how does this make sense?

[Dash]

Someone tell me how does this make sense?

Microsoft loses money on each Xbox

Cost to build and test new Xbox 360 is greater than the retail price, according to a report
November 24, 2005: 1:48 PM EST​

LOS ANGELES (Reuters) - The cost of building a Microsoft Corp. Xbox 360 video game console is nearly 40 percent higher than the retail price, technology and microchip research company iSuppli said on Wednesday.

The firm estimated the total cost to manufacture and test a premium Xbox 360, the software giant's sleek and powerful new gaming machine, which debuted on Tuesday, was $552.27, compared with its retail price of $399.

Microsoft (Research) aims to sell about 5.5 million premium and lower-priced basic Xbox 360 units by the end of June. The machine will compete with the PlayStation 3 from Sony Corp. (Research) and Nintendo Co. Ltd's Revolution, each due out in 2006.

Console makers have historically subsidized manufacturing costs by creating and selling their own video games and by collecting fees from publishers who make titles for their systems. Several new Xbox 360 games are priced as high as $60.

Chris Crotty, an analyst with iSupplie, said the IBM (Research) chip that runs the Xbox 360 cost $106. ATI Technologies Inc.'s (Research) graphics processing unit, which provides the system's high-definition graphics, cost about $141, including DRAM memory from NEC Corp.

The Xbox 360's main memory from Samsung Electronics Co. Ltd added another $65, while an SIS Southbridge chip cost about $12, iSuppli said.

Other costs included a DVD drive, accessories, literature, packaging, assembly and testing.

The price of the system's two main chips should drop during the next year as manufacturing efficiency improves. That should save at least $50 per unit, in addition to other cost reductions, Crotty said.

Analysts had predicted that the Xbox 360 would initially sell at a loss.

"We expected the cost of the console to at least exceed the retail price," Crotty said.

Microsoft, currently in second place to Sony in the $10 billion U.S. video game market, is gunning for the top spot with the release of its new console.

The release of those machines is expected to reignite hardware sales growth. Crotty said iSuppli is forecasting 38.5 million video game consoles sold next year, up from 28.5 million in 2005.

 

[papasmerf]

Makes perfect sense

Once you buy the unit you are locked into the software.

Then you will quickly turn a loss into a profit.

 

[a 1 player]

Same aa a cell phone. They give away the phones and lock you into a contract for air time.

 

[baltimoron]

Suggestion

Instead of buying a game that you may end up playing for a month or so, try subscribing to one of the game lender services.

It's like NetFlix but for video games. You pay a monthly fee from $15-40, and then you get 1-3 games out a time to play. You return the games and another one shows up in your mailbox to replenish the supply.

http://video-game-rental-review.toptenreviews.com/

 

[C Dick]

It is not just about selling software, it is also about buying market share. In the OS and application industry, Microsoft enjoy a near monopoly, and always attempt to crush their competitors ruthlessly. The more consoles they can dump into the market, the more likely they are to overtake Sony, and ultimately drive them our entirely. Like with OS, once you get a big enough share, the developers only write for you, and then the price can go up.

 

[danmand]

Isn't it the old marketing adage: We lose money on each unit, but we make it up in volume.

 

[WhaWhaWha]

The lost leader. It's been a mainstay of repeat business and brand awareness for generations. An industrial supply shop I once worked for used to give away soap dispensers and towel holders in large quantity just to sell the soap and towels.

 

[Svend]

Same with printers, some are quite inexpensive - but when you buy an ink cartridge replacement it's often shocking to see what they charge.

 

[tboy]

Yeah, there are printers out there where the cartridges are about double what the initial selling price of the printer was....Lexmark is famous for that.....

Yup, all the marketing comments up there are correct. The major one though is about the software. Once you buy the system they make their money back ten fold on the software. Even if you use a service like blockbuster or other borrowing services the operators of these services pay a premium in order to rent the software as well as having to initially buy the software to begin with. I'm not sure but they probably have to pay a royalty on each rental as well.

this is similar to the auto industry, they don't make very much on the sale of the basic car but make a killing on parts, repairs, and service. You can almost bet that the major fuel suppliers also hold an interest in the auto manufacturing. Just think of how much profit they get from the fuel sold to run the cars?

 

[plause]

You can buy a whole new printer cheaper than the ink cartridges often, but it feels so wrong to do it that way.

 

[antaeus]

Earned media... + more than you ever wanted to know about commercial electronics

Someone tell me how does this make sense?

Microsoft loses money on each Xbox

Cost to build and test new Xbox 360 is greater than the retail price, according to a report
November 24, 2005: 1:48 PM EST​

LOS ANGELES (Reuters) - The cost of building a Microsoft Corp. Xbox 360 video game console is nearly 40 percent higher than the retail price, technology and microchip research company iSuppli said on Wednesday.

The firm estimated the total cost to manufacture and test a premium Xbox 360, the software giant's sleek and powerful new gaming machine, which debuted on Tuesday, was $552.27, compared with its retail price of $399.

Microsoft (Research) aims to sell about 5.5 million premium and lower-priced basic Xbox 360 units by the end of June. The machine will compete with the PlayStation 3 from Sony Corp. (Research) and Nintendo Co. Ltd's Revolution, each due out in 2006.

this is most probably false, a beautiful piece of "earned media": 3rd party hype or possibly planted story at no cost but huge benefit to owner. Repeated so often it becomes false accepted truth: part of a marketing campaign to heighten desire and establish / justify value for dollar.

But it's illegal in North America to sell any item for less than it costs to make it as a planned business model. A limited-time promotion, with a discounted (may be below cost loss-leader) and a regular price, is legal. All trade disputes are over dumping or alleged subsidies' induced dumping. OEM profit margins on household commercial commodity electronics are common from stereos, tv's, hairdryers and game boxes: all about 10~11%.

Console makers have historically subsidized manufacturing costs by creating and selling their own video games and by collecting fees from publishers who make titles for their systems. Several new Xbox 360 games are priced as high as $60.

Chris Crotty, an analyst with iSupplie, said the IBM (Research) chip that runs the Xbox 360 cost $106. ATI Technologies Inc.'s (Research) graphics processing unit, which provides the system's high-definition graphics, cost about $141, including DRAM memory from NEC Corp.

The Xbox 360's main memory from Samsung Electronics Co. Ltd added another $65, while an SIS Southbridge chip cost about $12, iSuppli said.

Other costs included a DVD drive, accessories, literature, packaging, assembly and testing.

3rd party estimation of ASIC (custom computer chips) retail price is as accurate as terbites agreeing on GFE/PSE.

The price of the system's two main chips should drop during the next year as manufacturing efficiency improves. That should save at least $50 per unit, in addition to other cost reductions, Crotty said.

not for custom proprietary ASIC's unless other customers and other computing platforms are developed for those ASIC's.

"We expected the cost of the console to at least exceed the retail price," Crotty said. Analysts had predicted that the Xbox 360 would initially sell at a loss.

cool how "analysts" state this again and again, picked up by other media again and again: earned media, other people advertising for you for free.

Microsoft, currently in second place to Sony in the $10 billion U.S. video game market, is gunning for the top spot with the release of its new console.

The release of those machines is expected to reignite hardware sales growth. Crotty said iSuppli is forecasting 38.5 million video game consoles sold next year, up from 28.5 million in 2005.

in commercial commodity electronics, quantity of scale volume discounts have already been achieved at 28 and 38 million unit manufacturing volume, there's none left at that high volume. Except for selling off the entire product and business line.