Microsoft loses money on each Xbox

The cost of building the video game console is nearly 40 percent higher than the retail price, a research company finds.

The story "Microsoft loses money on each Xbox" published November 24, 2005 at 8:20 AM is no longer available on CNET News.

Content from Reuters expires after 30 days.

[Dachi]

Maybe they should be..

Selling them directly through eBay at $1,000 each so they can make back some of that lost money.

Even the $300 core systems have been selling for over $1100 since the launch of Xbox.

Some of the systems have sold for over $5,000 and MS _still_ lost $125/ea on the sale of those systems.

[XxXBoodroXxX]

Haa Haa!

Come on C|net! Do you really think they are loosing money? Give us all a break.

That so called chip that costs $106.00 was made in China for $0.00001 cent. Those numbers are inflated to make you feel bad for good ole microsoft.

What we should be writing about is how .:BOMB:. the system is! I have been waiting since PS1 came out for a system as good as this! Next year when the prices come back to normal and the SHINNY AND NEW prices go down, I will get one!

Until then, keep an eye out for Google.com I think they are working on a NEW OPERATING system that will CHANGE the way we use our computers...bye bye microsoft when that happens..........

GB-UNITRACING.com ~ www.TeamKinwald.net ~ gabeboudreau.com

[friday9158]

ONE MORE!!!

nope there "SAYING" that there losing about 152.00 on it. 152 times 5.5 million and they just said they predicted 5.5 million to sell by...i think it was june of 06...so hang on i think i got a calculator here...ummm...by june of 2006 they will have lost 836,000,000 you know what...i doubt it. you guys can think what you want...but i DOUBT IT

[SqlserverCode]

How is this news?

How is this news?
Microsoft also lost money on the first XBOX. Same thing happened with Sony. Games XBOX Live and accessories are the way they make money. That's why they didn't like people buying the XBOX and putting Linux on it (meaning they didn't buy any games)

http://otherthingsnow.blogspot.com/

[DoohanOK]

Everyone loses out on consoles

Nintendo's profits are down by a huge margin mainly due to its GameCube console, and I'm sure Sony would be losing money on the PS2 as well so why single out Microsoft?

For years we've know that the money comes from the games - which is why many are vastly over priced.

When XBox was first released in Australia the console itself, 1 game and a the DVD controller cost me $1000.00.

I'm not in a hurry to repeat that pain!

[technewsjunkie]

I agree, this is a common business strategy

But It's a story in that Microsoft can afford to lose milions, in the
short term, to make it up over the long run in software (game)
sales. Most companies don't have the cash horde Microsoft has
($40 Billion+) and couldn't afford to lose THIS kind of money in
order to make it up later.

Of course making it up later means winning the convergent
living room, which is worth billions. Innovation is at stake again
for consumers.

[ken1129]

Business Practices

I doubt anyone knows how much Microsoft is losing on each unit but they do it to get the market saturated with their units. Once you buy one you have to buy games and accessories for it. That's were the money is made. HP, Epson and all the other printer manufacturers do the same thing. They sell their printers cheap and charge you a fortune for the ink. The same thing with your wireless carriers. You get a free phone but you have to sign up for 2 years. If you decide you want a different phone before the 2 years is up it cost you a fortune.

[seamonkey420]

true!

very true! glad you pointed this out; MS seems to like to use its money muscle by being able to do this, almost seems unfair in a way ya know.. the first xbox was a great price considering what you were getting, basically a 700mhz computer.. plus, i have a feeling they'll be releasing their own content on demand system w/the xbox 360 (if they don't already.. not really up to date on the 360) and make some money back..

aiy.. peace

[Peej2K]

Unless you are in the UK

Where that $170 (£99) loss mysteriously ends up at a £4 profit!

STOP RIPPING US OFF IN THE UK, TECH COMPANIES!!

[TimonGB]

Dur...

COME OFF IT!!

I hardly think where being ripped off! I for one will not begrudge Microsoft a £4 profit!!!!

Hell the goverment probably makes that these days on EVERY PACKET OF CIGARETTES I buy!!!

Curiously, If Microsoft sold 200(ish) 360's for every 1 sold in the US , Microsoft will break even lol

[Hernys]

Import duties?

Are there any import duties for electronics in the UK?

Be afraid....

Those who forgot history are doomed to make the same mistakes again.

This is a "trademark" Microsoft business model, kill competition by giving away the product, then rise the price to your shareholders desires. DOS and Windows were $99. until there were no other OS in the horizon; blame some "obsesive feature customers" (that nobody knows HOW they are) and rise the price. Ej, Win XP Home Edition $199. (so chopped its useless) and Win XP Pro $299.

Don't fall in that trap, again. Be smart and avoid the siren's sing or the gaming industry will suffer dearly...

[mortis9]

retard

read the earlier comments. this is the business model for every manufacturer of consoles: sony, microsoft, nintendo. you don't make money in hardware, you make money in software, in licensing the right for others to make software. if that isn't enough for you, that's certainly been the microsoft model since the 80's so what are you so surprised now? sony will likely take an even larger price/unit hit than microsoft on this generation, initially, but thats everyone's ok with that?

there's nothing new here, this is how the industry works. as technology improves, manufacturing becomes more efficient and by the end of this consoles life cycle perhaps microsoft will break even on each unit sold.

[Hernys]

Duh,,,

In inflation adjusted dollars, $200 today is about the same as $100 in 1980 (when DOS was launched). So the price of Windows has essentially remained constant thorough the years. And you can't argue that Windows hasn't increased in value. Even if you don't like it or it's features, you can't say that things like TCP/IP that used to be sold as separate products are useful additions.
As for Home edition vs. pro edition, do you even know what the differences are? Basically, EFS, domain compatibility, Group Policy, SMP support and that's it. Which one do you NEED tha't makes Home useless for you? Especially when you are basically claiming that DOS was fine, and the improvements to XP are only for "obsesive feature customers".

