Yeah it really sucks that the only thing they sell is consoles. If only they were able to make games that could set a new record high in first week sales. Or maybe create and online store that sells various new games and maybe even movies at a reasonable price. Or they could try to negotiate royalties from any company that puts out a game on their system and start making money. Or you could try to think for yourself for 5 seconds rather than blindly bash giant multi-national corporation while simultaneously trying to promote another giant multi-national corporation.

It is nice to finally find someone else on these forums that grasps the concept of sunk costs.

Rock_on_2008 said:
Lets break it down to you StarCraft. During the period between 2000 to 2008 Games division gross profits are as follows: Nintendo leads the way with a gross profit margin of nine billion dollars. Sony has a reasonable gross profit margin of just over 2 billion dollars. Microsoft has made a gross loss of 5 billion dollars - ouch!!! MS has only made a profit of one billion dollars in the past year, the loss was at a peak of 6 billion dollars. Still a long way to break-even.

Starcraft said: 

But thats just the thing Rock on, the 5 billion dollar loss your referring to is a "Sunk Cost."

In economic terms, this means it shoudn't be (and won't be) taken into account when Microsoft decides whether or not to continue in the console business. What will be taken into account includes:

-current assets (manufacturing facilities, developer relationships)

-cash-flow (they are currently making a tonne of profit)

-future growth potential (the games market is EXPANDING)

starcraft said:


But thats just the thing Rock on, the 5 billion dollar loss your referring to is a "Sunk Cost."

In economic terms, this means it shouldn't be (and won't be) taken into account when Microsoft decides whether or not to continue in the console business. What will be taken into account includes:

-current assets (manufacturing facilities, developer relationships)

-cash-flow (they are currently making a tonne of profit)

-future growth potential (the games market is EXPANDING)

Random said:
Ok thanks for pointing that out to me. But I guess lots of people would have differing views on Microsoft and its performance.


I know it sounds bad when you think about how much money they have lost in the past, but in reality that sunk cost has created a large number of assets that will make it easier to make money in the future. For example, they have lost less on this generation than last and it's likely this generation will eventually be profitable on the whole for Microsoft.

It just doesn't make any economic sense for them to quit now they have carved out marketshare and profitability to work with.

starcraft said:
I'm going to give a quick lesson in economics to MikeB, Captainpreferences and nine0nine.

Sunk Costs: Sunk costs are irretrievable losses (investments) made at the beginning of an expansive venture (in this case, Microsoft's investment in consoles). Economics dictates that a Chief Financial Officer should NOT take sunk costs into account when deciding the future direction of a company's venture.

The reason for this is simple. The money has already been spent, no action can retrieve it. The best possible course of action a company can take is to examine the current cash flow situation, current deployable assets and finally future growth and profit opportunities.

There is no conceivable reason why a competent economist would instruct Microsoft to leave a growing industry in which they are currently profitable and have large amounts of available assets (physical in terms of manufacturing facilities, but also in terms of developer and publisher relationships). If there ever was a reason, it would NEVER be that they have already accumulated too many sunk costs.

Furthermore, anyone that thinks Sony will launch the PS4 more than a year after the Xbox 3 is a fool. The Xbox launched a year after the PS2 and look what happened. The PS3 launched a year after the Xbox 360 and resulted in the likely permanent crippling of Sony's gaming dominance. The only exception is the Wii which adopted a disruptive strategy, the kind that only pays off occasionally.

Happysquirrel said:
Just to add further support to your argument ...

When Microsof began the XBox project they added several of their emerging product divisions into the Entertainment & Devices division. It is likely that the reason these divisions were added was to leverage the XBox in order to create profitable products; an example of this would be the video downloads available through XBox Live. The XBox 360's userbase is large enough to support many of these side projects, and these side projects are one of the key long term objectives of the entertainment & devices division. Canceling the XBox line at this oint in time would be throwing the baby out with the bathwater.

Ok everyone. Those last three posts are from another thread where people didn't understand what a Sunk Cost was and how companies treat them.

HappySquirrel and I put them straight

since no one picked you up on the bet i'll do it. but be warned i have alot of hats, and not just any ordinary hats, alot of those ner era hats! btw love your signature!

and on topic i agree, but i can see microsoft being stubborn and sticking it out for the long run, their pockets are pretty deep

starcraft said: Ok everyone. Those last three posts are from another thread where people didn't understand what a Sunk Cost was and how companies treat them. HappySquirrel and I put them straight

Do you know what a sunk cost is? You clearly don't know the difference betwen an initial investment (sunk cost as you put it) and operating losses. Do some cheking up and you will find the "sunk cost" for Microsoft Home and Entertainment division is closer to $21 billion.