Xbox 360 costs $715 to make
by Blake Snow 
{ Dec 28th 2005 at 9:00AM }
Earlier numbers by Business Week may
have reported that Microsoft is losing $126 on every Xbox 360 sold. That figure is now believed to be a bit higher by
some. According to Insider Scoop, the world's largest software maker is losing
upwards of $300 per console sold. From the article: "A high ranking friend at IBM, one that worked on the Xbox 360
chip design, tipped us regarding the real expenses involved in manufacturing the Xbox 360... 'It costs Microsoft
approximately $715 to make, the manufacturing costs are still too high, another reason why they’re producing
relatively small quantities.'”If anyone has the money to blow, it's Billsoft. And if true, how long can the company stay in the red?
[Thanks, zADD]
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Reader Comments (Page 1 of 3)
LR @ Dec 28th 2005 9:10AM
Well if Microsoft is losing this MUCH imagine how much Sony will lose initially too with the PS3, which is more expensive to produce.
Mark In Austin @ Dec 28th 2005 9:14AM
Here's a toast.. to another $4 billion that could've went to charity, rather than an ill-conceived attempt to buy one's way into the video games industry!
Maybe for the Next geNeratioN, MS could leave coNsole-makiNg to a real video games compaNy.
Okay Sony.. you're up next.. how much are you willing to piss-away? :P
Pip @ Dec 28th 2005 9:17AM
Sony has its own fab plants and can make a lot of their own hardware. They also get volume discounts on many of the chips because of all their other hardware. The PS3 will not cost Sony much, if at all. Nintendo has somehow perfected on making profits on nearly everything, though.
MarkTAW @ Dec 28th 2005 9:22AM
How many times are we going to rehash this discussion?
It makes economic sense for them to subsidize the cost to begin with because they make it all back in licensing fees later on.
The XBox isn't just a console in the same way a Television isn't just a picture tube - it's a medium for content delivery.
You know, Cable TV/Satellite also loses money when they give installation for free. The only difference is you're giving your money directly to the Cable TV guys, so you don't questoin it. Here, the route is a little less direct so the profit line/rationale isn't as obvious.
Microsoft has significantly less in the bank than they did before, but at the peak it was hundreds of billions. A rediculously huge amount of cash that was truly frightening to think about. It was odd because usually that money goes into R&D or into dividends. I'm not sure what they ended up doing with that money in the end, but I'm pretty sure the number isn't as monstrous as it was before.
TheUndertow @ Dec 28th 2005 9:24AM
Wow - really makes all the early bickering about price absurd...the 360 is one awesome piece of tech.
kl00t @ Dec 28th 2005 9:27AM
I don't understand why they would choose to mass-produce a console that loses money. How would they make their revenue. Is there even any money in producing consoles anymore. If its simply just to get a bigger market share than Sony then why doesn't Microsoft just give the consoles away since they are losing money anyway.
Lyndon MacLeod @ Dec 28th 2005 9:28AM
Hard to say how accurate that figure is but if they are losing $300 per console it's going to be a long time getting that money back in software/accessory sales.
mo @ Dec 28th 2005 9:30AM
If this is true, I think Sony/MS have taken 'loss leader' to an extreme.
I'm not sure about Sony losing more on PS3 either. Sony do at least benefit from 'vertical integration' of it's various businesses in a way that MS just doesn't.
After the loss leader that is the PSP could BOTH Sony and MS lose large wads of cash which they would never recover? ie they would have to "write-off" the debt?
Take2 @ Dec 28th 2005 9:31AM
Nah, Sony will lose money too the first 2 or 3 years, just like they did with the PS2. There's an article about it somewhere.
Items they will cost Sony will be the Cell processor, Blu-Ray drive, and perhaps some of the additional components (2 HDMI, etc...). These components should be more than what Microsoft is paying.
The money is made back via software, not sales of the console. The cost of the console is recovered over time when component costs are reduced, and manufacturing techniques improve.
