS Frontline special on Wal-Mart. Microsoft, like Wal-Mart is a pseudo-monopolist in its industry. As such, it doesn't have to play by the rules normal manufacturers, distributors or retailers play by. PBS has documented cases where Wal-Mart tells manufacturers what price they will pay, and in some cases, manufacturers are threatened with going out of business if they don't comply. Microsoft has done this same thing in the past with its suppliers and you can bet they play this game with XBox components. What they're paying is likely a fraction of what this article states. They have the power to tell manufacturers what to charge.
if you read the ML numbers, they're leaving off nontrivial stuff like the controller, power supply, etc. (Because they're just trying to compare core components for the 360 vs the PS3, not estimating total 360 cost.)
If you visit iSuppli's site, you find out two things:
1. IBM is their client
2. IBM is a key component manufacturer for the XBox360
Then stuff like this makes sense:
A dissection of Microsoft's new Xbox 360 Premium video-game console conducted by iSuppli Corp.'s Teardown Analysis Service indicates that IBM silicon is a key factor driving the cost and functionality of the product. Beyond the Xbox 360, IBM chips are also at the heart of two other next-generation game consoles set to hit the market in the coming months. Thus, while it's too early to say whether Microsoft's Xbox 360 will prevail in the gaming market, IBM is a sure winner in consoles due to its across-the-board design wins.
"A lot of people ask me which company will win in the video-game console market: Microsoft or Sony? I reply, 'IBM,'" said Chris Crotty, senior analyst for consumer electronics at iSuppli.
Well, isn't that a surprise. iSuppli doesn't bite the hand that feeds them. Surely their "objective analysis" of the value of the XBox360 is sound.
replacement for the house where the thing caught fire?
Just curious. I'd sooner Microsoft lost money big time with this little venture.
MSBPodcast.com The opinions expressed here are my own. If you don't like 'em... Think up your own stuff.
"After the last two Big N consoles I am amazing [sic] about the followers they still maintain"
It's not about "I'm loyal to this company", it's about "Wow, this company makes games I really like, I'm going to buy their future games and consoles".
In the grand scheme of things, Sega's games were pretty similar to Nintendo's, and I loved the games from both companies. But in my eyes, Sega fucked up big time (repeatedly), whereas Nintendo not so much. A Virtual Boy and a couple bad games, compared to Sega, which abandoned three consoles (CD, 32X, Saturn). Now of course, some people might have been "Those Sega consoles were awesome, whereas Nintendo screwed up", but this is just my account.
I had a Genesis when I was a kid, not a SNES, but then for the next wave I had an N64 and a PS1. By and large, I liked what I saw in the N64 much more. I wasn't connected to the internet at the time really, so I didn't know that the N64 was a failure. It was news to me. So when most people are "jumping ship" from Nintendo's stuff, I was jumping onto the ship. The big reason a lot of people left, of course, was because the type of games they liked were made by companies that preferred to make their games on developer-friendly PS1. But as for me, I got a Cube at launch, and only got a PS2 much later, for rhythm games.
Now the Revo's coming out and I'm excited about the new controls offered here. I do fear that the next Smash Bros will focus too much on the new gimmick plus online play and not enough on new content: new characters, moves, arenas, options, strategic elements, etc.
Where was I? Oh right. I got lost there. So the moral of the story is if a company keeps making games that a segment of the market likes, that segment will be "loyal" to them. And by "loyal", I mean they will keeping buying games and consoles that they enjoy, which entails that company.
The reason Nintendo seems to have a much more "loyal" market is because their games tend to attract a certain segment of gamers (that would include me), and other companies don't make games quite like them (lots of exceptions... Katamari Damacy...). On the flip side, since their 3rd party support is poor, people who like other types of games have avoided the Cube. Because of this, the Cube is pretty distanced from the other two consoles in terms of what it offers (for better and/or worse).
What I never understood when I was younger was how different people enjoyed different games. I was like "why does x console sell so much and y console so little when y makes better games?". I used to be on System Wars forums comparing the scores of games, etc. But that was really stupid. How can you compare games when no one has the same tastes? It's like saying apples are better than oranges. What a worthless thing to do.
Gamespot is particularily poor with this. They give a "Good Taste" award to people who have games with high Gamespot scores. What a stupid thing to do. Obviously, some games are difinitively better than others; Zelda is better than Big Rigs, but scores are ridiculously subective. I love games that have gotten 6s from Gamespot, and hate games that have gotten a 9.
