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Xbox One will be break-even or profit-making from launch
- Thread starter statham
- Start date
CassidyIzABeast
Member
Good.
LiquidMetal14
hide your water-based mammals
I'm not as sure about PS4 but I do think both the platforms aren't going to be money losers. Both will be making money sooner and that makes me happy for the future of the industry.
GuitarAtomik
Member
Yeah, I think the PS4 is still going to be sold at a loss, just not nearly as much as it was for the PS3.
PoweredBySoy
Banned
Middling hardware priced at $500. Sounds about right.
maabus1999
Member
All the gaming companies are doing this right this time around.
The last few generations of putting in near top of the line hardware and selling as a loss leader did not achieve the exact long term growth everyone was hoping for. Minus the Wii of course when it just printed money at first, which leads to my next point.
We'll see if middle hardware at a profit is a better strategy (I think so). However, I do wonder if this generation will last as long as the last.
The last few generations of putting in near top of the line hardware and selling as a loss leader did not achieve the exact long term growth everyone was hoping for. Minus the Wii of course when it just printed money at first, which leads to my next point.
We'll see if middle hardware at a profit is a better strategy (I think so). However, I do wonder if this generation will last as long as the last.
Why give scalpers that extra money over the holiday. I don't think MS should drop the price until ebay sellers are looking at less than a $25 profit.
If all the XB1 components cost more than $400-425 to produce, I'll eat my hat. They're looking to re-coup R&D, advertising and other misc costs right out of the gate. Smart move, at least for the first 6-12 months where they're likely to sell every unit they make regardless.
Probably won't do wonders for their marketshare though, so we'll see if that trade off is worth it to them. Smaller install base = lower licensing, software and subscription service revenues.Time will tell if putting the emphasis on short term profits pans out.
Probably won't do wonders for their marketshare though, so we'll see if that trade off is worth it to them. Smaller install base = lower licensing, software and subscription service revenues.Time will tell if putting the emphasis on short term profits pans out.
First post nails it.
Honestly were it not for PS4's price point I wouldn't think the price is bad but I think they are going to have an uphill battle convincing people it's worth $100 more than a PS4. Will be interesting to see how things turn out.
Giving away a first party game like Forza as a download basically costs them nothing.
Bu that FIFA deal must have cost them millions.
maabus1999
Member
You have to look at the operating margin, not the gross margin.
I can make a hat for $8 and sell it for $12, but if I pay other costs of $5 a hat in order to sell it, that is a problem.
maabus1999
Member
If the operating margin increase exceeds marketshare loss, then I would take that trade in a heartbeat.
You can always through later marketing and cost reductions try to gain marketshare back.
Well, do you know if there are in fact other operating costs that would make the $499 price point a losing proposition? I'm assuming most people who pick a unit up at launch would also be an XBL Subscriber. But even if that weren't the case, I'd be surprised if a $499 pricepoint doesn't cover all expenses relating to a per unit sale, and then some.
Interesting point though - I'm a n00b when it comes to this stuff in general.
SneakyStephan
Banned
Hardware that would've been considered midrange back in 2011 , yeah if you can't produce that in a closed box for 500 euros it would be pretty sad.
maabus1999
Member
yes. Always extra costs past bill of materials/cost of goods sold. Check the income statement of a company for a global overview on margins. If msft ever reported zero operating costs the SEC would be kicking down doors.
GuitarAtomik
Member
They're not going to lose much market share at this point in the game. Both consoles are probably going to sell out for a while. Their inventory will be picked clean and they will sell as many as they can make during the launch period so dropping the price would be leaving money on the table from guaranteed sales. 6-12 months out when stock is steady and you can easily walk in to any store and pick up either console is when they need to start worrying about that stuff.
BobTheFork
Member
Well, if it's not losing money, that should make is easier to sell the Xbox division.
Clockwork5
Member
Wouldn't you have said the same thing about the PS3? It was even more expensive and a total money pit for the first two years of the system's life.