Phair @ Dec 28th 2005 9:48AM
HUAHUAHAUHAU
XBOX Fanboys eat this! ahuahuahuahuahau
AM CRY RED LOSSES
Doctor Setebos @ Dec 28th 2005 9:51AM
This makes the fact that MS executives have promised that the Xbox division would be profitable by July 2006 really funny, and difficult to see happening.
http://www.directionsonmicrosoft.com/2006top10.html
Ben @ Dec 28th 2005 9:58AM
The reason why it's so expensive to make is becuase of the cpu and gpu. Neither of them are made for anything other than the 360, so it is going to be expensive since ati/ibm have to use their plants to make them, so MS has to pay them to do that. But for Sony, the cell and gpu will also raise the price for the same reasons, the bluray mostlikely wont since it is mainly manufactured by sony
jACK @ Dec 28th 2005 10:03AM
I doubt the integrity of the numbers (my cousin Billy-jOE works for Mercury motors - he's really up high n'all bein' the head gasket polisher - and they're making the outboard fer that thar boat you're driving and he knows how much the boat really costs, ayup).
That said, I believe we can all agree that the units are being sold at a loss. The aspect that many individuals don't seem to condider, however, is that MS does not rely just on the games for profit.
Microsoft's customer base for Live (their online service) is reportedly over 2 million prior to the 360. Most of these people pay $50 per year for this service - and the 360 steps the service up a notch. This is all about content delivery and Live, no matter the initial loss.
William @ Dec 28th 2005 10:08AM
If Microsoft keeps spending billions and billions on the DirectXBox, as well as the ad campaigns that go with them, they will eventually win over a good sized pile of beer-and-chips gamers.
"Hey boys, lookee here, I got myself one of them new XBOX 360 that are on the TV!"
Whether or not this group will ever be large enough to be profitable... we'll have to wait and see.
soco @ Dec 28th 2005 10:08AM
don't forget the Nvidia graphical processor which will cost Sony probably almost as much as the Cell.
if you factor in consoles that are dead at the factory (ie, that never get shipped) i might be able to believe this. however, this sounds more like hype from IBM that they're helping with some super computer processors ;) if this is true i'm sure we might just hear similar bullshit when the PS3 arrives. adjusting for inflation of bullshit marketting numbers, that
could just amount to a few thousand dollars of loss per ever PS3. ;)
MacAttack @ Dec 28th 2005 10:09AM
This is similar to the movie industry losing billions of dollars a year for making crappy movies and are still making crappy movies. Also similar to the US government debts and doesn't seem to faze them much. This figures don't work in real time. Accounting procedures get manipulated all the time even if its not legal, I mean good examples of why all those big companies went bankrupt after the bubble burst.
Alex K. @ Dec 28th 2005 10:12AM
i don't understand
why is it that when the gamecube came out, which was more powerful than the ps2 and almost as powerful as the xbox, it cost $100 less than the competition and still made money on each console sold without even selling any games!
if someone was just smart enough to copy nintendo's business plan, they'd make billions, just like nintendo does.
Porkins @ Dec 28th 2005 10:14AM
#2--Bill Gates has actually given more to charity than any other person in the world; check out the recent Time magaine piece naming him one of its people of the year.
In any event, while it's a pity that the things are so expensive to produce, I'm certainly loving my 360; it's a pretty spectacular piece of technology.
Mateus @ Dec 28th 2005 10:14AM
Hm... another 4 billion loss.
Scythe @ Dec 28th 2005 10:28AM
Sony has a factory that makes the Cell Chip, it's mass produced to go into all their new computers, camera, etc... So this isn't costing them hardly anything to make. The Blu Ray is going to be the only thing I see costing them much unless they are doing the same with it as the Cell Chip.
Josh Frasier @ Dec 28th 2005 10:44AM
Just another reason Nintendo is going to sell more systems. PRICE!!! 150 dollars is better than 400 and Nintendo is making money still, not losing it!!! hahahahaha Microsoft and Sony don't know how to do business in the Game Industry.
Ted @ Dec 28th 2005 10:44AM
From the perspective of an avid PC gamer, i'm worried by this as it seems to be quite an effective business model. I would think thath it's probably going to be quite a threat to PC's, since companies like Alienware don't make any money from games and hence are not able to keep purchasing price artificially low. They're making sure that there will be a big market for the games. This also encourages developpers who would otherwise work for the PC market to move to their platform. The only problem with this cunning plan is that one would assume for it to work (i.e. the plan to build up a large base of consumers for the games) you would want there to be loads of supply... in the current situation, they're not only making a loss, but enclosing their market in a straightjacket which prevents it from reaching its potential.