And that's the looooooooooooong way of explaining why some people keep buying Nintendo games. They don't do it because they're blindly "loyal" or some stupid shit like that. They haven't "toughed it out" and kept paying for bad consoles and games just to support their favourite company. They (read: we) just like the games.
"When the atomic bomb goes off there's devastation...but when the atomic bong goes off there's celebraaaaation!"
Each one of those cables is hand painted by Bill Gates himself. That's got to be worth something, no?
Friends don't help friends install M$ junk.
If you actually did a quick search before typing your "cute" response, you would have seen that Intel 733MHz chips go for $9.45 retail. Microsoft certainly pays wholesale with the maximum discount, meaning they buy these chips for practically nothing.
And no, price for chips do not increase over time. They continue to decrease. 8080, 8086, and 486 chips are still being made, sold, and purchased to this day. Only in retail do they cost more than a few dollars.
IT depends on the component type, but on average an electronics systems' cost will go down by about 18% for each tenfold increase in volume of the order. So if the Xbox would cost $470 to put together with retail pricing (i.e. volume of one) the 100k unit pricing will be about $250. The reason this happens is that the vendors just need to make a certain amount of total profit, so shipping ten times the items at half (remember the margin on the retail item is about 50%) the total profit still increases.
Actually, a quick search reveals you can get Intel 733MHz chips for $9.45 retail. Microsoft certainly pays wholesale with the maximum discount, meaning they buy these chips for practically nothing.
And no, price for chips do not increase over time. They continue to decrease. 8080, 8086, and 486 chips are still being made, sold, and purchased to this day. Only in retail do they cost more than a few dollars.
But people who really want a cheap computer that runs Linux are going to buy a used one or something from WalMart for less than half the XBox price. Microsoft will tell this to their investors and your overpriced, very difficult to configure DRM'd M$Linux box will show up on their statistics as M$ owned.
The best way to make Microsoft lose money is to recommend hardware based on it's merits. Sony and Nintendo make better gaming consoles. Others make cheaper and better general purpose computers. Microsoft will lose $126 per unit if they manage to sell every single one. If they sell none, they lose their entire $470/$520 cost. Spending your $400 on something that works is what's best for you and worst for M$.
Friends don't help friends install M$ junk.
Comment removed based on user account deletion
does this mean that Nintendo, Sony, or any other anti-M$ people can just go and buy 100 xbox 360 without any games to worsen the sales? i also find it sad that the xbox 360 did not come out with a killer game that makes everyone want to have it (like halo) it would suite their business model.
Cheap as milk, sounds more like a bargain to me , mister :|
Between artificially limiting supply and aiming for the $400/$500 pricepoint, Microsoft has really lost out on a lot of money here. Even if the XBox 360 did cost Microsoft $470 per unit as this seriously flawed analysis indicates, then Microsoft is dumb as hell for selling it at a loss. How does $500 profit per unit sound to Microsoft? Bad apparently, because they were unwilling to set the price at $1000, which many are selling for on eBay [some way higher than that, believe it or not]. It might be slightly bad PR, but if they put the introductory price at $600 or $750, then they would get many buyers and would cash in on the insane gamers who just have to have one right away. There is really no reason for Microsoft to give this profits to middlemen on eBay and places like Amazon.com and Walmart that are only selling the systems as part of a package including higher margin items such as games, xbox live subscriptions, headsets, controllers, etc. Microsoft could get away with basically whatever price they want until after the holidays (okay, really until PS3 comes out) and then readjust the price to something either break-even or to be competitive with PS3. If they are just trying to ramp up their installed user base to hit a certain target which they believe makes them more desirable for developers, then they are still dumb because they could do a preorder and cash in on the idiots who buy this junk at midnight the day of the release date (don't even need to use retailers--just sell it from the online store), then a month later bring the price down. Demand for this thing is so off the charts, that Microsoft really missed out on an opportunity to make a huge amount of money on it, rather than taking a huge loss (although it's probably not so huge for Microsoft). People are paying retailers upwards of $700 for packages that include games (whose costs are purely the fixed costs of development--very negligable variable cost), then MS could include a few games, which are very high margin to make it sane. Yes, the world would balk at a bare bones console (just system, controller) for $750, but if it came with 2 games and a 3 month XBox Live trial subscription, people would definitely shell out for it.
