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Forums - Microsoft Discussion - Mole attack: 360 price cuts on all hardware in September

misterd on 02 August 2008

Dodece said:
I find it highly suspect when anyone claims that Microsoft could not perform such a price drop due to profitability. Then in the next sentence mention the ability of Sony to match such a price drop. That shows a discreet lack of critical thought. Sony are the ones in the real financial bind. Their gaming division may have turned a modest profit last quarter, but that is not because the PS3 has reached production price parody. Which does nothing for the huge money pit the console already carved out getting there.

The primary advantage Sony has in cost reduction is a long history of hardware manufacturing, where MS's primary experience is in software. However, MS has been doing this for a few years now, and has the resources to hire people with the experience that they need. They are learning, and will benefit from these growing pains.

Everyone is oblivious to the divisions expansion with the shift of Sony Online Entertainment. Which was actually part of Sony Pictures prior to the move. Though poorly thought of by gamers did bring in roughly two hundred million dollars last year for Sony. Shows what you can do when you have a stable of old products you squeeze for every penny. Then you have the PS2 and the PSP both profitable products, and a plethora of development houses. Basically it is not that the PS3 has been profitable merely that it is not bleeding as much money as it once was.

Microsoft is in a far different situation. They have four advantages Sony does not have. The first advantage is the longer production run, and that latest cost cutting iteration. The Second is Microsoft holding firm on pricing the price of the console has hardly moved in comparison to the PS3. Third Microsoft gains a secondary revenue stream from their console, and it helps to defer pricing losses. Effectively the longer a customer pays for Live the less Microsoft lost on initial sale. Sony can never directly recoup hardware losses. Except through licensing which is number four. Microsoft has more licensing to feed off of then Sony. The attach rate on their console is wonderful, and with it growing it will help defer costs further.

What some here believe is that currently the 360 is hardly profitable. However there is no actual proof of that. The machine resides within a division that is reported as a whole, and there are a great many products within that division both present and future. That is not even including research. For all we know the hardware may be far more profitable then many suspect. In fact given the other price cuts this year it is probably very likely that is the case. This would not be the first time this year Microsoft would have cut eighty dollars off of one of its consoles.

Would such a price cut be effective. Yes it would be very effective. The arcade would be at a mass consumption price, and any poster who claims to be concerned should be. Not only would that price hurt the PS3, but it would also really hurt the PS2. After all it would be hard to argue that a Arcade with a game included is not a superior product to a eight year old last gen console. Which means if this price is true the PS2 would probably be pushed out of the North American market by years end. That would hurt Sony, and make any PS3 price cutting that much harder.

I think this is probable, because Microsoft has done the same thing in other markets earlier this year. Not only that but it would be the perfect move to really grind PS3 sales to a halt.

With the economy being what it is, and Wii's still being next to impossible to find, I would expect that MS could benefit immensely from having a $199 console available for the holidays, especially if it is bundled with a non-sucky game, or a new line of $20 budget games.

 



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Alby_da_Wolf on 02 August 2008
steverhcp02 said:
Alby_da_Wolf said:

Hey, nobody thought of another hypothesis? How about MS intentionally leaking and spreading rumors, true or false, it doesn't matter, to force Sony and Nintendo to uncover more cards? Up until now we only know of the next Sony 80GB model, but still nothing about PS3 Slim. And we don't know anything about Nintendo intentions on price drops and/or model updates. We'd like to know, MS would even more.

 

Edit:

And journalists would like to know more than MS and us put together

 

yes, leak a fake price drop to freeze current sales. brilliant.

Perhaps MS really wants to drop prices, but it would like to provoke Sony and Nintendo and try to force their reaction, because acting first has one advantage, the time one, and one disadvantage, it lets your competitors plan and pace better their reaction.