So perhaps there is hope for the PC (at least until the launch of more 'next gen' consoles, and high-tech handheld games consoles).
thebanman @ Dec 28th 2005 10:49AM
Lets all first remember the heritages of these companies.
Sony
-first of it is a hardware company has beeen will always be so am sure with there long tradition they know how to cut costs here and there and they have built relationships with suppliers.
-Since sony is the market leader, they have the potential to make sweet deals like the one btn apple and samsung.
-And since there are among the pioneers of the blu-ray, that means they will not have to pay any royalty costs as microsft is paying.Further more they can use this to their advantage when marketing to movie companies.
-Now since the play station is going to me a media device, they already have content from their movie studio and music business something that microsft lacks.
-And yes as someone said they have their own pre-fab plants something microsft could use right about now. so obviously the costs are less.
-they have also bought some companies who software they used in dev kits so that means the publisher or themselves don't have to pay huge licesese fees for the kits.
Now on to microsoft.
-microsoft has always been software where costs are less and its really hard to turn that experience with software into experience in hardware so am sure they have a lot of learning to do.
-since they are not a market leader, they cannot apply to get discount with some of the suppliers and infact they might have to wait for their orders to be made (chips) in case someone with bigger volumes goes to the suppliers so they are at the mercy of the suppliers unlike sony with their fabs.
-they also have to pay license fee for the dvds depending on which format they are using or which camp they fall into the future (blu-ray hd-dvd
-plus they have to pay those license fees for all the software used in the dev kits.
As for nintendo well their costs are low because
-they have always been both hardware and software so they know how to combine the best of both worlds
-they already have relationships with the suppliers and thus they can always bank on that i mean who can say no to princess peach.
-nintendo usually sticks to its own proprietary formats so that they don't pay license fees.
Anyway thats my take.You can take it or leave it.
Phair @ Dec 28th 2005 10:52AM
Sony has factory, Sony is hardware company, no loss in PS3 for a long time.
Tam @ Dec 28th 2005 11:08AM
IBM make the Cell CPU for Sony and they are not cheap to manufacturer.
At the current yields it is costing about $175 per chip.
http://www.theinquirer.net/?article=27809
Todd H. @ Dec 28th 2005 11:08AM
Nintendo = 1/2 the Cost, but 1/2 as powerful as the 360
You get what you pay for! You might as well buy a orig. Xbox, just my opinion.
MikeUF @ Dec 28th 2005 11:16AM
Ok I really should stay out of this, but some of the posts just need responses.
#23 (thebanman)...Microsoft has just as much if not more purchasing power then sony. Just becuase Msoft does not have historic agreements with these companies does not mean they wil not get what they want when they want. They are talking huge numbers to manufacture the 360. Along with that Msoft has long standing agreements with other hardware manufactures (Intel comes to mind though I cant recall a specific agreement off hand) that can be used as leverage against an individual supplier(give us what we want or these companies are walking on you). On top of that Msoft always can threaten a company with a software audit which can lead do hundreds of thousands if not millions in fines.
#24 (Phair) Just because Sony has a factory doesnt mean the PS3 wont be sold at a loss. The blueray tech costs millions in R/D to create. That loss must be made up in sales. The saying goes for pharmesuticals goes that the first pill cost 100 million to make and the 2nd cost 10 cents. The same goes with hardware R/D. Sony has to recoup the costs of Blueray, along with pay for the cell, and all of the other components they have going into the PS3. If it costs 700 to make thats what it costs (remember your not only paying for the R/D and manufacturing, but also for the huge ad blitz, executive salaries, etc...)
The PS3 will be sold at a huge loss. Now as some people have said this is not a negative. Sony will make up this with liscensing, their subscrption service, peripherals, movie rights, etc.... But thats just the way it goes, these companies are paying us to buy there machines, as long as we pay them to buy thier games.
Hashim (Florida) @ Dec 28th 2005 11:17AM
Stupid, stupid, stupid...
If they were losin money, why on earth would they produce more Sherlock? Logical understanding yells that they are not losin, and Bill Gates is more than just a jenius.
