True. But economics teaches that as production increases, fixed costs go down proportionally. Therefore, Microsoft is losing money, yes, But it won't last much longer. And I mean that they'll be making gobs of cash quite soon.
Microsoft Loses Money on every 360 Sold
- Thread starter spudlyff8fan
- Start date
Depends on what you mean by "much longer". If they're really losing $125 on every premium bundle, it will take a long time for that to simply break even, much less get down to the price where it makes "gobs" of money. Keep in mind that the plan was supposedly to sell mostly premium bundles -- I remember hearding that 90% of units would be premium.
In addition, as time goes on consoles are expected to drop in price. I would be very surprised if the 360 did not drop in price by the time the Revolution comes around. So yeah, costs drop but the gross profits from the systems will drop as well.
Anyway, the main reason I put that article up was the fact that most other sites carrying it seem to be proclaiming that it's a sign that MS is hemorrhaging money. In fact, it's fairly normal, especially on launch, for the reasons explained in the news peice.
In addition, as time goes on consoles are expected to drop in price. I would be very surprised if the 360 did not drop in price by the time the Revolution comes around. So yeah, costs drop but the gross profits from the systems will drop as well.
Anyway, the main reason I put that article up was the fact that most other sites carrying it seem to be proclaiming that it's a sign that MS is hemorrhaging money. In fact, it's fairly normal, especially on launch, for the reasons explained in the news peice.
Well, you have to figure, they're only 400,000 consoles deep, and I seriously doubt they're actually losing $125 per unit. Also, they're still deep into their BOE costs, but indeed, they are spending hella money. But they'll make it back, in all likelihood (meaning, unless it flops like it did outside America like the Xbox).
Everytime a new console comes out this debate is always brought up. The fact is that most companies, Sega, Sony, Nintendo and MS loose money on their console. It is even possible the loss of money could go all the through the entire life cycle of the console. They are not banking on the sale of their console to make any money what so ever. The money comes from the controllers, memory cards, add-ons and most importanly games that they will sell for the console, which will make up for all of the hardware losses quickly. During this launch MS has made money even though they took a loss on their console.
Yeah, again I was posting the article in order to point this out, since many sources are simply reporting the loss like it's some terrible blow to MS shareholders.
uh......they are losing alot more.....Name one retailer that has the "DAMN" console available at this time!!!....dudes, they could make SOOOOOOOOOOOOOOOOOOOOOOOOO much more money if they would have brought more out at launch.......If they didn't sell them, i highly doubt those extras would be sitting in a warehouse collecting dust!!!......Sorry, i'm a bit tippsy at this point and i reallllllllllllllllllly want one!!......Damn you, Bill, we had a deal!!!!!!!!!!!!!!!!!!!!!.....hahahhahahaha
Unfortunately if they overshot the number of 360s that would sell, like they did with the Xbox, they could create another massive surplus that makes it so they lose another $1.2 billion.
Well the original Xbox was loosing for every console sold, but I think that was because of the price drop they had to do in order to sell them. But the reason I think that everyone is buying a 360 is because Microsoft has established that they can make some mean games on the console. That and everyone knows Halo 3 is going to come out...and they can't miss that righ?
Very true Hank......But when they do make Halo 3, this gamer hopes they take it back to its roots...I.E.-Halo:Combat Evolved
There is also the fact that Microsoft is looking at the bigger picture. The Xbox Live product has made them plenty of money at a minimal cost and the future looks even brighter. They are also looking to incorporate the entire home entertainment (including computer) through the 360. The console could lose money for 2 years (like the original one did, I think), but in the end it will turn a profit.
Yes, this is called the "Lost Leader" concept in economics. Or, to use a classic example:
Give away the razor and make the profit on the razor BLADES.
Microsoft lota a huge ammount of every Xbox sold, but they made that money back with software sales, licensing fees and Xbox Live subscription charges. I read someplace (I don't have exact figures at hand- sorry) that they are loosing LESS per unit on the 360, but they're still using the "lost leader" system to make the units as affordable as possible.
Some call this "unfair" since MS has deep pockets and can afford to compete like this, but it's not illegal or unethical to do so (IMHO, anyway) and in fact this concept has been a part of marketing for time out of mind...
Give away the razor and make the profit on the razor BLADES.
Microsoft lota a huge ammount of every Xbox sold, but they made that money back with software sales, licensing fees and Xbox Live subscription charges. I read someplace (I don't have exact figures at hand- sorry) that they are loosing LESS per unit on the 360, but they're still using the "lost leader" system to make the units as affordable as possible.
Some call this "unfair" since MS has deep pockets and can afford to compete like this, but it's not illegal or unethical to do so (IMHO, anyway) and in fact this concept has been a part of marketing for time out of mind...
"Unfair"? Only to Sony and Nintendo. You are dead right. I would love to see those figures, btw. I like the idea that the consumer ends up with the benefit of the lowered cost. The next big question would be can Playstation do the same for the PS3, or will they have to release it for a profit say at about ...$550-$600? If that is even a profit.
Even after the software and XBL, Microsoft still lost a total of 1.2 billion. I'm betting they'll make big profits off this generation.
I doubt that Sony or Nintendo will be able to do the same with their consoles. Im sure nintendo's console is going to be real cheap to make so they may not have to. But sony on the other hand is "should" have more technology and they don't have the pockets like microsoft does I doubt they will be able to make the ps3 more affordable than 499.
Bottom line is that Microsoft wouldn't be doing it if they didn't look to make some profit at SOME point. It's a publically traded company with stock holders and they have to show black ink somewhere. But yoiu also have to remember that MS loses money on lots of their ventures... MS Office and fees for Windows make up their real profit base- everything else they do is all considered R&D or remaining competitive.
And, come on... SONY can;t afford to lose money on PS3 hardware sales in favor of making that money back o software sales? Come on, now...
And, come on... SONY can;t afford to lose money on PS3 hardware sales in favor of making that money back o software sales? Come on, now...
Sony is also flopping in America when it comes to their regular electronics. They're gonna be in a somewhat tight spot if the PS3 flops.
Don't you love capitalism? Let'em cut each other's throats. We get the benefit of the most bang for the buck. My guess is that Sony wanted to see both what the Xbox offered technologically, so they could top it, as well as wanting to see what it would sell for. Now they have to beat them in that category too. This may be the reason that Sony has been screaming for Blueray to be the next advancement instead of HDDVD. It would put a dent in the Xbox Juggernaut and make the Xbox look limited in its potential, and the PS3 would look like the guys that won the VHS/Beta fight. (Although I doubt it will look that bad.)