If the sales will be noticeably behind PS4 they will cut it before next holidays I guarantee it.
KungFucius
King Snowflake
This is not true. Even if they lose money on the unit, they always turn a profit once you factor in games and accessories. If they can make more money in the end and command a higher market share by selling the platform at a loss then it is still a viable business. One can make a very convincing argument that such a strategy worked very well for MS with the 360. Should they not have done that and instead ended up in a distant 3rd place?
Of course now the landscape is different so the strategy needs to adapt.
BibiMaghoo
Member
*facepalm*
''We are launching a console that is more expensive than our competition, but guess what? We are going to break even by doing that on day 1. Overdelivering value''
Fucking idiots.
''We are launching a console that is more expensive than our competition, but guess what? We are going to break even by doing that on day 1. Overdelivering value''
Fucking idiots.
Zoramon089
Banned
Even with the specs they seem to be bumping up every few weeks? I remember reading the RAM increase for the 360 cost them millions of dollars
Basileus777
Member
They changed the clockspeed, not the hardware itself.
Unless I'm missing something, the crux of the issue is not whether MS has zero operating costs (it obviously does). But whether the $499 price point contains enough padding to offset those costs and still allow for a per unit profit.
ITT we compare retail price to speculated BOM as if that is more than a tiny factor in profitability?
Let's not forget the millions that go into R&D, marketing and promotion, etc. I don't think it's as simple as it's made out to be. This is the kind of thing Pachter was talking about in the neogaf doc probably - lol.
Let's not forget the millions that go into R&D, marketing and promotion, etc. I don't think it's as simple as it's made out to be. This is the kind of thing Pachter was talking about in the neogaf doc probably - lol.
Acquiescence
Member
Read the thread title and those were near enough the exact words that formed in my mind. At £429, I should think they would be making a profit!
Aquamarine
Member
It is ironic that Microsoft is so resolute on "overdelivering value" but they're not even willing to make their $500 premium-priced console a slight loss leader.
Spot on, where exactly is the over-delivering on Value.
If there charging £429 in UK but the PS3 bombed at £425 despite being sold at a huge loss, what chance do they think they have?
Nothing? As in $60 for the sale of the game..... and whatever the development costs were to make said game?
maabus1999
Member
Well they said the are planning to sell at a profit at the moment, so take it as true. However, that BOM number earlier you mentioned is what I was pointing out as an inaccurate way of looking at their statements is all.
I don't have time to look at their latest filing to figure out the Microsofts EDD's possible operating margins, but assume it is 20%. Also the price MSFT gets is unlikely to be 499. That is MSRP. MSFT will probably get around 450 to 460 of that. So 20% of that and we're around $360 where the operating cost per X1 sold is probably at. Discount basic logistics, administration and marketing, and depreciation. Again, lets assume that is another 20% of the $360 operating cost. Now were down to a true cost of goods sold (For the x1) at around $290.
So if you find it logical that the bill of materials+wages to make an X1 is $290, then $499 MSRP is not unreasonable.
dunno, standised features are for the best, its just we shouldnt be forced to pay for it, MS she include it at their expense
im gonna go out on a limb here, but im expecting sony to have the issues this gen, that hardware in that tiny box is gonna run hot, and the fact theres no working retail ps4 units yet suggests they are having issues
Didn't work for PS3, did it?
specs =/= heat
Power consumption = heat
PS4 specs > Ps3 specs
PS4 power consumption < ps3 power consumption
PS4 power consumption ~= PS3 slim power consumption
Kabuki Quantum Lover
Member
Here's me giving a shit: ...
It's still overpriced (I also think the PS4 is a tad overpriced).
It's still overpriced (I also think the PS4 is a tad overpriced).
Most money is made on subscriptions, software and accessories correct? I thought that was the model these companies followed anyway.
Ah. Thanks for the elaboration.
Controllers, headsets, advertising, play and charge kits.