Disclaimer: For the purposes of this thread, I'm focusing on the WiFi model and ignoring the 3G model as it's rumored to being destined to be discontinued.

I think most people who own a Vita, including myself, can agree on one thing: It's an awesome device with some great games.

I also think most people, whether they own one or not, can agree on this: The Vita, and its memory cards, are too expensive.

To avoid this being just another "Vita needs a price drop" or "Vita memory cards are too expensive" thread, I wanted to offer and solicit some theories on Vita pricing.  The first puzzler is the fact that according to a January 2012 article at Joystiq--which was before the Vita launched in the US--the Vita costs $160 to make:

http://www.joystiq.com/2012/01/20/playstation-vita-cost-estimated-at-160-in-report/

If it only costs $160 to make, then why price it at $250?  Of course this is a business, and businesses are trying to make profits, but it's hard to justify such a prohibitive price point to maintain such a large profit margin of $90.  So why then?

Often lost in the analysis of the price of goods is the cost of research and development.  Though those costs are unclear to us, those, in addition to manufacturing, are a big target of accounts payable when a console launches.  Another is marketing.  Though marketing for the Vita has had its criticisms, the costs are still there.

Looking back to the launch of the PS3 and the current state of Sony as a company may help provide some theories.  The PS3 famously (or infamously) launced at "599 US Dollars", incredibly at a loss as the PS3 was estimated to cost over $800 to manufacture at launch in 2006.  The PS4 has had some speculation about actual manufacturing cost, though most analysts seem to agree that Sony is not selling it at a loss at $399.  This shift in the approach to console launches most likely has something to do with a shift in the company direction over at Sony, who has had its share of financial troubles as a whole, regardless of any successes or failures from the PlayStation brand.  For a company struggling to get back to profitability, making a profit at console launch seems to be a step in the right direction.

This explains launching the Vita at a profit, but doesn't explain the size of the margin.  Everyone (justifiably) complains about the price of the Vita's proprietary memory cards.  They most likely exist in the first place due to the rampant piracy seen on the PSP, but I have a hard time believing they cost hardly anything to manufacture, which means Sony is making a great profit on those too.  One could argue that if the latter point is true, Sony could drop the price of the Vita as much as $100 (a $10 loss according to early 2012 manufacturing estimates), and still make a profit on the Vita "bundle" with the profits from memory cards.  Conversely, they could drop memory card prices and keep the Vita price where it is, or a combination of both (The option that probably makes the most sense).  I think most would agree that a $200 WiFi Vita and a $50 32 GB memory card would sell significantly better than the current model.

Was Sony banking on the Vita to be a savior of years of losses in other areas of the company, were the R & D costs simply that high, or are our interpretations of the numbers just wrong?

Sony has claimed that Gamescom in August is "going to be a PS Vita show", so we'll see what is in store next for the expensive, yet incredible handheld its faithful supporters love so much.

In the end, I don't know the answer, though I'm interested in other theories.

You stopped reading too early, from the OP:

"Often lost in the analysis of the price of goods is the cost of research and development."

I touch on that.  I did not, however, know that the profitable target was 3 years, so thanks for that.  I'm sure that plan included a US price cut at some point, but I'm sure they didn't anticipate these sales numbers.

That all can justify a $250 Vita, but it can't justify a $100 32 GB memory card, which I think is a lot of people's problem with the Vita.  I had no problem paying $250 for my Vita--I thought, and still think, it was worth it--but I shopped around to get my 32 GB memory card for about $78, which I still thought was far too much.

They said the same at E3.

Vita will have very little. I'm expecting 1 new holiday title, Freedom Wars gameplay, and localizations.

I think the problem is is that, whilst yeah the system is stupendously expensive, and yeah the memory cards are stupendously expensive, but the real problem is that sony's portable gaming doesn't really have an identity having lost the Monster Hunter franchise (come on sony, can't believe you let that one slip from your grasp) as if you look at the top 10 selling games on psp there isn't really anything there that you can only find on the psp, it's all console spin offs, whilst great and all, don't really help push it and make it stand out, whereas you look at the DS 7 of the top 10 selling games are only found on the handheld and aren't console spin offs (Pokemon BW DP and SSHG, Brain age 1+2, Animal Crossing [ok we did have one for the wii in 08 and one for the GC in 01, but I don't think we'll be seeing them as often on the consoles as compared to the handhelds, so should be considered handheld first] and Nintendogs)

I also don't think it helps that Sony's true flagship franchise (you can go on about Uncharted all you want it's not and isn't comparable in system pushing power) Gran Turismo (of which btw, the psp version has now shipped 4.22m, come on ioi when you adjusted gt5 would have thought you'd fix GTPSP) isn't even rumoured to be coming.