And do not underestimate the effects of supply and demand on the marketplace. Remember those stupid Razor scooters? They cost $100 in the summer of 2000. In the summer of 2001, they were $20. TWENTY. Their trendiness allowed an additional 400% markup! Do not be so naive and suggest that they dramatically reduced the cost to produce the scooter in that one year time. It was a fad that passed. In fact, Microsoft need only look at its own stock price (still down 50% from its high in 2000) to see how much price can move based on fads and demand.
XBox 360 is way more desirable than those stupid scooters, so really the sky is the limit. If Microsoft did a pre-release of a "special edition" (which of course would have nothing special about it, other than being green or gold or something), they could probably charge like $5000 if the supply were limited enough. Then a more general release a couple months later for $1000 or $750 and a more wide-spread release for $500. At each point, they appeal to a certain consumer base and make the most money that they can. It is kind of surprising that they are not riding the hype over this system to a bigger payday.
Take a look at HP's newest printers, the ones with the fancy /insane pump system. They're loosing over $100 per printer. They project it taking at least 3 years before they'll break even on ink sales. I heard rumor that one of the new printers won't ever break even. Why bother selling it if it will always loose money. Seems like they're just trying for market share and nothing else. So, Microsoft isn't alone in taking these risks. But the XBox is more likely to stay around for 3 years to sell more games. I don't know about a highly complex printer with a brand new ink deliver system -- good luck with it working long enough to sell enough ink to break even.
1. How is this different from cell phone companies giving massive rebates on the physical phone device to get you to sign up for a two-year contract?
2. How can we know wht Microsoft's cost per part is? I'm sure that a company that size can easily pull a Walmart and dictate to the suppliers how much they're going to pay for what quantity.
Web 2.0 == Giant Blogspam Circle Jerk
The X-Box 360 full package, with hard drive, etc. costs about $530 to make right now, according to the front page article.
The ML analysis claims that the X-Box 360 main unit cost alone, with no hard drive or box goodies, might drop to $300 by next year with expected improvements in manufacturing.
These are not contradictory claims.
The PS3, on the other hand, may cost as much as $600 to manufacture, and therefore be double the cost of the X-Box 360.
Meanwhile there's guys selling them on ebay for anywhere from a thousand and five thousand dollars... Seems to me the 'engineered shortage' works out well for everyone not Microsoft.
I gotta wonder about these people though... Okay, I can understand wanting to have the latest and greatest thing when you want it, and not a moment later, dammit. And, if I had the money, I could probably be convinced to pay twice the cost of the thing... (Okay, that's a damned lie. I'd have to have a lobotomy first.) But five grand? I think the best part about the $5000 auction I saw was the seller said it was 'on-hand'..turned out he was blowing smoke. So some guy paid FIVE THOUSAND DOLLARS for a Premium Xbox360, and a copy of Need For Speed...and he still won't get it for two weeks. Good job, moron. You know, $3689 gets you a massive Xbox360 bundle including ELEVEN games, an extra controller, and a FORTY-TWO INCH PLASMA TELEVISION, from Gamestop. This is all my way of saying console fanboys need to learn how to control their digital hormones.
Maybe I should preorder a handful of PS3s. That oughta bankroll my new workstation. Ahh, the wonder of ebay, connecting the smart and devious among us, to complete morons with too much money.
Friend: "The NIC is misconfigured..." Me: "No prob, I'll just telnet in and fix it." *Silence*
Well since: Microsoft Loses $126 Per Unit on XBox 360" can't Microsoft be sued by Sony et al. on the basis that they are selling a product at a loss? This is definitely predatory pricing, but I could be wrong... Anyone with a degree in law care to explain how this is actually justified ?
Isn't this loss especially risky because they are selling the 360 as a media center and not just a game machine? What if people decide that they don't even want it for games (no royalties and no monthly subscriptions). People might just want it for a cheap, convenient media PC. I guess this gets them into THAT market, but is that enough?
-matthew
"THERE IS NO JUSTICE, THERE IS ONLY ME." -Death
If all the Zelda, Mario Metroid titles were available for alternative consoles, the GameCube wouldn't just be trailing, it would be dead. Brand loyalty only really comes into play when a person's level of purchase involvement is so low that a product and it's alternatives are virtually equal save for the brand name.
