A History of the Xbox Red Ring of Death Fiasco

VentureBeat has a lengthy story about the situation surrounding the Xbox 360's "Red Ring of Death." It starts with the developmental phases for the 360, looks at the marketing decisions that drove Microsoft to aim for a release ahead of the PS3, and talks with sources and engineers within Microsoft about what could have been done to prevent the problems. Quoting: "Leading up to the launch in the fall of 2005, the number of defective units would soon grow to tens of thousands. Any other consumer electronics company would likely have postponed a launch with such low yields. But Microsoft had more money in the bank than anyone else. The decision this time would fall to Bach and Moore. The costs of launching with low yields -- where you take big losses on every product sold -- could bankrupt other companies. But Microsoft could afford to do so. Microsoft did delay the launch date from October until November. But some inside the company still believed returns would be out of control."

Comments

Re:Dumping? Loss leader?

[moderatorrater]

As I understand it, the difference is that a loss leader can legitimately expect to make money indirectly from the sales. Walmart can afford to sell its most popular items at a loss so that other items can be sold for a profit. Microsoft does this with the XBox, where they sell the XBox in an attempt to get more sales for their software.

Dumping, on the other hand, is selling at a loss so that you can drive the other company out of business and then raise the price of that same item.

Re:Dumping? Loss leader?

[nascarguy27]

"If a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be "dumping" the product." --from Wikipedia

"A loss leader...is a product sold at a low price to stimulate other, profitable sales." --from Wikipedia

The XBOX is a loss leader because people will buy it at its cheap price, then people will want to play the XBOX. Those people will be required to buy games. The games are high margin products. Microsoft makes both so it's all good for them. It's just like with printers and ink or razors and blades. Microsoft would be guilty of dumping the XBOX if they sold the XBOX in say Europe for 20 USD, which I don't think they do.

Re:Dumping? Loss leader?

[Kemanorel]

You do realize that Microsoft, Sony, and Nintendo all receive a licensing fee or percentage from every game sold, yes? While they may make more money off 1st party games, 3rd party games still bring in a nice chunk of change as well.

You also might want to check the stories of each system when they first came out. There are plenty of indicators that both X-Boxes and at least the last two PlayStations were sold at a loss, and if not a loss, then a very minimal profit margin. Nintendo is the only system maker to consistently release systems at a healthy profit. Not a loss, nor anywhere near the break-even point, but a decent enough profit that they have some very fat stacks of cash on hand.