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Microsoft Loses $126 Per Unit on XBox 360

CmdrTaco posted more than 8 years ago | from the so-we-should-buy-more-right dept.

XBox (Games) 725

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."

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725 comments

Selling The Hook (5, Insightful)

ackthpt (218170) | more than 8 years ago | (#14101418)


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 [ebay.com] , 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 (5, Interesting)

gormanly (134067) | more than 8 years ago | (#14101462)

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 (5, Insightful)

ackthpt (218170) | more than 8 years ago | (#14101553)

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 (2, Informative)

mikael_j (106439) | more than 8 years ago | (#14101471)

...and before that drug dealers all the way back to the days of the opium trade.

Actually, I've never met a drug dealer who did anything like that, I've only heard it referenced in "Think of teh CHILDRUN!!!111"-speeches and government pamphlets about the horrors of smoking pot even once (it leads, without exceptions, to heroin addiction and then death... Did I mention I live in Sweden?).

/Mikael

Re:Selling The Hook (2, Funny)

GungaDan (195739) | more than 8 years ago | (#14101589)

I am slightly amused at the concept of heroin dealers distributing syringes freely in hopes that people will come back to them for the drug. Or the neighborhood "greengrocer" handing out free bongs so people will come to him for something to put in them.

BTW - hello Sweden! I'm a big fan of your bikini team. ;-)

Re:Selling The Hook (2)

Mr. Underbridge (666784) | more than 8 years ago | (#14101472)

Also forgot labor and overhead, which could add substantially.

Re:Selling The Hook (2, Informative)

ackthpt (218170) | more than 8 years ago | (#14101584)

Also forgot labor and overhead, which could add substantially.

Not really, that's pretty much encapsulated in 'assembly' Microsoft doesn't own the plants that make these, they contract it out.

Current Prices (1)

Vicissidude (878310) | more than 8 years ago | (#14101488)

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.

Re:Current Prices (2, Insightful)

Dan Ost (415913) | more than 8 years ago | (#14101583)

That only helps if the component prices drop faster than the console price does. Once the PS3 and the Revolution come out, expect to see the XBox360 drop in price.

Re:Current Prices (2)

ackthpt (218170) | more than 8 years ago | (#14101614)

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.

=)

That made my day.

You know Sony, when they roll out their PS3 will price it so aggressively that Microsoft will have to cut XBox prices. They only get away the price they have now because they're competing with prior generation consoles. Assuming Nintendo also roll out something they market pressure will increase for a price drop.

Re:Current Prices (5, Interesting)

Libby Liberal (928336) | more than 8 years ago | (#14101616)

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.

Re:Current Prices (2, Interesting)

gormanly (134067) | more than 8 years ago | (#14101629)

this is precisely what didn't happen with the Xbox - in fact, the Intel CPUs actually went up in price, as they became obsolete and unlike anything else Intel were producing...

You ever been to Wal-mart? (2, Insightful)

Anonymous Coward | more than 8 years ago | (#14101491)

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?

Re:You ever been to Wal-mart? (2, Funny)

Kierthos (225954) | more than 8 years ago | (#14101548)

So an an exercise for the reader, how many 2-liter bottles of soda would it take to bankrupt Wal-Mart?

Kierthos

Re:Selling The Hook (0)

Anonymous Coward | more than 8 years ago | (#14101526)

I'm very interested to see by how much Microsoft will cut the price when the PS3 & Revolution arrive. If their manufacturing cost is still unchanged, then they'll be losing even more money. I seriously doubt it will decrease by $126 in 8 or 12 months.

Then again, they might keep the price the same and rely on Halo 3 to counter the arrival of the other systems.

Re:Selling The Hook (1)

Chr0nik (928538) | more than 8 years ago | (#14101536)

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.

Yeah, I don't know how many people trust them anymore, I know I'm not gonna buy the new PS. I'm an xbox convert, thanks to that whole rootkit thing. I just can't buy thier products anymore.

Clever Marketing Campaign (0)

Anonymous Coward | more than 8 years ago | (#14101540)

So all the Anti-Microsoft-geeks on slashdot will now run out to buy a console just to hurt Microsoft!


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.