What he's talking about is absolutely the case and is one of the big ways stupid teenagers get hooked on meth and heroin. Everyone tells them how evil harmless hippy drugs like cannabis, LSD, and mushrooms are, they get over that "risk aversion" hurdle to take them, nothing bad happens, and then they assume meth and heroin are just fine too. And this really isn't all that unreasonable. If your parents/teachers/goverment all tell you a total outrageous lie (smoking "the demon weed" will make you eat babies, etc.), it turns out not to be true, you've lost a lot of credibility.
Don't believe everything you read on slashdot. This post sounds much more like a advertisement for iSuppli then anything else! I work in selling parts some of which are actually in the XBOX and I can tell you right now it is impossible to get pricing unless you work at Microsoft or you were able to get your parts on the XBOX Build Of Material (BOM). Very few people actually know all the prices for every component on the BOM! The absurdity doesn't stop there, how do we know what quantity iSuppli bases its pricing on? For example, if I am just going to buy one piece of component X it could cost up to 2 dollars! But if I am going to buy 10,000 pieces a month maybe I could get the price down to 1.25.. now if I was going to buy something on the order of 1 million a month the price would bottom out around 10 cents give or take a few cents depending, cost of materials, how new the technology is etc. Looking at the parts that are specific to the XBOX 360 namely the GPU and CPU how can iSuppli claim to know the exact dollar cost of these componets when they are specifically custom designed for MSN! The only way they could know is if they had insiders in IBM/ATI or MSN!! Which is down right absurd because people could lose their job over such a leak. Granted they could have an insider at one of the ODMS but this whole notion is far fetched!
The only console I know of that was sold at a profit was the failed 3DO machine (which is why it failed) 3DO didn't have any software companies and very stupidly thought they could make money from the consoles, which in turn made them cost like $AUS800 or something like that. All consoles are sold at a loss to get a many of them in homes as possible. This is ancient news and nothing new at all.
If everyone buys an xbox 360 for each room of their house as purely a media player, they can contribute to driving M$ broke. Come on, I know you want to...
It has been said before: The use of the idiotic slang term "Boxen" is neither cute nor is it funny. With any luck, in the near future there will be a mechanism in place to summarily execute users that must utilize this odious pseudo-terminology.
Look at the numbers in the ML report. $100 CPU, $100 GPU, $25 HDD
They're all horribly round. They are made up numbers, they are off the cuff guesses about a product which had not been released at the time, by people who aren't experts.
Compare this to iSupply, which dissected the final, released product, and did serious research into the prices. This is what iSupply does, this is their field. They produced estimates precise to the dollar.
Which do you really think is going to be closer to the mark?
Just look at some of these numbers from the ML report:
CPU IBM PPC $100
GPU ATI GPU $100
Optical Media DVD-ROM $25
Memory 512MB GDDR3 $50
HDD detachable 20GB HDD $25
USB 3 ports $5
Ethernet Ethernet $5
Wi-Fi 802.11 a/b/g $5
Controllers up to 4 wireless N/A ($0)
Other Analog IC, ASICs, I/O $25
See how nice and round they are? Notice anything left out that's included in the packaging? Anything essential like a power supply or a controller?
It's important, when you're going to pull numbers out of your ass, to keep them nice and round so they don't scratch your sensitive rectum.
Merrill Lynch didn't "look at" either the 360 or the PS3, they guessed about them before the release, without ever touching an X-Box 360, and came up with what look like off-the-top-of-my-head numbers.
- gas has a large markup and is subsidized to boot
- cell phones are amortized cost over years, most certainly a profit made there
- fountain drinks have approximately 10,000% markup
The flip side, of course, is that for every half-dozen people who purchase a relatively small number of games, there are 2-3 times as many people who will buy a *lot* of games.
Did anyone even consider the sort of discount MS would get for bulk purchases of the components of the 360? They would have had a forecast for projected sales, gone to the manufacturer and said, this is what we expect the sales figures to be, make us the console. I bet manufacturers and suppliers would have been falling over themselves trying to give MS the best possible price on components so they could get in on this cash cow.
MS are hardly buying retail prices to make the 360's.
This is hardly breaking news. Since the advent of video games, developers have lost money on the hardware...in hopes of recouping it on the software side. Microsoft nor Sony were the first to do this. And no, Microsoft isn't doing this purposely to corner the market...they're doing it because the market dictates a certain price point to be successful. And Microsoft knew that they would have to encounter losses, just like they did with the Xbox, just like Sony did with the PS2, and just like Sony will do with the PS3. The Dreamcast didn't survive because Sega couldn't sell enough games to bring the profit back from the cost of hardware. Gilette, Schick, etc. all lose money on selling razors. That's why you can buy one for less than ten bucks. But the blades on the other hand....much higher. That's where they make their profit.
