comments on xbox from msnbc

Microsoft must sell about eight or nine games for every hardware unit to break even, and it must make sure that at least three of those titles are produced in-house. Typically, games sell for about $50, with profit margins of about 50 to 70 percent for in-house titles. Third-party titles bring in royalties of about 10 percent, or $5 to $10 for the console maker. Microsoft says it has more than 80 exclusive titles in the works. And to shore up its business model, the Redmond giant is betting heavily on online gaming services. It hopes that gamers will pay a small fee, say $10 a month, in order to play other gamers on the Internet and to download new games. But that’s uncharted territory.
Microsoft claims it will sell 4.5 million to 6 million consoles by June 30, 2002. But the more units it sells, the more money it loses on hardware. Some Microsoft sources have estimated that their company will lose $800 million in the Xbox’s first four years and a total of $2 billion over eight years. The only chance for upside is if the online plan, untested though it is, “pulled off a miracle,” according to Microsoft sources.
It’s easy to imagine a Microsoft board meeting in 2003, when the members realize how much money the company is losing and debate whether or not to discontinue the Xbox, says William “Trip” Hawkins, CEO of 3DO and one of the few executives who is betting the farm that the Xbox won’t be successful. “They’re going to say, ÔHow much money are we losing, and why do we need to be in this market?’ ” says Mr. Hawkins.

sweet!  il be able to pick one up cheap-o!

Man, that really sucks for Microsoft.  I actually feel sorry for them and all the money they will probably lose (seriously).  But if nothing more, they will at least get their name out there in the console gaming industry so their future console will be more successful.

I find it hard to believe that the Xbox itself won\'t be successful though.  Even if Microsoft loses lots of money, I think a lot of systems will be sold (up into the 30 million range before its life is over, if not even better).

Can somebody please explain this to me (in wetard terms) how in the hell they are losing money when they would sell a lot... I\'m just thinking.. The more you sell, the more money. But eh?..

Each system that they are selling for $300 is costing them around $400 to make.  That means they lose $100 per system sold.  That is why they need 3 "in house" games to sell per sytem.  

(3 games * $50 per game *.7  [Microsoft gets about 70 percent of the money from in house games] = $105.)  So they will just break even if they can sell 3 in house games per system, which is a lot harder than it sounds.  What games are Microsoft first party games?  NFL Fever and what else?

Bah!  For one thing it\'s Trip and for another, every console maker faces losses for the hardware during the first few years.  Everyone knows that companies make their money during year 4 and 5.  Hawkins has been against MS (xbox) for a long time now, he\'s just upset because consoles are used for fancy tech demos.

Originally posted by Watchdog
Bah!  For one thing it\'s Trip and for another, every console maker faces losses for the hardware during the first few years.  Everyone knows that companies make their money during year 4 and 5.  Hawkins has been against MS (xbox) for a long time now, he\'s just upset because consoles are used for fancy tech demos.

Sony has been making profit on the PS2 since August, only 1 and a half years after the Japanese launch.  But you\'re right about one thing, it probably will be during year 4 and 5 when the Xbox starts making a profit.  Microsoft is going to be losing tons of money for years and years, while Sony is going to be making the big bucks.

And what are you talking about when you said Hawkens is upset because consoles are used for fancy tech demos?  I don\'t understand that.

[Living-In-Clip]

I would like to say one thing about TRip Hawkins...

He\'s an idiot ..I mean, come on...THe 3DO? $700 price tag? The list goes on and on. I take what he says with a grain of salt. He isn\'t one to be giving advice on how to make a console succesful. However, he is one to know on what makes a console fail...soo....


Further more, I think it was obvious even if the XBox hardware sells are high that MS will lose money. That is just how it works in the hardware buisness, not counting on the money they invested into advirtisments.

The cost of producing a PS2 will never fall in price. But when Pentium III prices and graphics card prices fall, the cost of producing an X-Box will probably fall. Resulting in less loss for the company.

a Billion dollars over 4 years is nothing to MS. X-Box won\'t be out for 8 years, only a few consoles have ever done so, and none with the heavy competition X-Box has. Don\'t worry bout it.


Eric Jacob

Keep in mind that if the XBox really does survive over three or four years, the cost of all the components used to manufacture the XBox console itself will drop through the floor.  Since the specs are fixed, the price of the hardware will plunge, while the retail sale price will probably drop only slightly.  I wonder if that was built into MSNBC\'s calculation.  I don\'t think it will take all that long for Microsoft to start breaking even on the hardware.

Originally posted by Coredweller
Keep in mind that if the XBox really does survive over three or four years, the cost of all the components used to manufacture the XBox console itself will drop through the floor.  Since the specs are fixed, the price of the hardware will plunge, while the retail sale price will probably drop only slightly.  I wonder if that was built into MSNBC\'s calculation.  I don\'t think it will take all that long for Microsoft to start breaking even on the hardware.

{Heh heh, Altered Beast you and I posted this at the same time}

I was just a tad quicker, slowpoke


Eric Jacob

Originally posted by AlteredBeast
The cost of producing a PS2 will never fall in price.

Sure it will.  ALL hardware decreases in price as time goes by and more, newer, more efficient hardware is created.

keep in mind that Sony is making a big profit of the PS2. They are now selling 9.81 pieces of software with every PS2 unit sold. That number comes from SCEE (not even PSX got to a number like that in it\'s 1st and 2nd year).

Originally posted by AlteredBeast
The cost of producing a PS2 will never fall in price.

wrong, the price of The GS and EE have already gone down since sony finished paying for the new plants they built last year

And they will find new games to produce the chips cheaper just like what happened with psOne

While Sony\'s gaming division has been making a profit since August, it wasn\'t until this month  the cost to manufacture each PS2 was expected to drop below the $300 level.

The cost to manufacture the xbox has been based on contracts to buy components in volume at a discount spread out over several years. In other words when Intel and Nivida are able to cut costs to manufacture, those two companies will see the boost in profits, MS won\'t see the benefit until their contracts for however many millions they\'ve agreed to buy have been fulfilled.

It\'s an important distinction that I think should be made even though it may not make much difference in the long run.