Re:Selling The Hook (2, Funny)

Fx.Dr (915071) | more than 8 years ago | (#14101550)

Sure, they may be taking a loss now, but just wait until you have to shell out for an additional 5 CAL's so you and your buddies can join in on HALOn.

Not Atari (1)

LWATCDR (28044) | more than 8 years ago | (#14101603)

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.

Re:Selling The Hook (2, Interesting)

Apreche (239272) | more than 8 years ago | (#14101644)

I'll be there playing network m.u.l.e with you.

Re:Selling The Hook (0)

Anonymous Coward | more than 8 years ago | (#14101645)

I tend to think Sony still has significant advantage...they make many other consumer electronics items

Not only does Sony sell some great electronics but other technologies like DRM beat by sticky tape [slashdot.org] , rootkits [slashdot.org]
, proprietary memory sticks, lets not forget the great beta tape that their management bungled,

Yeah Sony has a long history of handling things right. Oh how the memory of consumers fails so fast. Seriously, is one evil so big to overlook the evil of another?

Sell at a loss in a free market... (2, Insightful)

dada21 (163177) | more than 8 years ago | (#14101421)



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.

Re:Sell at a loss in a free market... (3, Informative)

gormanly (134067) | more than 8 years ago | (#14101602)

Did MS ever recoup any money (or even profit at all) from the original X?

No. They lost nearly $400,000,000 last year on the Xbox division, including games sales.

They're probably around $4,000,000,000 out on the whole Xbox venture, so far.

Their only profitable quarter was the one due to the release of Halo 2.

They're damaging Nintendo (a pure games company) - do you really think Nintendo were or are able to compete? If not, then how is this not anti-competitive? And is this behaviour good for gamers in any case?

Keep buying the Xboxes new and the games secondhand - together we can kill Microsoft!

Cmon Modders (2, Funny)

panxerox (575545) | more than 8 years ago | (#14101430)

Linux this baby.

Re:Cmon Modders (3, Insightful)

smitty_one_each (243267) | more than 8 years ago | (#14101516)

I thought about buying some old XB0rxen to make a little compile farm, but then I thought: why?
If Redmond is already losing Y dollars per sale, why not let them bleed more by not purchasing a unit in the first place?
Is the satisfaction of knowing that Grub is booting Gentoo on Billy's Baby worth that much?

Yeah, but they make it up on volume. (3, Funny)

sizzzzlerz (714878) | more than 8 years ago | (#14101434)

Sell enough and the per unit loss approaches zero.

Re:Yeah, but they make it up on volume. (1)

Billosaur (927319) | more than 8 years ago | (#14101483)

But if it's true that the Xbox is unstable [slashdot.org] , then they may not make enough sales or sell enough after-market stuff to be able to absorb the loss. Let the patching commence!

Re:Yeah, but they make it up on volume. (4, Insightful)

Millard Fillmore (197731) | more than 8 years ago | (#14101585)

No, that is not correct. Assuming that this study controlled for economies of scale, the per unit loss is fixed. It is $126 per unit. If you sell 100 units, you have lost $12,600. If you sell 1,000,000 units, you have lost $126,000,000.

Re:Yeah, but they make it up on volume. (1)

pdbogen (596723) | more than 8 years ago | (#14101590)

Sorry, this only applies to a fixed cost.
Sell enough and the per-unit loss for a per-unit cost approaches infinity.

Re:Yeah, but they make it up on volume. (1)

Viper Daimao (911947) | more than 8 years ago | (#14101599)

that only works when the significant cost is sunk or overhead . Like writing software or pruducing dvds, where the costs are like their R&D and testing and initial setup. When the significant costs are the actual parts going into each unit, you cannot make up for that cost in volume. Though you can perhaps lessen it with bulk deals with suppliers.

Re:Yeah, but they make it up on volume. (1)

russianspy (523929) | more than 8 years ago | (#14101612)

No wonder I don't like calculus. Obviously this makes no sense to me. If you're loosing 100 bucks per unit sold, how can you make that less by selling more? Maybe I'm just confounded...

So why are they allowed to? (3, Informative)

Jetekus (909605) | more than 8 years ago | (#14101437)

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?

