very nice and well written view on what m$ could do. nice work :)

They simply do not sell at all that many of them due to the price or demand so definately not a big money-spinner. Furthermore theres the question about say, if someone wants to buy a premium and they need wireless it would cost them pretty much the same coin as a PS3. Now at the same price people may just get a PS3 instead. So we see the cost of the wireless in the PS3s weekly sales figures.

Very nice read. And I am with you on this one squil.
If there was just one sku for the 360, then it would make no sense to add wifi from Microsofts perspective because, yes.. it is an added cost.

But they have 3 sku's!

and even their "elite" doesn't really own up to the name, does it? Any PS3 is better in terms of what the hardware offers. Thats neither here nor there, but-

Wifi in the elite would be great IMO, and there is an existing market that would appreciate that feature- even if the majority of sales are represented by uneducated people that don't know or care about what it is that they are buying, as long as it plays games.

Add wifi to the elite, and add a bigger HDD. You are right it will happen.

Microsoft loves the HDD battle with Sony, and it has to be eating away at them right now that Sony has the 160gb out.

Uh, NO.  Wifi adapter, including the cost of making it, packaging into a stand-alone product, packaging into a retail box, and added distributor/retailer cost:

http://www.meritline.com/linksys-wpc54gx4-wireless-g-notebook-adapter-with-srx-400.html

That's $12.  I'm willing to bet cash money that the wifi chipset, antenna, etc. would be $5 in bulk.  There are no external packages, retail, mark-up, etc.

Slot load Panasonic 24X DVD ROM /DVD-R drive for $29.95: http://www.ultradrives.com/product_info.php/cPath/21_36/products_id/1050   Again, retail with a markup and Microsoft would get cheaper.  This is also a writer... ROM only is most certainly cheaper.  You have to figure this is incremental over the cost of the tray model.  I'd bet it wouldn't be more than a $10 add over the cost of the tray model.

Hard drives get larger over time for the same price.  Late this year, 200 gigs will be what 120 is now (or even less).  Again, it is incremental cost, at most, over what is there.

You make it sound like these features would add $100 to the manufacturing cost of the 360.  It wouldn't even touch $20.

Very true.  I don't think Microsoft will see it as a potential move to increase console sales per se, but they would be licking their lips with the increased potential of LIVE subcribers and content downloads though.  The question is 'will taking a slight hit on console profits outweigh the increased revenue generated through these services?'

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.

In that sense, I can see your logic. compelling argument.

It's plausible, but I'd expect it not to happen.

Remember when you predicted 360 would have a Blu-ray player by the end of last year? I haven't forgotten =)

Fumanchu is actually proving the opposite point. If only 35%  of the 360 owners are paid subsribers then why would Microsoft subsidize the WiFi for 100% of the users?

It is a giant leap to assume that there will be a sunstanital increase of Live subscribers to justify the extra cost. I personally cannot imagine that an significant number of 360 owners are off Live due to the lack of WiFi.

Microsoft would do much better to save the $10-$20 of WiFi cost for a price reduction. Whenever Sony drops $50 of the PS3 price Microsoft will have to drop $50 from the price of its premium SKUs to stay competitive. The $10-$20 of saved WiFi costs will come in very handy when squeezing the 360 costs down. A its not easy at all to reduce the costs and one would not go about to add more to the cost base, unless it really does generate significantly more sales or really makes you more competitve (like a larger disk space).