 



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cleveland124 on 02 August 2008
Bitmap Frogs said:

 

I know the official party line these days (heck, all the users pushing sony agenda have been repeating it like mad as of late) is that MS is willing to lose whatever money it takes to take down the caritative Sony that pricedropped the ps2 for the xbox launch,

Is that really the official party line?   I must have missed the Bill Gates quote that Microsoft is willing to lose billions for the xbox so they can claim they are the market leader this generation.

but really... for starters, there's no proof that they are still selling the hardware at a loss - in fact the hints suggest rather that they've been making some dime off the hardware for some time already. Then you mix up a whole bunch of costs when we are talking just about the console itself, not the whole division. Nice derail attempt there but it won't work - at all. Either you reply to my points about the specific savings on the console or you don't reply anymore, but don't derail this bunching in the whole division while conveniently ignoring other sources of revenue like software, gold, accesories, etc.

You are just scared a 199$ arcade might end up crushing the ps3 like the rest of sony fandom is.

Yes sir.  Except that I can't respond to your claims because they are opinions.  There is no proof of how much savings they are making until you show me Microsoft actual costs are instead of just it is well known they are making tons of money of xbox 360 now so they could easily make money by dropping the price by $80.  Additionally, their are all these other cost savings.  So show me some hard numbers of how much money they are making and I'll respond to them.  Otherwise, I'll look at their financials and see that they are onpace to make $1-$1.5 Billion this year w/o a price drop.  The xbox has 2-3 yrs life yet.  At that pace they'll be very close to breaking even on the Xbox 360 and no where near close to recovery cost for the 360 and the original xbox.  So yes, they are turning a corner, but they are far from a cash cow.  I like it how you ignore all the costs I mention then include software and accesories.  Lol.  They are clearly very profitable in those arenas.  If anything that weakens your arguement because they made millions upon millions with those items which means much less of that $426 million profit was actually on hardware. 

Lol, I also like that I must be a Sony fanboy and I'm scared of a $199 arcade.  I have a different opinion than you.  My opinion is that it's stupid for them to sell at a loss.  They are making money and they need to make money.  They have invested billions upon billions and if their is going to be an xbox 3, 4, etc. they need to start making alot of money.  The whole industry does.  But hey, I owned a gamecube xbox last gen, and I owned a wii since launch and a PS3 for 4 months (my first Sony console) so I must be a Sony fanboy.  Keep smearing me, it helps your arguement.

 

 



cleveland124 on 02 August 2008
misterd said:

Unheard of? Like when the PS2 and XBox each dropped from $300 to $200? You cannot name one console that launched for $300 and was not down to $200 within 3 years. I do not find it improbable that in this time, which has included now 3 hardware changes (original to Zephyr to Falcon to Jasper) MS has reduced the hardware costs by about a third. 

And you know that MS's XBox division posted $420m in profit this year. If we ignore the roughly $1b in losses the previous year due to RROD, that means MS had a $1.3b turnaround in just one year. 

PS2 was at a different point in it's life.  It should have been $200 at that point but wasn't because they were dominating the market at the time and people were willing to pay $300 for a PS2.  Much like the Wii now could probably be profitable at $150 but it would be stupid because it's still sold out most of the time at $250 and price drops by its competitors don't affect its demand.  The xbox was Microsoft's initial foray into the console market and they were going in knowing they were going to lose money but trying to gain market share.  Their plan was to become profitable with the 360 which they need billions in profits yet to do that.

A $1.3 B turnaround is great.  But 90% of that was necessary to gain profitability.  If they made $1.3 B this year, then yes, they could easily afford a price drop of large proporations. 



cleveland124 on 02 August 2008

If anything bit I am trying to be more specific.  Their manufacturing overhead, advertising costs, etc. are fixed charges that they have to recover by selling games and software.  So out of the increases of those costs, you must definately include a portion against the companies hardware.  Then you mention software and accessories which do nothing with hardware.  Though for sake of argument I'll make a few assumptions (this whole thread is assumptions anyway so I'm not going to appologize).