If they are losing that much on sold consoles, they will lose more on unsold consoles. Buying these to take down Microsoft is a waste of money, and a tragic waste of time.
Human desire will bring death.
Hell, even some techies will insist that the premium on Monster cable is justified
I'm wondering why someone hasn't tried to class-action Monster for their cables.
Okay, there is a large class of luxury products that may be rip-offs, but at least they are clearly rip-offs. If you want to pay $30,000 for a table that consists of a piece of glass on two aluminum sawhorses, you are clearly just making a value judgement. It may be irrational, but you are making that decision with all the information that you can reasonably have, and nobody lying to you (like claiming that your new table will cure cancer).
On the other hand, Monster represents its cables as providing better audio or video quality, which is completely horseshit, at least in the instance of their digital cables. They are selling *lies*, and making a damn lot of money on it by preying on consumers that aren't electrical engineers. In a *lot* of retail stores. For example, look at this. "This ultra-high performance fiber optic cable greatly reduces jitter and maintains optimum signal integrity for smoother, more detailed sound from CD players, minidisc, DVD players, DACs, and satellite receivers."
Any program relying on (nontrivial) preemptive multithreading will be buggy.
they can call it what they want, but I think, the proper term is "dumping".
No, it is not dumping at all. Dumping occurs when you have an *unsustainable price* being used with the intent of driving someone else out of business. Microsoft can keep selling the 360 at a loss, because they believe that they will profit based on the games that are sold. Whether or not they *do* make money, they have a pretty reasonable expectation of doing so, given that console manufacturers have followed this razor-and-blades model for a long time successfully.
I guess as an official monopoly under absolutely no oversight, this is just business as usual.
Microsoft does not have a monopoly in the video game market, and they are barely, if at all, using their monopoly in the operating systems market to try to give themselves an advantage in the video game market.
must be nice not having to complete on QUALITY
Nobody competes on quality on the first models of video game consoles. There's no way for the consumer to *buy* based on quality because there's no data to base a quality judgement on. These are right out of the factories. They can't test their consoles for five years to see what fails. Revision 1 game consoles generally *are* flaky.
Look, I don't like Microsoft either, and I think that they play a lot more than their share of dirty pool. But none of this is *illegal*.
Any program relying on (nontrivial) preemptive multithreading will be buggy.
You aren't figuring in that Microsoft has lots of pull and will be ording lots of parts. I'm sure the suppliers of all the parts have no problem cutting M$ major discounts on parts just to keep them from using their muscle to put them out of business. LOL You also have to keep in mind that M$is a software company and probably has plans to make up he loses with software title sales. http://www.kennethstillmanvideo.com/
Actually, I think there is a substantial amount of loyalty out there.
It's the sunk cost fallacy. To a kid, the price of a console is a lot, and most kids can't afford all the consoles out there. They have to make a decision (a significant one, since they're making it with limited information and it determines the class of their entertainment for the next couple of years). They are going to play video games with their friends, so it will impact their social lives to at least some extent. They *don't* want to look like they've been suckered.
Adults are the same way about things that are proportionally costly, like cars ("Yeah, this Porsche I bought was totally worth it. It changed my life!")
Hence, fanboyism -- a reaction to the fear of appearing to one's peers as having made a bad decision.
Any program relying on (nontrivial) preemptive multithreading will be buggy.
Comment removed based on user account deletion
these things are incredibly cheap to make, and are not sold at a loss. what perpetuates this myth is the fact that inkjet cartiges are sold at gouge level prices. A few major injet makers have lost in court over dmca issues when they encoded their printers to only use their brnd replacements. when there is a flourishing 3 party injet cartridge aftermarket that typically sells replacements for 10-25% of the original manufacturers price you know a scam is goin on. people like to think they got a deal on the printer. they didnt, just because the company is fucking you in the ass now, does not mean they did not fuck you in the ass before.
as far as things like stock buyback reserve, the cash to buy this back will have been long there from a huge tax free ipo. most companies underwrite their ipo, then pull the plug an let the stock crash. do a search on ipo and 1 and 2 year post ipo stock prices if you dont belive me. typically less than 5% of the cash raked in from ipo is needed for buyback.
