Microsoft’s Xboss Losses

By Paul Kedrosky · November 27, 2005 · ·

Micrososoft is getting (negatively) better at losing money on every Xbox it sells:

  • Xbox: -$24

  • Xbox 360: -$126

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    Comments

    1. Rahul Shendure says:
      November 27, 2005 at 1:30 pm

      The Nov 26 Economist reports that they lost $200 on each of the original Xbox consoles for a whopping total investment of $4B.
      http://www.economist.com/displaystory.cfm?story_id=5213722

    2. Rahul Shendure says:
      November 27, 2005 at 1:39 pm

      For those without a subscription, here’s the paragraph that describes the losses on the Xbox:
      “Microsoft is thought to have lost around $4 billion on the original Xbox—equivalent to a subsidy of nearly $200 for every console sold. Its venture into gaming would appear to have been an expensive failure. But Mr Bach disagrees. He prefers to regard the billions spent on the original Xbox as an investment that provided Microsoft with three assets: a prominent position in the marketplace, several strong franchises (such as the “Halo” series of games) and an impressive online-gaming service, Xbox Live. “Now our job is to turn that asset value into income statement value,” he says. And Microsoft is indeed widely expected to do far better in the next console cycle, for a number of reasons.” (The Economist, 11.26.05)
      Paul, the article also states that the Xbox 360 is supposed to break even on the hardware (over its product lifetime).

    3. Paul K. says:
      November 27, 2005 at 7:03 pm

      Rahul — That’s interesting. I generally trust the Economist on these things, but given the stark difference it’s hard to figure.

    4. Ian says:
      November 28, 2005 at 1:53 am

      There are so many things wrong with the iSuppli numbers it’s difficult to know where to start.
      According to the linked article (in BW), the 20GB disk drive is $51. Funny that I can buy a Fujitsu 20GB 2.5″ drive in quantity 1 retail at $39.99 according to Froogle. No way will MS pay even $20 a unit for such a drive.
      They also cost 512MB memory at $65, something again I can find starting at $26 quantity 1, retail channel.
      So, do these guys have an agenda or are they just dumb? They recently did an analysis of various iPod models which seemed to show how much PROFIT Apple made. While I don’t have access to detail breakdowns, I’m sure I remember being surprised about how LITTLE Apple pays for a tiny 60GB disk!
      Finally, these numbers (if correct) are only a part of the equation. Assembly, packaging, distribution, marketing, retail margin, warranty etc add a LARGE amount, to say nothing of design costs. I suspect MS is losing a significant amount, but not on the actual manufacture. In the meantime, I have to hand iSuppli credit for getting so much publicity seemingly without question across the mainstream news spectrum! And, we are none the wiser!

    5. Paul K. says:
      November 28, 2005 at 8:34 am

      Thanks Ian. Great context. As you say, assuming iSuppli used those prices, which it seems they did, these are dopey numbers for Xbox costs.

    6. muckdog says:
      November 29, 2005 at 7:51 pm

      Does that “loss per XBOX” number include peripherals? (Wireless controllers, wireless networking plugins, etc.)