This will xbox 360 sold approximately 1.1 million units of software this week.  This is a summer month so this is actually on the low end of averages if anything.  They make $10 per game in their liscencing agreement.  20% of the 1.1 million are internally developed and they make at least $20 per game on those.  So for one week in profit they make $13.2 million in software.  In one week they probably make $1.5 million a week on accesories.  So 28 weeks in the first half of the year means $412 million this year is related to software and accesories on the low end.  Did I prove that microsoft hardware is still at close to a break even point?

Oh, but I forgot about all of the hardware revisions.  Who cares what their financials say.  If anything I think I could be convinced that the elite could drop $100 since essentially it's a bigger hard drive than the pro with a couple of accesories. 

But hey what do I know.  Drop the core to $99, the pro to $150, and the elite to $199.  Welcome to Xbox domination.  Am I now xbox fanboy yet?



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S.T.A.G.E. on 02 August 2008
Alby_da_Wolf said:
steverhcp02 said:
Alby_da_Wolf said:

Hey, nobody thought of another hypothesis? How about MS intentionally leaking and spreading rumors, true or false, it doesn't matter, to force Sony and Nintendo to uncover more cards? Up until now we only know of the next Sony 80GB model, but still nothing about PS3 Slim. And we don't know anything about Nintendo intentions on price drops and/or model updates. We'd like to know, MS would even more.

 

Edit:

And journalists would like to know more than MS and us put together

 

yes, leak a fake price drop to freeze current sales. brilliant.

Perhaps MS really wants to drop prices, but it would like to provoke Sony and Nintendo and try to force their reaction, because acting first has one advantage, the time one, and one disadvantage, it lets your competitors plan and pace better their reaction.

 

Microsoft isn't focused too much on Nintendo right now as they are with Sony.

 



Sansui on 02 August 2008
cleveland124 said:

If anything bit I am trying to be more specific.  Their manufacturing overhead, advertising costs, etc. are fixed charges that they have to recover by selling games and software.  So out of the increases of those costs, you must definately include a portion against the companies hardware.  Then you mention software and accessories which do nothing with hardware.  Though for sake of argument I'll make a few assumptions (this whole thread is assumptions anyway so I'm not going to appologize).

 

Just a quick note in your deluge of posts, regarding hardware - the sale of the hardware itself is not the only factor in revenue there.  With every console you sell, you gain a buyer who is then open to your other products and services, namely games and xbox live.

You act as if it's a cut and dry prospect for profits on the hardware, when it's the software that is the big ticket money maker.  If MS can *afford* price drops on the console, it benefits them everything to sell more consoles provided they are not losing money on the hardware. 

You say that software and accessories have nothing to do with hardware, yet they have everything to do with it.  The more consoles that are sold, the bigger the market for selling items with higher profitability. 
LOL MATURE on 02 August 2008
kowenicki said:
masterb8tr said:
one can only hope that sony follows.

 

This price cut situation was an obvious call really.

Sony are stuck between a rock and a hard place on this.... follow a 360 price cut and keep the status quo on sales but lose a shit load of cash or dont follow the price cut, lose sales and still lose a shit load of cash

 

 Funny, everyone is claiming that the hardware revision on the 360 will help its money situation but when it comes to Sony dropping price they can't do it unless they want to take a hard hit.... Let's see... 65nm -> 45nm Cell and 90nm -> 65nm RSX comming this fall for Ps3 which will decrease the heatsinks

Powerprick, and fans...

same defence 360 fans are giving... so why can't Sony do this too?



dolemit3 on 02 August 2008

LOL, MSFT is dropping the price of the 360 and now all the Sony fanboys are concerned with MSFT's profitability. LOOOOL.



Currently playing on PS3: God of War III

Currently playing on Xbox360: Final Fantasy XIII

Currently playing on NDS: Chrono Trigger

LOL MATURE on 02 August 2008
dolemit3 said:
LOL, MSFT is dropping the price of the 360 and now all the Sony fanboys are concerned with MSFT's profitability. LOOOOL.

 

 A. MS is rumored to drop the price,

B. Just like how Sony has had rumors of price drops and everyone else concerned with their profits?

C. I know you werent refering to me in that generalization but if you were I did not show concern with 360's profits.