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back to article Microsoft pockets a HUGE '$28' on an Xbox One: But NOT REALLY

Analysts claim Microsoft's new Xbox One games console will be a loss-leader – each costing Redmond more to produce than the price tag, once you factor in research'n'development. Technology market watcher IHS tore into the components of the new gaming machine, and – judging by the Xbox One's hardware and manufacturing costs – …

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The true hardware guy's object is to...

...repurpose the box as a nice PC connected to a 1080p resolution monitor that can do some "real" work.

Then you get the cheap box, and forget about the silly game titles (which unfortunately make more $$$$$ than movie titles).

If it were only so easy. The console makers (can you blame them) make it VERY hard to get Linux on the console where some real work can be done. (*SIGH*).

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Bronze badge

Re: The true hardware guy's object is to...

The console makers (can you blame them) make it VERY hard to get Linux on the console where some real work can be done. (*SIGH*).

Fair enough for the XBox, but the PS4 already has BSD Unix on it. Why on earth would you overwrite that with Linux?

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Re: The true hardware guy's object is to...

Since the price of the Xbox One including the Kinect device and controller is more than you would pay for an similar spec PC without those, I'm not sure why anyone would bother (except for the challenge itself).

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Facepalm

"In your FACE, Sony! That's 10 bucks more..."

Are you trying to tell me that the device that costs $100 more is also more profitable?

Whodda thunk.

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Both Sony and MSFT lose money on the hardware

Does the author think that retailers work for free?

There is at least 10% markup from retailers, which means that the net to Sony and MSFT is about 9% less.

There are LOGISTIC costs of delivering the machines to distributors, and distribution costs.

There are marketing costs.

There are costs for malfunctioning boxes that must be returned.

ALL these costs result in Sony and MSFT receiving about $ 50 to $75 LESS than the hardware cost of their respective boxes.

Maybe the author should get a little business education before mouthing off.....

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(Written by Reg staff) Silver badge

Re: Both Sony and MSFT lose money on the hardware

"Does the author think that retailers work for free?"

Hi Bill! Still looking for a new CEO?

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Stop

Re: Both Sony and MSFT lose money on the hardware

That's not how manufacturers calculate P/L. It just isn't. If the lunacy you described was actually how things worked an Xbox would have to retail for thousands of dollars to break even.

The author isn't the person who needs a business education before mouthing off.

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Anonymous Coward

Re: Both Sony and MSFT lose money on the hardware

Or you could read the article where the author makes exactly that point.

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Anonymous Coward

Re: Both Sony and MSFT lose money on the hardware

Initially yes, but behind the scenes they're working on reducing manufacturing costs and the price of parts should go down in theory.

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Re: Both Sony and MSFT lose money on the hardware

All consoles are initially sold for a loss, in most cases its just a matter of getting the hardware into your home so they can provide additional services that you will inevitably have to pay for. (PSN+, XBL)

Once costs for an aging processor etc drop, RRP is kept high by them putting the exact same components in 'slim' casing, adding a slightly larger HDD then selling it for the same price it retailed at 5 years ago.

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Re: Both Sony and MSFT lose money on the hardware

Product cost, in this case, is the cost of building the console, the box it comes in and any accessories in the box. You never count R&D against unit cost and everything else from marketing to logistics to support are split out and applied to the books of the various departments that handle that activity. Spares and replacements are built in to the wholesale price of the unit.

Doing it that way stabilizes the costs across the companies catalog (for example heavily marketed products carry the financial load for less heavily marketed, but nonetheless important products). It also puts the eventual retail price within the reach of the consumer. If the individual activity costs related to a product were used in calculating unit break even the costs would be astronomically high, far beyond the reach of most people.

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Re: Both Sony and MSFT lose money on the hardware

Unless you have concrete information about margins and hardware costs, his info is as good as yours.

