Microsoft losing $153 on each Xbox sold

[Boyd Ostroff]

Well everyone always expected Microsoft to sell the Xbox at a loss (as with the previous model), but I was surprised at just how much they're losing on each unit.... $153/$399 = 38%. Wow. Sure, I suppose this might be a razor and razorblade marketing model with software generating the real profit, but I wonder how much of this is just Microsoft trying to strongarm its way into the market?

http://yahoo.reuters.com/financeQuot...n491733_newsml

the IBM chip that runs the Xbox 360 cost $106. ATI Technologies Inc.'s 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

And I was just reading a couple articles about the next Sony Playstation. It will probably sell at an even greater loss as Sony sees it as a vehicle to promote their BluRay DVD standard.

[Marco Leavitt]

I just don't get what selling consoles at a loss is supposed to accomplish. As Atari, Nintendo, and probably soon Sony can attest, just because you're the top dog now doesn't mean squat in the long term. What exactly is it that they think they're buying with tactics like this?

I'm not a big video game player anymore but I continue to find the console wars fascinating, especially the behavior of Nintendo. How can a company make so many baffling, clearly wrongheaded decisions, and stay consitently profitable. They aren't even trying to match Sony or Microsoft on technology with their new system.

[Boyd Ostroff]

Originally Posted by Marco Leavitt

What exactly is it that they think they're buying with tactics like this?

Eat Sony's lunch perhaps?...

[Steven Gotz]

And maybe they got huge quantity discounts?

[Tommy James]

According to the article Microsoft will make its profit selling the video games so the console is a loss leader.

[Keith Loh]

Originally Posted by Marco Leavitt

I'm not a big video game player anymore but I continue to find the console wars fascinating, especially the behavior of Nintendo. How can a company make so many baffling, clearly wrongheaded decisions, and stay consitently profitable. They aren't even trying to match Sony or Microsoft on technology with their new system.

Nintendo is profitable because they own their own licenses and are the top publisher for their system. It is as if you could only go to see Disney movies at their own special theatres.

Also, too much attention is paid at their consoles when their bread and butter has been their handheld systems.

[Robert Mann Z.]

reminds me of that snl quote:

"we lose money on each sale but make it up in volume"

[Bob Zimmerman]

Kind of like getting a free printer with a computer. Great deal till you have to buy ink for it. They get their money back.

[Boyd Ostroff]

Personally I think something else is going on here. Microsoft lost even more money on the original xBox. In fact, from what I've read the only products which make money for them is the Office Suite and Windows; everthing else loses.

They are trying to muscle their way into this market to grab share, mainly from Sony. I seriously doubt they will make up this kind of difference with royalties on games, or at least not for quite awhile.

But they have enough money in the bank to do this for a long time ($40 billion I think?). Remember the scene in Citizen Kane where his trustee tells Kane he's losing $1 million per year on the newspaper and he needs to close it down? Kane says, "that's true - I lost a million dollars this year and I plan to lose a million dollars next year. At this rate I'm going to have to shut this place down.... in 50 years."

[Steven Davis]

Originally Posted by Tommy James

According to the article Microsoft will make its profit selling the video games so the console is a loss leader.

Yeah, and we all know Microsofts success history of making good games.

[Mike Rinkunas]

they are trying to whack sony...

Think about it this way, MS is using the tactics of the standard oil company (undercutting profits of competitors until they were driven away)....they have such a hold on other areas, that they can leverage those profit centers to absorb the losses generated by XBOX until they drive everyone one else from the market....

When they first started the XBOX gaming system, they knew it was going to be an up hill battle....i remember reading an article once about how the XBOX team leader's personal goal was to make the sony Playstation development team leader quit....he told bill gates that he wanted that letter of regisnation over his desk.

just my 2 cents
~Mike

[Marco Leavitt]

I have a hard time believing they're going to make all that money back on the software. The average gamer owns what, eight games maybe? The sort of people who own tons games get a lot of them used. Even if Microsoft buys its way into domination this round, so what? As soon as the next wave of consoles come out, they'll just have to build a new base from scratch. I'm sure it all makes sense to the bean counters somehow, but I think Boyd is right. They're up to something else. I'm guessing they're banking on the fantasy that a video game console will someday serve as the central digital entertainment hub of every household and you'll need a Microsoft operating system to keep it all running. Or maybe they just want Sony to exit the console race altogether.

[Nick Hiltgen]

If I were a guessing man I'd think that maybe it has somethign to do with all that xbox live the kids are talking about. I mean come on you pay like 100 bucks a year, plus they have new downloadable content for all of your games and that costs microsoft what like half of nothing to host, becuase they have the infastructure already set up. Anyhow that's my guess I mean they are including like 2 memberships with each premium system. M$ is not stupid, they're not really going to lose money on a something like this.