Xbox 360 Being Sold at a Loss
Given all the recent Xbox hype, I thought that the following tidbit was pretty interesting… Microsoft apparently spends $552.27 to manufacture and test a ‘premium’ Xbox 360 (i.e., one with a hard drive), meaning that they lose a bit over $150 on each one that they sell (the MSRP is $399). Actually, they’re most likely losing a good bit more than that, as the wholesale price that they get for one of these must be somewhere well below the MSRP. The fact that they’re losing money on these isn’t a big surprise, though, as console makers typically subsidize manufacturing costs by producing and selling games, as well as through licensing fees collected from third party game makers. In terms of the console gaming market as a whole, Microsoft currently runs a distant second to Sony’s PlayStation franchise, although they’re hoping to change that with the Xbox 360. Microsoft will, however, get a run for their money in 2006, as Sony will be releasing the PlayStation 3 and Nintendo will be rolling out their ‘Revolution’ system. Regardless of who comes out on top when the dust settles, the real winner in all of this looks to be IBM, as their chips will power all three of the next-generation consoles.
Update: It looks like it might cost even more to build the Xbox 360. Moreover, some have argued that software sales/licensing may not be enough to offset these sorts of losses.
[Source: CNN/Money]
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Modified on December 29th, 2005 - 6 Comments
Filed under: Miscellany
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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November 26th, 2005 at 5:56 am
While this is an interesting economic story, I should point out that this is an “estimate” of the cost of building an XBox 360 by some think-tank, based on the components inside. It does not take into account the fact that it is being built by Microsoft, which is unlikely to be paying MSRP for parts or labor.
November 26th, 2005 at 6:08 am
I agree with the previous post – there is no way the loss is that much. Microsoft was behind last time the new round of systems came out, but this time, they beat Sony/Nintendo to the punch and they have the only new system out for the Holidays. I think this was a very critical mistake by the other company’s since there is no competition.
November 26th, 2005 at 7:34 am
Good point regarding what Microsoft is likely to pay for components. Another thing to keep in mind, however, is that these figures don’t include such as advertising and the cost of getting the Xbox to market, so there are other costs that are still unaccounted for.
December 1st, 2005 at 11:26 pm
Back in the day, Microsoft sold their word processing, spreadsheet, and presentation software in a suite for $99 when lotus and wordperfect sold their individual spreadsheet and word processor for hundreds of dollars. Lotus and wordperfect were the big dogs in the market at the time and now we know who is.
I think Microsoft knows what its doing taking a loss on these units.
December 2nd, 2005 at 11:19 am
Jim, I agree. Big Bill didn’t get to be a ba-zillionaire by being stupid.
December 7th, 2005 at 10:52 pm
MS is looking to make money on the games and the on-line community