all the stuff you mention exists as losses that are only found on the tax return, or annual reports when a company is fixing to buyback its own shares. why do you think insider trading is illegal? its not to protect the average investor from the ceo, it is to protect the real owners of a company from the ceo taking over stock. ok it might also be there to create the appearance of an honest system. however when you commonly have companies file two different financial statements in one year, one to the tax man, and one to the shareholders you know that there is a lot of room for interpretation.
you can bet you bottom dollar that M$, inkjet makers, etc are selling their wares at a loss out of the kindness of their heart, and they have the lawyers to beat down anyone that would say otherwise. this is why tax offices dont regualry fight big companies, but audit individuals/small business far more often. any large company knows that if the tax office gets out of line, sic your lawyers one em and teach em a lesson never to fuck with you again.
but in reality no such loss exists. M$, inkjet makers are getting richer than ever, literally printing money. one more thing that would perpetuate the rumor of M$ being willing to lose money is their unprecedented cash reserve of over 50 billion. many economists believe it is unhealthy for a company to have such a huge cash position. they are idiots. M$ also, i'm sure, does not find it to hard to have 50 bln USD lying around. but anyone who thinks that they are going to spend one red cent of that subsidizing gamers is in a fantasy world. M$ did not get where they are by giving anything away to anyone, ever.
Hang on. Microsoft doesn't take $399 for each xbox sold -- no-one's factored in dealer/distributor markups. I suspect that dealer margins will be quite low on this product, but they're certainly not going to shift inventory without earning something to cover overhead, credit card transaction fees, staffing, and so on.
You have to take into account what MS sells the unit to the retailer for.
I worked at a major electronics chain when the ps2 launched. The company cost on that unit was $330 when it was retailing for $299. Just like MS the store makes its money back on games and accessories.
Shocking? Yes. Unusual? ... I guess you don't have CompUSA or Best Buy across the pond there.
This would be true is Microsoft were selling every unit directly to the consumer. But alas, those evil bastards at Best Buy want to actually make money by selling things! (The nerve!) So, they get to buy the XBox 360 for roughly half the retail price. Or maybe 60%. Or 40%... I don't have first-hand knowledge of the deals the big box stores have with Microsoft.
The point is: MS is probably losing something closer to $150 or maybe $200 a unit (before you add in the extras).
Online wrestling as a trading card game? WWF With Authority.
Sorry, I misread your post "...in Europe. That is 30 euros, mister! And for the Americans: that is 35 US dollar"
;)]. So tax difference can't be the cause for this. And given the mere price difference between Europe and the US it looks like MS hasn't learned after all.
:)
I read it as "for europeans it's 30 euros and for americans it costs 35 dollars"
Some other posts suggest it may be tax differences causing this, but living in California some years ago, tax was 8.25%, in NL it was 19% [and in Norway it "adds" 25% "to my value"
I wasn't really tempted by the Xbox 360 anyway as a replacement for my original Xbox from a techical/gaming point of view. But getting squeezed to the last bit by Microsoft settles it. No Xbox 360 for me.
Hmm....all that cash left to spend on something nice for myself
Comment removed based on user account deletion
If the 80GB Drives are cheaper in quantity than 20GB Drives, and available in higher quantities, why isn't Microsoft putting 80GB Drives in the XBox 360? It makes no sense at all for them to pay MORE money for less capacity.
Therefore they must have a deal whereby they are able to source 20GB Laptop Drives (remember, these are 2.5" Laptop drives, not 3.5" Desktop drives) for less than 80GB Drives.
acutally, the optical drive *can* burn, at least that's what i heard at my local retail outlet.
"Frankly, just about the only illegal drug that doesn't seem to have long term negative effects on the majority of users IS LSD"
are you freakin' crazy? that stuff gets stored in your body, comes back at random times in your life years later (usually during times of stress, when you least need it), alters your brain's fundamental chemistry, has the ability to severly fuck your brain up if you OD and you're saying it's long term effects on the *majority* of users isn't that bad?? maybe you took too much yourself and can't think straight.
marijuana is by far safer. the people you know that smoke it all the freakin' time are not marijuana users, they are abusers. that is the reason why their lives have gone nowhere. they are losers just like people who do too much of *any* drug. that being said, marijuana's side effects after long term light to *moderate* use is negligible. it's mechanically impossible to overdose, and it's not physically addictive.
1. Buy a 360
2. Don't buy games, get them off the net.
3. ???
4. Loss!
Txurlo