Re:So why are they allowed to? (1, Informative)

Anonymous Coward | more than 8 years ago | (#14101546)

As far as I know, Nintendo has never sold consoles at a loss. Since it doesn't have an hugely profitable os and office division, it can't afford to. Microsoft has been losing hundreds of millions year after year on the xbox to "break into the market" and it seems like they'll be doing the same with the 360. You can be sure that, as soon as the competition goes away, they'll stop selling those at a loss.

Re:So why are they allowed to? (2, Insightful)

Daniel_Staal (609844) | more than 8 years ago | (#14101569)

It's a perfectly valid and legal business model, as long as you don't have monopoly power in the market.

MS had (and still has, though I believe it is eroding) monopoly power in the desktop OS market. It does not in the gaming-console market. They think they can make money this way: let them try. If it's a viable strategy, their competetors can use it as well. If it isn't, their competetors will laugh all the way to the bank.

(The reasoning behind why it isn't legal for a monopoly is that the monopoly power can use it to deny entry by a new competetor: Just run at a loss until the new company folds, then raise the prices again.)

Some common examples (4, Insightful)

Silver Sloth (770927) | more than 8 years ago | (#14101632)

  • The price of a new Gillette Mach III razor is only slightly more than the cost of the razor blades enclosed - but they want you to keep buying Gillette blades.
  • Practically any cheap ink-jet printer - they get you with the cartridges.
  • Free mobile phone - just sign this contract.
  • As someone else said - 'Here - have this smack/coke/crack for free'

Die Microsoft! (1, Funny)

Anonymous Coward | more than 8 years ago | (#14101438)

Let's all buy an Xbox!

Tell you what (5, Funny)

Paladin144 (676391) | more than 8 years ago | (#14101439)

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.

Re:Tell you what (1)

cloudmaster (10662) | more than 8 years ago | (#14101621)

Heck, for $500, I won't buy an Xbox, and I'll actively try to stop 9 other people from buying one. That's about a 150% return on their investment in me - they can't lose!

Has any console ever made money on the H/W? (-1, Flamebait)

Anonymous Coward | more than 8 years ago | (#14101441)

Or is this just another haters article that makes MS seem more different, incompetent, or evil, etc...

And? (2, Interesting)

MSFanBoi2 (930319) | more than 8 years ago | (#14101448)

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.

Re:And? (1)

robertjw (728654) | more than 8 years ago | (#14101529)

When the PS2 was first released it was a loss leader for Sony too..

There's a difference between a loss-leader and an all out loss. From everything I've heard, Microsoft didn't make anything on the original xbox and now it's starting out $126/unit in the hole on the new xbox. This is just an interesting experiment on how much it will cost to buy the console market. Microsoft is once again late to the show.

Re:And? (1)

IntergalacticWalrus (720648) | more than 8 years ago | (#14101578)

This statistic is worthless, because it ignores people who don't use Windows at home, but check slashdot at work on their Windows workstations (like me).

How dare they say M$ does nothing for Linux buffs? (1, Interesting)

Anonymous Coward | more than 8 years ago | (#14101449)

...if it even sponsors their new line of machines to the tune of $126 per unit? ;-)

Loss leader... (2, Interesting)

fak3r (917687) | more than 8 years ago | (#14101450)

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).

It paid off enormously. (3, Insightful)

tgd (2822) | more than 8 years ago | (#14101640)

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.

Bundles Are More Than $470 (2, Informative)

Alien Venom (634222) | more than 8 years ago | (#14101451)

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/ [ebgames.com] The core bundle runs for $599.93 and the Ultimate bundle runs for $699.92.

Another great idea by MS! (1)

ajdowntown (91738) | more than 8 years ago | (#14101454)

now that's a business model that is imitatable!

In other news, Longhorn's price structure just increased my $126...

News? Really? (4, Insightful)

TripMaster Monkey (862126) | more than 8 years ago | (#14101455)


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.

Re:News? Really? (1)

sucker_muts (776572) | more than 8 years ago | (#14101619)

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...)

Ouch... (1)

tony1c (610261) | more than 8 years ago | (#14101456)

So Microsoft has lost something like $378 already.

Current Prices (1)

Vicissidude (878310) | more than 8 years ago | (#14101459)

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.

Re:Current Prices (0)

Anonymous Coward | more than 8 years ago | (#14101487)

Actually I think this is why the original Xbox is still at $150. I remember reading something here on /. that talked about the money MS is still losing from xbox sales.

