Squilliam said:
greenmedic88 said:
Squilliam said:
Given the above talk about Kinect sales/marketing. From what I can figure they probably won't make any money on Kinect even if they sell to their projections of 3M or more by the end of the year. The marketing expenditure is massive, from what I can recall it was over 50M in additional marketing expenditure in the last quarter alone and most of that was Kinect related.
Anyway back to Move.
I don't think early sales matter so much whether they are large, medium or small in the short run. Over the longer term it does matter significantly more and as always their actions IMO are setting themselves up for 2011 rather than a strong finish to 2010. They need positive word of mouth moreso than Microsoft or Nintendo at this point. This is the reason why they priced their accessory to sell to current PS3 owners whereas Microsoft positioned Kinect best with new Xbox 360 owners with their $299 bundle.
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I don't think MS is selling Kinect peripherals at anything even approaching a loss. I know there's been quite a bit of talk from them as to how much they cost to produce, but my gut tells me they would actually be making a pretty tidy profit on each unit sold were it not for averaged per unit marketing costs, which as you've pointed out have been pretty huge.
I can't think of anything that any game company has promoted so heavily with special preview events, etc. since Wii Fit. And Kinect promotional efforts have easily outstripped what Nintendo spend promoting Wii Fit so far.
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Im not saying that:
Kinect = $110 ASP - $120 manufacturing costs etc = loss of $10 per unit.
Im saying that:
Kinect = $110 ASP *3M units plus games = ~$600M overall revenue or thereabouts and then you take away $200M in marketing, $100M in product development, $100M research and development and $200M physical hardware costs or thereabouts = roughly break even.
Im just saying that their profit point is early 2011 even though they are likely to sell a lot of units in 2010. In many ways the cost of Kinect is actually beside the point when talking about Microsofts profitability in Q4.
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I'm sure they're already making a pretty tidy profit on the current 360 models between the single chip GPU/CPU and other component reductions. I don't know if it's high enough for them to currently announce say a $50 price drop across their entire bundle catalog line up, but they are definitely cheaper to produce than the previous models.
Regardless, I think that even with the effective $50 "discount" on Kinect when bundled with a console, MS is still selling those bundles at a decent profit over production/shipping cost, meaning they could probably sell the standalone Kinect kit for under $100 ($99) at a profit. Not factoring in averaged, per unit initial marketing campaign, R&D, etc. costs.