I agree with soco. All this of them loosin is a pile of horseshit
Evil Inside @ Dec 28th 2005 11:18AM
After looking at the new version of the Dashboard you release just how much development went into it. Add in the fact that every Xbox 360 has a free Xbox Live Silver account for purchasing games, add-on content and eventually some kind of music/video service, it's clear that Microsoft are focusing on value-added content and services that mirror the wireless industry.
As many have pointed out, Satellite TV and wireless phone providers have the exact same strategy: take a loss on hardware, make money on the subscriptions and add-on content (ringtones/wallpaper/etc.)
Some wireless providers, like T-Mobile and Cingular, allow users to put ringtones and wallpapers on their phones simply by downloading them from free websites. Other providers, like Verizon, restrict their users to using the "Get it Now" service.
Microsoft is taking the same approach with the Xbox 360. The original Xbox and Xbox Live set the stage for the Xbox platform, set the bar for online gaming for consoles and put the tools in place for developers. publishers and content providers to all make money from the platform.
With Xbox Live's new Marketplace, they have setup a system for indy game publishers, content providers and service providers to offer content similar to the "Get it Now" system: a single marketplace for users to get free and premium content for a small fee.
In the coming months, you'll see more and more Arcade games, wallpapers, exclusive videos & songs and more become available from Xbox Live.
This is where Microsoft makes the $$$.
Hashim (Florida) @ Dec 28th 2005 11:21AM
genius, not jenius, my bad....
lol
SuicideNinja @ Dec 28th 2005 11:22AM
Not really a big surprise. You have to spend money to make money. As demand continues and/or increases, the cost will go down.
So maybe this results in the higher cost of the games? Development as reported doesn't cost that much more than for previous generation consoles. Could Microsoft be charging publishers MORE this time around to help even out their loses?
Hopefully this "number problem" will result in a drop in stock price for Microsoft that will help more investors get in on the deal. Because it always recovers with this company.
Despite what the non 360-owners say, Microsoft produced and excellent system with excellent features. Most 360-owners know that, and are happy to have a new system with some great titles on hand and on the horizon.
bear attack @ Dec 28th 2005 11:25AM
OK OK people relax, how many people here are multi million dollar a year makers.....No wait Billions. So dont tell me that Microsoft and Sony dont understand that taking a loss on the system, just means that the gamer has just invested in their monopoly. A game is like 70-80 bucks and you buy 10-15 in four years. CHA CHING... We are the idiots not the huge corporations. Oh and my PC well it can type a resume. That good enough, PC gaming is dead face it. Computers are for homework and shopping now.
DCSimian @ Dec 28th 2005 11:32AM
You know...just because a console is less expensive doesn't make it a bad product. It's called getting the most with your money...a philosophy that tends to pass over the heads of many companies these days...
NDS: $129.99 (retail...unless you got it at Target ;-p)
PSP: $249.99 (retail)
Which one is selling more? DS. (And even on a month by month basis, so the whole argument of it being released first is null) Why? Because people apparently think it's a better product, with better games, and a pretty functional online service. And this isn't just in Japan. On personal experience, my cousin owns a PSP and I own a DS...he plays the DS more than his PSP. Why? Because it's more fun. (Lumines is a great game though).
Less price doesn't always mean worse product...
washimul @ Dec 28th 2005 11:32AM
absolutely preposterous.........the dvd drive in x360 cost $10....the graphics card would cost 50 and the three processors would cost around 40 each....in all MS has a break even point at $400.....they are not losing any money..........but yes ofcourse ps3 would incur sony some lossses initially.........but i ma sure sony would make profit by large scale mass marketing..where they would achieve economies of scale....this is absolutely a hilarious article from JOYSTIQ
sheik124 @ Dec 28th 2005 11:33AM
Hashim, well, they aren't MAKING any money on consoles. MS and Sony take a big hit on console sales in the beginning, but they make up for the losses with game sales like bear said and console sales do eventually become profitable. But PC gaming is far from dead buddy...
kuroshi @ Dec 28th 2005 11:34AM
So your saying that this article is more reliable than businessweek? With a souce like "a high ranking friend at IBM" how could you doubt them. IBM has no idea what production cost are at MS. IBM helped design the chip. It's owned by ms and not even produced at IBM. BTW sony will not get volume discounts on the cell because they have not been successful at selling it. Nintendo also lost record amounts of money on the gamecube. Fortunately, they made it all back up on the handhelds. The cost matrix on the 360 is much better than it was on the xbox. Sorry the insider scoop is wrong and thier source is questionable at best. Guess that's why they are not businessweek or any other reputable info source. It's esay to push BS, a little harder to back it up though.