$126 times 3 million units = $378 million (3, Funny)

voice_of_all_reason (926702) | more than 8 years ago | (#14101461)

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.

Re:$126 times 3 million units = $378 million (1)

smitty_one_each (243267) | more than 8 years ago | (#14101622)

Is that what this is really all about? A sad cry for recognition from a tortured soul? Poor wee Bill...

After Market Royalties? (1)

Hellboy0101 (680494) | more than 8 years ago | (#14101465)

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.

We have them where we want them now... (1)

prattle (898688) | more than 8 years ago | (#14101467)

If Microsoft loses $126/xbox360 then all we have to do is buy ... uh ... a billion of them ... and we can drive them out of business!

Note to self: read up on this eco-nom-ics thing.

But still don't buy one (1)

hey (83763) | more than 8 years ago | (#14101469)

They wouldn't do it if it didn't help them (evil) selves!

Don't calculate the loss from the retail price (3, Insightful)

OldAndSlow (528779) | more than 8 years ago | (#14101470)

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.

Re:Don't calculate the loss from the retail price (5, Informative)

Detritus (11846) | more than 8 years ago | (#14101501)

Not on game consoles. The markup is almost zero.

Re:Don't calculate the loss from the retail price (1)

InsideTheAsylum (836659) | more than 8 years ago | (#14101508)

Exactly, I read this entire thread and this is the first mention I see of this fact. I really doubt that your local wal*mart is selling Xboxen for no profit, or are they?

Re:Don't calculate the loss from the retail price (1)

croddy (659025) | more than 8 years ago | (#14101530)

Huh? What on earth does the retail markup have to do with MS losses per unit?

Re:Don't calculate the loss from the retail price (2, Informative)

hibiki_r (649814) | more than 8 years ago | (#14101558)

That's the profit margin you'll see on furniture, but it's pretty far from the profit margins you get on consoles and games. The store's profit on a console is probably under $20 per console. %50 is what stores get when they sell a used console.

At launch, the profitable items are the accessories. Why do you think stores try to push accessories so much?

Re:Don't calculate the loss from the retail price (1)

Paralizer (792155) | more than 8 years ago | (#14101574)

If anything Microsoft purchases the parts in bulk and gets a large discount over the normal wholesale price. If this is the case, their loss per unit would be less, not more.

It's actually worse (5, Insightful)

ThatGeek (874983) | more than 8 years ago | (#14101474)

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:It's actually worse (2, Insightful)

Fnord666 (889225) | more than 8 years ago | (#14101598)

Add in marketing, shipping, beta testing, opportunity cost and everything else, and ...

Oh wait, the beta test program just began.

Re:It's actually worse (2, Interesting)

rjune (123157) | more than 8 years ago | (#14101607)

You need to take out the expense for beta testing. The end users are doing that for free.

Please don't say buy more.. (4, Interesting)

bakreule (95098) | more than 8 years ago | (#14101477)

I have so many friends who bought the first XBox, who are also not fans of M$. They say: "Hahaha! Microsoft loses money! Everybody buy an xbox!" MS doesn't give a **** about making money on the xbox, or the games. They just want an xbox in every household, and they're willing to put a lot of money into acheiving that. Once they have an xbox in every household, and Sony and Nintendo are has-beens, they can start making the Xbox into the household entertainment center that controls everything. This isn't a conspiracy theory, it's their stated plan. In fact, the only thing preventing them from giving the damn things away is the howls of conspiracy theorists, anti-trust lawyers and people's distrust of things that are free.

Don't like Microsoft? Just don't buy the damn thing....

Re:Please don't say buy more.. (0)

Anonymous Coward | more than 8 years ago | (#14101514)

Actually lets buy many many more! Lets do a slashdot effect on the 360. This way microsoft will go broke..muaahahahahah!

Stupid! (1)

kawika (87069) | more than 8 years ago | (#14101479)

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.

LOL (1)

Bahwoot (925827) | more than 8 years ago | (#14101482)

400$ a price for which you can you can buy 3 x Playstation 2's... and they are loosing money?

Only $126 ???? (2, Funny)

zappepcs (820751) | more than 8 years ago | (#14101485)

If it keeps crashing like a windows95 box, MS will lose much more than $126 per unit... pfft

Too Low? (2, Interesting)

jrallison (857135) | more than 8 years ago | (#14101486)

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.