Who's the moron now???

You surely are well informed talking about inflation. 100% inflation rate in 10 years. Don't make me laugh and research a little. $100. in 1995 is about $123.08 today. http://www.bankofcanada.ca/en/rates/inflation_calc.html
And YES I know the "features" of Home Edition and they are lousy. Microsoft is interested in ONE thing only, build games for THEIR platform and they will convinced developers to create games for them, giving away developers tools and everything else. Time will tell and will open your eyes...

[Redoran]

Microsoft loses money

How is this possible that Bill Gates can lose money when the Chinese factory worker makes maximum of $1.00 per day??? The media is trying to bluff us out. Even The Chinese R&D people earn a few pennies more per day. Does Bill Gates want our sympathy? Or is it a media conspiracy? If it is we have no idea what's up.

[mortis9]

moron

why is it that morons like you feel the need to respond when you haven't the slightest incling of comprehension of the subject of which your speaking. labor costs aren't the issue. chip design, implementation, r & d (which isn't done by poor chinese - ATI is based in Canada and IBM in New York), securing placement at a foundry for production , product testing, adverstising, placement, distribution. all of these make this one expensive little toy. don't be such a idiot, bringing nothing to the table but your pitiful whining about the suffering, underpaid chinese. most of these chips are made, not in mainland china, but in Taiwan, where wages are significantly higher (TSMC - Taiwan Semiconductor Manufacturing Company)

[wanyxo]

I think You should know china better.

""when the Chinese factory worker makes maximum of $1.00 per day??? The media is trying to bluff us out. Even The Chinese R&D people earn a few pennies more per day.""
Since 1980s years later,china'economic is development at a high speed.She is not the poor country as the before.althoug she had a distance when compared with U.s. I really hope that you can spent more time and energy to realize china once agian.

[microsoft slayer]

Microsoft can go to hell

I plan to buy one and turn it into a super fast linux server. Thanks for the cell chip!

[piratejack]

Who knew?

Wow, a system with three dual-threaded 3.2 Ghz processors, 512MB or memory, a custom graphics chip that competes with $400 off the shelf cards, a fully functional progrssive scan DVD player, a detachable hard drive, complete Windows Media Extender functionality and built in wireless support all for $399? Gee I bet no one until today thought they would be loosing some money on that!

[nightveil]

Microsoft knew

Microsoft knew they'd lose money on the hardware. That's how the
model works and has worked for thirty years. Microsoft will make
its money on the games and the XBox 360 will be profitable in the
end.

[MKenzie]

Is this anti-competitive behavior

With Nintendo sales falling, could selling XBox at a loss be viewed as a way to reduce the competition?

[FutureGuy]

competitive behavior

No one has made money selling game console, including Sony and Nintendo, money is made in games, thats how the business works.

[nightveil]

The way it works

Every console maker sells the hardware at a loss. The profit is
made by selling the software. This has gone on since the days of
the Atari VCS/2600. It's a model that works and, usually, works
well. Nintendo has issues with perception, being percieved as
"for kids". Whether or not this is a fair perception is debatable,
but it's there and it has affected sales.

Microsoft losing money on the XBox 360 is a non-story made
news by CNet because they have nothing else to put up. It's a
sure-fire hit grabber because people, for whatever reason, have
a mistrust of Microsoft.

[n3td3v]

THEY MAKE THE MONEY BACK ON GAME SALES

They make the money back on game sales. Will someone please give me the e-mail address of the person who authorises these stories to be published on news.com, I want to tell him or her what I think of them.

Should have spent more on QUALITY

Given the number of consumer complaints on www.slashdot.org concerning defective Xbox's, perhaps they should have spent a little more on Quality Control and Quality parts, ya think?

[nightveil]

Defects

Defects are inevitable. No matter how stringent the Quality Control,
some defects are going to get through. That's why warranties exist.

If you get your XBox home and it doesn't work or it did and it stops
AND it isn't because you stepped on it or your cat urinated on it,
then Microsoft will fix the problem, which is what they're doing.

[Musmanno]

They don't know the actual price of manufacture

Looks like these figures are estimates. Given Microsoft's bargaining power as the behemoth they are, whether these estimates are close to reality - who knows? Microsoft may have managed to negotiate all kinds of sweet contracts for purchase of these components. So I'm not sure this study tells us a lot.

Actually, I'd be surprised if it's only 40%...

If I recall correctly, the target was to have the
retail price equal 50% of the cost of
manufacture.

The idea was that they'd recoup the costs on
licensing and online services through MSN (now
MSLive).

My personal opinion is that it's wishful thinking
to believe that they'd break even, actually,
considering what a fiscal disaster the original
XBox was (at least for MS).

[pneudecorb]

Is this a surprise?

I'm not sure why this is news...if you look at the hardware that is in the XBOX 360 vs. what a typical PC with this kind of hardware would cost on the open market if it was available, you wouldn't be surprised that Microsoft is losing money on the hardware. Its not a shocker and the XBOX was exactly the same. Microsoft's position is that they knew they would lose money on the hardware, but expect to recoup hardware losses from software sales. Again, no surprise here.

Pneudecorb

[Sonicsands]

misleading

These reports are often way off mark. After all, analysts can only estimate what some components cost when supplied in bulk. The estimate in final integration labor simply cannot be estimated accurately. This is no different than supermarket tabloid reporting.

[t8]

If they lose money...

If they lose money then it would be worth while buying a bunch of them for a supercomputer or computer grid. That way the generous folks at Microsoft are part funding your project.

Of course you should run Linux.

:)