John L @ Dec 28th 2005 11:56AM
For those of you who believe this ridiculousness..I've got a bridge in Brooklyn, NY to sell you.
LOL...even owning the dies to both the CPU and GPU this time, MS would never be able to reduce costs enough on a $715 console to break even.
$715...ha! Unreal...
MS designed the whole 360 plan to make money this time. You don't build a $715 console and hope to make any money.
I mean, c'mon...it's so expensive to make that even MS themselves don't want to make units?!?!
L...O...L.
mike @ Dec 28th 2005 11:59AM
all these comment on a friend told me comment LOL
could this be sony putting out some high cost rumours to lessen the thud when their price is announced ???
Nabu the Wise @ Dec 28th 2005 12:13PM
While this figure might be more accurate, I don't think that this is how console manufacturing costs are usually figured out.
I suspect that this figure included the R&D that went into manufacturing the chips (or, for M$, the amount of money they had to pay IBM and ATi to own the chip design).
Most of the time, when the cost of a console is figured out, the manufacture price is the only thing considered. So, on paper, M$ will be out of the red much quicker (perhaps even by the time they have predicted).
Besides, Sony will have a much, much higher expense. After all, how may billions have gone into Blu-ray and Cell (both design, and manufacturing capacity)? Sony is counting on using these technologies across the board, not just for the PS3. I suspect that if you considered these expenses as being only for the PS3, the console might never make any money throughout its life.
T-Rock @ Dec 28th 2005 12:14PM
Gamecube cost $100 less than the last generation because they didn't bother with having their system contain a hard drive, built-in ethernet, or DVD player capability. They offered less and were able to eat up a significant share of the initial market by being cheaper than the competition and relying on 15 years of brand loyalty from customers.
RobG @ Dec 28th 2005 12:15PM
This is completely ridiculous. Just because one research firm comes out and says they "think" the Xbox 360 cost X amount to make everyone eats it up here.
Here are some facts that nobody is bothering to point out or is just completely wrong. Microsoft OWNS the IPs for the CPU and GPU which means they can have the chips produced where ever they want (TSMC anyone?). The last time around Microsoft had to rely on Intel and Nvidia who owned everything the last time around so they took a beating on costs. Now that Microsoft owns the rights to these they can farm out the production to the lowest bidder.
Sony is not putting the Cell into all their new computers like #20 seems to think. They have said it could go into a lot of entertainment devices but you have to be nuts to think that Sony Viaos are going to start shipping with a Cell proc in them, there is no way because that would never run Windows and Sony needs to have a Windows machine.
The Nintendo Gamecube was not more powerful than the PS2 or even close to the original Xbox, I don't have the numbers off the top of my head but look at the game quality.
If Microsoft says they expect to be profitable on the Xbox 360 by xx/xx/xx date I would tend to believe them. They have an army of accountants working for them and you don't get to be in the position Microsoft has been in by making wild claims, their investors wouldn't stand for it. Microsoft stands to be more profitable this time around for a few factors. 1 they are not using exotic memory types like sony and their Rambus solution. 2 they are using a standard DVD-ROM unlike sony which has said they are subsidizing the PS3 cost just to get Blu-Ray out. 3 they own all the technology used in the X360, unlike sony who will be paying royalties to Nvidia just like Microsoft did the first time around.
kuroshi @ Dec 28th 2005 12:15PM
Where does all this flawed business logic come from. Can't tell glazed over from the love of your console company or just stupid. Owning the factory doesn't make your cost go away, it just makes you responsible for the cost of the factory and workers also. This is why most of sonys televisions are not actually made by them. It is often cheaper to contract the work out. There are not volume discounts on the cell or the ram used in the ps3, because they are not widely used. The President of nintendo has said that if the rev cannot sell better than the gamecube then it will be considered a failure. You may love the gamecube, but not many others did. They racked up record losses not profits. The profit were entirely from the handheld. The lower price on the gamecube was to move units, not because of lower manufacture cost. There are not many industries that ms can go into that are large enough to matter for a company of thier size. The video game industry is one of the few, and sorry MS is here for the long haul. "I am willing to lose money on the Xbox for the forseable future", Bill Gates. He is at many of the xbox divisions meetings, and most of the top xbox guys have been promoted. Bill loves the xbox division.