Not including the retailer's cut (1)

horace (29145) | more than 8 years ago | (#14101490)

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.

Give it away (1)

lcrypt (754134) | more than 8 years ago | (#14101493)

Maybe they just know their product suck and just want to get rid of all those broken Xbox... [slashdot.org]

Only $72 loss in UK (2, Interesting)

WarwickRyan (780794) | more than 8 years ago | (#14101497)

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.

Profit!! (2, Insightful)

Nerdfest (867930) | more than 8 years ago | (#14101498)

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.

Now's our chance! (4, Funny)

Shadow Wrought (586631) | more than 8 years ago | (#14101513)

If you , me and 175,000,000 of our closest friends all but one this weekend, we'll bankrupt the buggers! w00t!

Just like the First Citywide Change Bank (1)

Snarfangel (203258) | more than 8 years ago | (#14101532)

They make their money on volume.

CALL TO ALL LINUX PEOPLE!!!!111 (0)

Anonymous Coward | more than 8 years ago | (#14101534)

BUT ALL TEH XOBX #60's!!!!11 LETS TaKE DOWN ETH MAN!!!

I have an order for 1000 already!!! Bye BTE GATES!!!!

The Numbers Don't Add Up (1, Redundant)

duerra (684053) | more than 8 years ago | (#14101543)

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).

Just Like GM (1)

dvlhntr (930190) | more than 8 years ago | (#14101549)

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.

No big surprise (1)

SilentJ_PDX (559136) | more than 8 years ago | (#14101554)

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.

Here it comes... (1)

MoogMan (442253) | more than 8 years ago | (#14101563)

Yes, but they make it up in volume!

It wouldn't be a problem, except... (1)

ChipMonk (711367) | more than 8 years ago | (#14101565)

that people are reporting [slashdot.org] the instabilities. With such a de-motivator to buy the unit, they'll need to strengthen the market campaigns for the games.

Not to mention (1)

burtdub (903121) | more than 8 years ago | (#14101566)

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.

Dumping (1, Insightful)

wardk (3037) | more than 8 years ago | (#14101568)

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

Anti-compete? (1)

QADirector (921173) | more than 8 years ago | (#14101572)

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

The power of Marketing and Economics (4, Insightful)

Chabil Ha' (875116) | more than 8 years ago | (#14101581)

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.)

License Fees? Royalty Fees? (2, Interesting)

mpapet (761907) | more than 8 years ago | (#14101591)

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.

Isn't news, but... (1)

truthsearch (249536) | more than 8 years ago | (#14101595)

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.

So, they're losing money on each console... (0)

Anonymous Coward | more than 8 years ago | (#14101600)

So we should buy lots of them, and no games, so Microsoft takes a bath?

Re:So, they're losing money on each console... (1)

pl1ght (836951) | more than 8 years ago | (#14101631)

Yeah, i want to punish them by making them swim around in 39,998,000,000 in cash reservies instead of 40,000,000,000. Take that MS!!

Microsoft ethernet cable is 30 euro (35 us dollar) (4, Interesting)

Bram Stolk (24781) | more than 8 years ago | (#14101608)

Don't underestimate m$ pricing. E.g. see what a
ethernet cable [xbox.com]
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

Suspect (4, Insightful)

Zebra_X (13249) | more than 8 years ago | (#14101611)

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.

iSuppli???? (1)

deft (253558) | more than 8 years ago | (#14101625)

Why do i believe that Microsoft MIGHT get a better discount that whats shown on Isuppli, and just MIGHT be getting some quantity deals?...

Define "At a loss" (1)

corcoranp (892008) | more than 8 years ago | (#14101627)

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.

Factor in the RMA costs due to recent problems (1)

SlashAmpersand (918025) | more than 8 years ago | (#14101634)

It's an interesting business model. I wonder how badly the RMAs are going to affect thier costs.

Remember folks... (1)

IntergalacticWalrus (720648) | more than 8 years ago | (#14101635)

Buying an XBox does not actually make Microsoft lose money. It only makes them lose less money.

Bulk (1)

mkw87 (860289) | more than 8 years ago | (#14101643)

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.
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