Analyst: Microsoft Could Use Price as a Weapon

[Bodhesatva]

Alby_da_Wolf said:

Bodhesatva said:

You're missing the point, Alby Wolf: I don't believe anyone is arguing that the 360 is the only console that benefits from cost reductions or software sales. They all will, eventually.

But for Microsoft, those cost reductions are already here. They are already making a profit on the hardware itself, and thus can afford to drop the price without dipping significantly into losses. For Sony, profitability has not yet been achieved on hardware (last estimate given was at the end of FY 08, ending March 31. Sony estimated ~130 dollars lost per console produced).

When Sony achieves profitability -- and they will, because, as you said, all consoles see cost reductions -- then they will be ready to discuss price cuts. But they are not there yet. Microsoft is. So at this exact moment in time, Microsoft can afford to cut prices, while Sony cannot.

Well, put this way is clearer and more equilibrated than the smbu2000's phrase I answered.

But, Sony could always make a gamble on its future HW and SW sales and anticipate a price cut, if really necessary and worth it. Obviously, if they manage to keep even a measly lead in WW weekly sales on XB360, I agree with you that they won't cut prices before cost reductions make it possible without huge losses.

Anyway, based on analogous past troubles for XBox 1, we can estimate that to break even, accounting for royalties too, a console costly as Sony's and MS' ones must sell anywhere between 35 and 50 millions, with Sony, due to bigger initial losses this time, having to sell EARNING some million consoles more than MS to achieve this goal, although MS accounting for most losses it legally can in a separate report item is muddying a little bit the waters on this matter.

 

 

Right, there are definitely times where it's better to take a loss now and hope to make it back later.

The problem is that Sony has already done that. Twice. The original price of the system was already a gamble, selling at 200 dollars below production value; then the first price cut to 399/499 pushed those costs even further. You want them to do it again? Well.... anything is possible, but at some point, every product needs to stand on its own two feet, and apparently Sony agrees that the PS3 has reached the point where it needs to do that.