John Grimes @ Dec 28th 2005 12:23PM
RE #20 - uh, the cost of making chips is the years of development, not necessarily the marginal cost per chip; and don't think they didn't have to spend to get a fab up to build the chip. All that has to be factored into the cost. Some would say outsourcing chip making to a TSMC is actually cheaper, which is a component of the Msoft strategy (they are also using IBM fabs, as in Sony).
I think these estimates are all guess work. I think there are deals made on costs of components we aren't privy to, and I highly doubt msoft would make a box that cost over $700. Read "Opening the Xbox" by Dean Takahashi and you'll get an idea of the scrutiny msoft puts on these things. I am sure they learned something from their last experience, so they knew some things going in they didn't last time.
totoro @ Dec 28th 2005 12:28PM
how many games do they need to sell an Xbox 360 user to break even? What level of Xbox live subscription/how many years? $125/console seems reasonable to make up-but $300? Yikes.
Rev. Thwack @ Dec 28th 2005 12:47PM
Like Scythe said, the Cell is going to go into everything under the sun. Plus they are really not supposed to be all that expensive to make in the first place. The Blu Ray is another good move on their part. Sure, they will loose a bit of money on it to start with, but it's going to be coming out of the same plant that all their future Blu Ray players will be coming from (remember, this is a format they are pushing to replace regular DVDs). Sure, the GPU is going to cost them a bit as well, but with as much as they make in their own plants, the cost for building a PS3 is going to be nowhere near that of the 360, even with all its added goodies.
don_sf @ Dec 28th 2005 12:57PM
xbox1 lost 4 bilion
ps3 has something xbox 360 will never have, the suport of fans.
xbox was a failure, and it looks like 360 is going to be as well.
Many of you are retarded @ Dec 28th 2005 12:58PM
Oh come now. A high ranking friend at IBM. Honestly? We saw a complete broken down bill of material with costs and accesories, and get $126 loss. We saw that the PS3 would be losing even more but still around $200 with its components which are even more expensive to produce than the 360.
But some tards friend says hey I know wassup and now there are 60 some comments (yeah mine too). Profit, not just gaming was a MS target this gen.
To say this is suspect would be like saying jumping the grand canyon is a small leap.
lykwid @ Dec 28th 2005 1:02PM
who's to say that MS didn't put most of the systems on Ebay themselves to make up for the loss. Of course that would meant that they actually made a profit(example....normal premium system:$399/Ebay premium system:priceless)
Cyberclaws @ Dec 28th 2005 1:16PM
William wrote:
14. If Microsoft keeps spending billions and billions on the DirectXBox, as well as the ad campaigns that go with them, they will eventually win over a good sized pile of beer-and-chips gamers.
"Hey boys, lookee here, I got myself one of them new XBOX 360 that are on the TV!"
Whether or not this group will ever be large enough to be profitable... we'll have to wait and see.
Posted at 10:08AM on Dec 28th 2005 by William 0 stars
And how popular is NASCAR? Seems you are talking about the same demographic. And believe me, that's 'large enough'.
Lou D @ Dec 28th 2005 1:16PM
Get your numbers straight, the GC was profitable for 90% of it's lifecycle. Just a couple of months @ $99 before they went to the Rev C board and removed the digital video port is when it lost money.
Also, the reason MS can't make enough 360's is because of bad yields on chips. That's why the cost is inflating to >$700/unit. The chip is too new and too fast to get good reliable chips out of a wafer. Nintendo is sticking with a traditional G5 with extra cache and excellent yields. That's how Nintendo keeps costs down. Good luck to Sony & Cell, why else do you think only 7 of the 8 SPE's are active?
Eventually, the manufacturing processes will improve resulting in higher yields...lowering costs per chip.