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."

Comments

Selling The Hook

[ackthpt]

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

Re:Selling The Hook

[gormanly]

The whole Xbox division of MS loses money - $391m last financial year, on sales of $3.2b.

They're not selling a hook, they're burning money in an attempt to beat everyone else out of the market and pwnz0r your home entertainment forever...

Re:Selling The Hook

[Godeke]

Actually, until Microsoft and the X-Box, the "lose money on the hardware" idea was a myth:

http://www.actsofgord.com/Proclamations/chapter02. html

Re:Selling The Hook

[ackthpt]

The whole Xbox division of MS loses money - $391m last financial year, on sales of $3.2b.

They're not selling a hook, they're burning money in an attempt to beat everyone else out of the market and pwnz0r your home entertainment forever...

It's the cost of establishing a market. The problem for them is, as I said before, these are game machines and gamers are not loyal. Once a new, better, shinier game box comes out these will be retired. Sure a few will become illicit Linux boxen and some will be used in the manner Microsoft intends, but they're hardly pwn1ng the american home. Seems like they still don't get it.

Good thing Windows, Office and Server divisions make a pile of cash to underwrite these follies.

Re:Selling The Hook

[GregWebb]

User loyalty is irrelevant to MS.

All they have to do here is to eventually get enough developer mindshare (and not just for games, but for the general home uses as a 'digital entertainment hub') to squeeze Sony out of the market as a serious player. Then, they can do what they want at the price they want because they own the mainstream market, and they've got the same level of control over the home entertainment market as they have the desktop OS marktet. It's not like they even have to necessarily deliver, there's been enough cases of innovative companies being stopped by the word getting out that MS might come into the market eventually.

Look what they've done elsewhere. They'll work really hard to stop someone else getting a big market, then slow down hugely when the competition is gone. IE being a prime example.

The difference here is that I can't think of another occasion when they've been against an opponent as big as Sony. Question is, will Sony consider the PlayStation division important enough to underwrite the losses of the fight? If not, MS have got the market.

Tell you what

[Paladin144]

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.

I'll make you a deal, Microsoft. If you send me 100 bucks, I won't even buy an Xbox.

It's actually worse

[ThatGeek]

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.

Re:Don't calculate the loss from the retail price

[Detritus]

Not on game consoles. The markup is almost zero.

Re:Current Prices

[Libby Liberal]

Except you can buy an Xbox for $140 new now because the prices on the hardware have to naturally fall to stay competetive as well.

All game machines start out at several hundreds of dollars until the sucker market is exhausted and you have to start targetting people who are only willing to pay $200, then the ones who will only pay $150, then the ones who will only pay $100.

The machine's price will fall at a faster rate than the cost will.

Actually

[nmb3000]

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.

Re:numbers suspect

[AKAImBatman]

He's referring to bulk prices, though. So a $60 hard drive in the store can be had for $20 in bulk. If Microsoft is really paying $51 for a quality 20GB hard drive, then they need their heads checked.

Same thing with the DVD ROM drives. Microsoft is paying for the drives in bulk with no special enclosures (because they're using their own), no burning features, no packaging, no driver disks, and no manuals. They should be able to get quality components for $10 easy. $5 if they're cheap.

This entire "analysis" smacks of someone attempting to apply retail prices to bulk hardware.