StarBlazers1
Member
Unsustainable because even if they're making enough profit elsewhere to cover it as a company, making a constant loss going forward is going to piss off a lot of the MS shareholders, especially those who are already very vocal about wanting the Xbox division sold off. It gets to a point where the entire division just ends up being a vanity project without a clear end goal beyond selling more than Sony, and that's not exactly a worthwhile exorcise.
I say underhanded and market manipulation because they're simply throwing money at people rather than offering a more desireable product in the first place.
They're selling the hardware they make at a loss and they're giving away free games and free Live subscriptions just in the hopes of selling more than a rival product that up until now has been a far more desirable one to the consumer. And that's not even taking into account the discounted rate they must have offered retailers for the huge volume of stock they're currently flooding the market with, that must be translating to an even greater loss than normal. If they didn't have the rest of MS's big pockets to bail them out it would be financial suicide to conduct business like this, its completely contrary to the way consumerist capitalism is meant to work, and it has no real benefits long term beyond saving face for a month or 2 and maybe, maybe getting enough customers to long term make up the losses in future purchases, but given just how big a loss they must be incurring, and the fact that they seem to be targeting bargain hunters and non-early adopters, I'd be very surprised if that panned out.
Sure, it benefits anyone getting an XO this Christmas because you save a huge amount of money, but in the end MS are just spending an absurd amount of money on the hope of getting some good publicity, and even that's not guaranteed.
Ultimately, they made an inferior, expensive, and ultimately less desirable product. They ruined their public image with blatant anticonsumer behaviour and failed to either right all those wrongs, or adequately express to the public that they'd done so with the policy changes they have made. They've been paying for those mistakes all year with lower than desired sales, and a strong competitor that's performing better. Now they're just buying their way to better sales.
I am loving all of the people that are agreeing with this post most likely because it fits their agenda. While I agree that it looks like its not a sustainable business model, I have to counter many of your points.
First, they are most definitely not flooding the market by discounting the product to retailers for buying a large volume of hardware. Costs on hardware remain the same no matter what. Invoices are paid within 30-45 days after receipt of goods and I can say with certainty that most, if not all retailers will not over purchase units.
You say that the only reason they are doing this is for a vanity project. Uhhh no. Take a look at the last generation. I have to remember where I saw the article, but the average Xbox 360 owner spent $300+ dollars a year for at least 5 years including an xbox live gold membership. The early adopters spent even more and many of those consumers went on to buy other microsoft products.
As far as throwing money at companies to make a more undesirable product, more desirable. That is normal business tactics. Firstly, a videogame console is rated by it's game titles(exclusives mostly) rather than it's hardware. And yes, Microsoft started out in a weaker position due to some obvious public perception and questionable decisions. They've mostly recovered from that and have a much better exclusive catalog of AAA games up until now and this holiday season. Saying it is undesirable at this point is ridiculous. When your in a weaker sales position, you have to do something to create demand to change the trend. "Throwing money" at exclusives is one way to capture consumers and it works. They spent billions designing, marketing and selling the XB1 and they aren't going to let it die. Sony did the same thing on the PS1 with games like Tomb Raider 2 and Metal gear on the PS2. Third party exclusives are not new and help create demand.
Companies sell products at a loss all the time when there is a service/subscription attached or supplemental goods needed to use it. Ask Apple, Samsung, Amazon, keurig, or nespresso if it's worth it.
Your notion that it's just for good publicity is wrong as a sole reason. It's one part of a plan to build up good will during the biggest shopping season of the year, which will make or break a product. Microsoft knows this as does Sony and Nintendo. Its not exclusive to just Microsoft.