Malfunctioning devices, inventory shrink (theft, misplacement) are always factored into the release, as 10-15% (due to the high profile of this item, closer to 20%) of the stock is expected to be lost or returned (with credit issued to retailers who beat those odds in a significant amount). Any retail manufacturer knows this before contracting out for retail stores to push their product.

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I thought everyone knew that's how they make their money.

Lose on the one-off console, and make money on the games - even if you have to take the game cloud server offline to force users to upgrade to the next game.

Works great, until Sony shot themselves in the foot with the PS3, which works rather well as a media centre, you never play games, and you never have to upgrade again. Bargain. I know lots of people who do exactly that.

They went back to their core money making system with the PS4, a black box that plays games and fuck all else. Would be interesting to see if people are still willing to do that, or perhaps go for a PC based gaming system that would cost more, but do a better job. And it plays CDs, and DVDs without a fucking firmware upgrade too.

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Anonymous Coward

Re: I thought everyone knew that's how they make their money.

Not just games themselves, those dev kits are very pricey.

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Re: I thought everyone knew that's how they make their money.

For what it's worth, development (or experiment and analysis kits) are nearly always fairly expensive, no matter what the industry. For most companies it's one of the few revenue streams that gets applied to R&D. You're basically helping underwrite other ongoing R&D efforts within the company.

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sony could start charging £600 retail aswell and make £240 on each

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EoS

You people forget Bulk Economies of scale, Microsoft will get the components cheaper due to ordering in Bulk. Poor article.....

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Van

Re: EoS

Trying ordering in bulk yourself, you save pennies, a few bucks at best.

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Re: EoS

So, you're saying folks who do teardowns on gizmos produced by the millions overlooked bulk pricing?

I'll buy that - seriously, not sarcastically - if you can show that some of the named components in the Xbox One are cheaper by the bulk than listed in the article. Please match the make and model of component specifically.

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Re: EoS

If you're getting discounts on component cost it'll be on generic OTS stuff like caps, resistors and diodes and the quantities you order have to be extremely large to save more than a few pennies per 10,000.

If you're getting custom parts packed on tape reels for the PnP machines it's going to cost you fairly big bucks and completely offset, and more, any savings you made on generic components.

Economies of scale generally don't result in direct line item cost savings so much as they create a situation in which the costs of producing 1 unit are the same as producing 10 but producing 2-9 units actually costs you money. It's really counterintuitive and gets into really complex analysis where assembly line speeds, standard quantity of parts in a package, warehousing and shipping capacities and all sorts of weird things that make no sense on their own but when they are combined you can really crank out products at little to no additional costs.

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Beachhead in the home sold at a loss etc...

Wasn't that the Xbox and Xbox 360? And with this console having disc drive and PAL problems,both of which seem to be hardware problems, how many years MS willing to set fire to money just to get under the telly?

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It's the blades not the razors. Gillette came up with the concept to give away the razors and make a killing on the blades. You give away the hardware and ride the gravy train selling the software. It's an old, old business model.

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Van

It may be an old model but have IBM, Apple Nintnedo ever used it?

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Trollface

I think IBM makes money on consultancy, which is pretty much like bespoke software.

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HA

Last time I checked. Microchips cost pennies. These fools would have you believe it costs big bucks to make these consoles when the truth is it costs maybe....maybe...ten bucks. Unless these things can turn rocks into bananas that line about the costs of research and development is hilarious. It's just another small form factor computer stuffed in a plastic box. Listen up people..It costs me one dollar to produce 26 ounces of alcohol..It must cost Seagrams about ten cents.. Don't believe anything you read about the price of things. It is all lies. I have seen the price lists. Major retailers pay for things....You would not be amused one little bit. Bend over baby because you are ALL being royally pooched. I am NOT kidding. The one percent don't get rich by losing money on things or making ridiculously small profit margins...Give your collective heads a good shake.

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Re: HA

Dude, do you realize how stupid you look when you say things like that? You're in waaaay over your head. Just stop.

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Coat

OCCUPY MICROSOFT!

Must be message from the future where nanoassemblers can be had from a decanter in your kitchen.

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