So in conclusion the problem sony has is that, yeah the system is getting an alright stream of games and the demand is there (as shown by all the little spikes in sales the system gets when something is released and does well) they don't have that big game to push the system, but I think this is because sony are so tied up in keeping the ps3 alive and trying to make sure that the ps4 starts of well they kind of can't afford to concentrate on the psv.

I do think however that both the ps3 and psv will be getting price cuts either at gamescom or TGS (have they ever announced a price cut at the VGA's before?) and PSV and PS4 will be getting GT's in 2014 with GTVITA being a downscaled port with some unique tracks in similar to how gtpsp was downscaled gt5 cars+gt4, and PS4 will get GT6 spec II with all dlc, new campaign and such.

All great points on why it's not selling well, and I agree.  There isn't the "killer app game" for the Vita.  One of my friends called it a "Persona 4 Golden machine".  I sure hope Gran Turismo for Vita is better than its PSP counterpart, which I thought was not very good at all.

Really looking forward to Gamescom and TGS...

I don't know how you can call a Niche game, where all of it predecessors haven't exactly sold great ammounts a killer ap, despite it being a great game, and a game that should go on to hit 1 mill lifetime sales which would be fantastic. I like GTPSP quite a lot actually, and liked the idea that they presented, quick sessions whilst on the go. However for the next game I want it to be more traditional GT with championships and stuff, but no endurance races over a couple of hours, that'd be painful. Also they deffinately need to bring back the special events from GTPSP, they were good fun.

I can't wait for both, and I hope that we get at least 5 more games for this fall (I don't care if we get a drought afterwards) as then we'd have a really strong looking period from september to december with Valhalla Knights 3 and Rayman at the begining of September, Kilzone sep 10th, Ys sep 24th (which will move units in Japan, and it's Ys's 25th annirvesary so should get some good marketing) then Nothing in October until Tearaway and Batman, so hopefully new game from bend for middle November, AC game (which I'd expect to happen as Liberation is on its way to a million units sold [might be there already with downloads]) Cod (seems to get on everything) and NFS and some japanese games which is about as much as I'm going to hope for.

I think it's imperitive that they give it a re-design with internal memory, even if it's just a couple of gb, as the ammount of people who have been caught out by buying one without a memory card and not be able to play anything, and in this day and age it's kind of unnaceptable to not have internal memory, especially when you can find 8 gb SD for about 6 quid on Amazon (the PSP is 90 quid and why it's selling so much and the PSV is 190 with 4gb memory card and either AC:lib or Blops.) so adding what 2.5% onto the price of the system, even though I would keep the price the same) but people actually being able to buy games digitally (more revenue) will make you more profitable. 

On another note I think that the instant game collection will help the psv when the ps4 gets launched as it's just chucking free psv games at ya so more people I think will be inclined to buy the console if they already have a tonne of games for it.

Why didn't this people who complain about it's price and live in the USA didn't buy it last black friday at amazon for 180 dollars bundled with AC Liberation or COD including digital download to PlayStation All-Stars Battle Royale and 3 months of PS+?

Because, compared to other gaming devices, it's just not an attractive console as of now. (I'm not talking about how it actually looks, mind you.)

I usually like to keep R&D completely out of the equation when analyzing price. That $160 is the estimate for the cost of the hardware and doesn't cover the prices associated afterwords like packaging, shipping, wholesaler and retailer cut. It's been analyzed for quite some time now that the Wifi model is selling pretty close to cost and the 3G model making a profit.

By and far the profits are made from software, accessories, and memory cards. Which the later is also priced higher than standard SD because of the production levels can't match that of SD to bring the cost down, not just to create profit.

Sony probably has reduced the manufacturing price of the Vita and established more profit per sale and not wanting to lose out on that while prepping the PS4 launch. They still chose to cut the price in Japan, but Japan was also paying the brunt of the cost of the Vita. Still it is high time for the price cut and a stronger push towards sales unless they are truly holding out for PS4 to grab a foothold before making the Vita an affordable companion item and only offering steep holiday deals in the meantime.

Regardless, they aren't using Vita as a buffer to handle PS4, they are trying to make it post profit steadily by itself. Sony is a large company and can still maintain a typical launch strategy. The PS4, not looking like an overly expensive one like the PS3.

$78 for the 32 GB? Can you please share where you found such a good deal?