Print 51 comment(s) - last by sxr7171.. on Nov 29 at 7:55 PM

Microsoft talks about reducing its costs, not ours

With the Xbox 360 having been on the market for over a year now, the rumors of an impending price cut have been constantly batted around. Microsoft even stated back in 2005 before the console first launched to expect yearly price cuts on the Xbox 360.

As certain factors started playing out in Microsoft's favor including the delay of the PlayStation 3 from spring 2006 to fall 2006 ( March 2007 for Europe) and the higher price tags of $499 and $599 respectively for the 20GB and 60GB PS3s, Microsoft backed off on talks of price cuts. When asked about an Xbox 360 price cut in early October, Peter Moore simply said "certainly not." A Microsoft spokesman followed up later in October by stating that there are "no plans to adjust the price of the Xbox 360 this year."

In a recent interview with A+E Interactive, Microsoft’s Robbie Bach is asked about the inevitable release of the next generation “Xbox 720.” Bach’s response was that the engineers are always working on the future products, but that cost reducing the Xbox 360 “seems to be the first order of business.” Lower overall component costs will likely come into play as the hardware used in the Xbox 360 ages along with a planned die shrink from 90nm currently used on the Xenon processor to a 65nm SOI process in 2007.

But while Microsoft is looking to reduce costs to improve the profitability of its Entertainment and Devices Division, it’s still unclear as to when customers will actually see any dramatic price cuts directly from Microsoft. Some vendors are taking matters into their own hands by offering special promotions or rebates with Xbox 360 systems, but Microsoft will likely let the PS3 dance around in the ring for a few rounds before it starts unloading with price cuts.

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

RE: Bach -we dont buy your story
By masteraleph on 11/28/2006 8:10:02 AM , Rating: 2
Originally iSuppli had estimated that Microsoft was losing around $125 per console on the launch of the 360. Now they are claiming Microsoft is actually making profit on each console sold, to the tune of over $75. This is in line with Microsoft's claims and sources in Taiwan, previous to Bach's interview with the Mercury news, that the 360's costs had been driven down to a significantly lower level.

Minor issue with the report you're mentioning- it compares losses and gains against the retail price of the console, but MS does not, in fact, get the retail price of the console from any of its resellers. Presuming that their wholesale price is more in line with, say, $350/premium console, then they're making $25 on the premium and probably still losing money on the Core.

Now, since they've sold 7.5 million consoles (and therefore are clearly popular) and since Nintendo is selling Wiis for $50 less than the Core despite clearly inferior hardware (and they're making a profit on all the Wiis), tell me again why MS should cut prices?

RE: Bach -we dont buy your story
By TomZ on 11/28/2006 8:24:02 AM , Rating: 5
1. All this talk of manufacturing cost totally ignores a significant cost component - which is the development costs that Microsoft has invested (tens or hundreds of millions of dollars). Plus engineering work is of course ongoing. So, considering this cost amortized across the number of units so far produced, the actual losses are much more than we can tell through BOM analysis of teardowns .

2. Sell price and manufacturing cost are only indirectly related. The sell price of an item is set based on the value to the customer - it is not based on the manufacturing cost. Therefore, there is no reason that Microsoft "has to" pass along cost reductions simply because they are able to achieve cost reductions in manufacturing. Instead, price reductions to the consumer would be the natural result of the product being less valuable for whatever reason (e.g., competition). Consumers do not look at a product and judge its value based on the sum total cost of its components.

RE: Bach -we dont buy your story
By Drexial on 11/28/2006 2:59:00 PM , Rating: 2
cost of the console to a retailer is $15 less then the MSRP. the reason they didnt drop the price of the console like previously planned is because the PS3 became less of a competitor then previously planned. the 360 is on edge of becoming profitable. but that doesnt mean anything. they never plan on making money on the consoles, they plan on making money on games. the more consoles out there the more games being sold. but what microsoft didnt plan on is the success of the Wii, but then again nobody did. the Wii is filling in the gap with the lack of PS3s more then the 360, which is exactly why microsoft should plan on a price drop soon. id say $100 by next december if they are going to maintain sales. i can promise that the Wii will be down $50 by next year and they will feature the Wii with the DVD player at the retail price of the current model. the fact that the Wii is $50 more then any other release from Nintendo and they are making money on each console sold. this is exactly why Nintendo has won this round. they played the perfect game of catchup from the 360 being released a year previous. though i still believe the PS3 will regain strength once they iron out the issues of releasing a product before its ready, they really did make too many last minute decisions.

By crystal clear on 11/29/2006 5:39:21 AM , Rating: 2
" Consumers do not look at a product and judge its value based on the sum total cost of its components. "
Consumer awareness is very high, thanks to the internet &
websites that encourage consumer awareness & expose product
pricing or company pricing policy.

The consumer of today values every $ in his pocket & wants
to get the maximum out of it.Money doesnt come easy -you got to work very hard for it.

"the actual losses are much more than we can tell through BOM analysis of teardowns . "

Response-yes you are right but these analysis give an indication to the consumer of its costing,even though they do not include development cost.The consumer/buyer considers this, his/hers right to be informed from independent sources.Their right to access information is supreme.

Anyway I respect your opinions on the subject.

By crystal clear on 11/29/2006 4:36:40 AM , Rating: 2
tell me again why MS should cut prices?

"Some vendors are taking matters into their own hands by offering special promotions or rebates with Xbox 360 systems,"

The above shows that the buyers/consumer want one & vendors
know the market better than MS & oblige the buyer.
If a Vendor can offer a price cut then MS can also do so.
The very fact vendors have taken matters in their own hands
shows lack of market awareness & slow response of MS.

Vendors are not fools, they are shrewd business men
who know the market well day to day & respond accordingly.

"Mac OS X is like living in a farmhouse in the country with no locks, and Windows is living in a house with bars on the windows in the bad part of town." -- Charlie Miller

Latest Headlines
Inspiron Laptops & 2-in-1 PCs
September 25, 2016, 9:00 AM
The Samsung Galaxy S7
September 14, 2016, 6:00 AM
Apple Watch 2 – Coming September 7th
September 3, 2016, 6:30 AM
Apple says “See you on the 7th.”
September 1, 2016, 6:30 AM

Most Popular Articles5 Cases for iPhone 7 and 7 iPhone Plus
September 18, 2016, 10:08 AM
No More Turtlenecks - Try Snakables
September 19, 2016, 7:44 AM
ADHD Diagnosis and Treatment in Children: Problem or Paranoia?
September 19, 2016, 5:30 AM
Walmart may get "Robot Shopping Carts?"
September 17, 2016, 6:01 AM
Automaker Porsche may expand range of Panamera Coupe design.
September 18, 2016, 11:00 AM

Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki