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Fumanchu on 10 January 2009
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Squilliam said:
amirnetz said:
Microsoft is very happy with the current market dynamics. For the company to change the SKUs there need to be a really good reason.

Remember - every time a SKU is improved, the older SKUs have to be cleared out at a discount, which means revenue loss.

Now to the point: No chance in hell for a wireless upgrade. As others have stated - it is an added cost with very little return in terms of sales. The market have clearly shown for both Wii and 360 that WiFi is not a selling point.

HDD: This will go up. There is very little cost difference between a 60GB and a 120GB and it is top of mind for customers. I think Microsoft will wait for Sony's
moves and will one up them there on the HDD space.

Timing - Since Microsoft is sitting nicely, it will wait to see what Sony does before announcing any SKU changes.

The only exception is going to be the Slim model. Since Microsoft saves money by shrinking the CPU/GPU, power consumption and the rest of the circutry - it will introduce the slim model when it is ready, not waiting for Sony.

The reason why I proposed soon would be a good time is because they don't have to cycle through as much stock post Christmas. Furthermore considering its a recession its also a good time to make a sale, but in any case as the Premium and Elite SKUs make up a little less than 50% of the stock and they need not run out of Arcades it will make for an easier transition. As both the Premium and Elite SKUs could be shifted at break even or a profit its not a significant cost to them.

As I said earlier the market for wireless is increasing. Its becoming a issue when there was none 4 years ago. Their market for Live users are people with broadband and 20% of people with broadband had wireless in 2006! Consider now that people are buying their 2nd machines for bedrooms etc where wired connections aren't as easy to do the market has likely grown enough to justify the expense.

If Wireless costs $10 per SKU, and they sell 7,000,000 Xbox 360 Premium and Elite SKUs then it will cost them an additional $70,000,000 per year. Now the people who don't immediately want online have generally self selected and purchased an Arcade unit. The proportion of Elite/Premium owners who want internet access are a much higher proportion. Their revenue gains would come from Arcade purchasers moving up to Premiums due to the extra feature, extra live subscribers @ $40 per year per subscription as well as online content sold on the marketplace. The cost of wireless has come down and the demand for wireless has come up, it has to happen eventually and this is a way for Microsoft to increase the value of their SKUs without dropping the price.

They would already be making this up with the current rate of LIVE subcribers to install base, if indeed they receive the full $40 per year per subscription.

Microsoft released a press statement recently indicating that there were ~17million LIVE accounts at present and a MAJORITY of these were 'gold' subscribers.  Gold subscribers > 8.5million.  This was a couple weeks ago when the install base was hovering around ~27million.  This means that the current subscriber to install base is > 31%. 

Now take your numbers above - "7million consoles costing them $70million".  30% of 7million = 2.1million gold subscribers.  2.1million x $40 = $84million PER YEAR.  You could most certainly expect a significant increase to the current 31% subscription to install base rate should they include wireless, plus 62% are silver members at current so this number should jump exponentially as well seeing as though it's free to sign up as long as you've got Internet connection - so this would be a huge increase to customers browsing the marketplace.

As you mentioned the 50% Arcade - 50% Premium/Elite current sales statistic, should theoretically balance more evenly out between each, so they'd be getting more of a profit from selling more of the higher profit margin skus as well.  I think the numbers are there to support such a move.