November 25, 2005 | posted by Michael Baxter in Uncategorized |

According to a report on CNN Money this morning, the new Xbox, which was released in the US earlier this week and retails for $399, costs $552.27 to make.

Apparently, the IBM chip which sits at the heart of the machine costs $106 alone, while the graphics processing unit costs another $141. In all, the cost of components comes in at nearly half as much again more than the retail price.

While that represents a hefty loss, the total loss per sales is even more. Microsoft’s share of the retail price will probably be around 80%.

Games console companies typically make money on the software, and subsidising hardware turning it into a kind of Trojan horse is a common marketing practice, and partly explains why software is so expensive.

Over time, the component costs will fall too. Microsoft expects to sell 5.5 million units in the US by June, and no doubt, sales will ultimately approach or even exceed 100 million units. That represents an opportunity to exploit economies of scale that will lead to a rapid reduction in component cost.

Moral of the story, unless you have backing worth billions don’t bother to launch a games console!