In the November of 2006 it was thought by most people that Microsoft would slash the price of the Xbox 360 to help boost sales, which would also coincide with the release of the Sony PS3. Because of this assumption, several potential customers waited till the holiday season to make use of the price cuts. However, to everyone’s disappointment Microsoft’s PR person Johan Porcaro released a statement announcing that there would not be any price cuts for the Xbox 360.
A major reason for the announcement being that since the Xbox 360 was already selling at around half the price of the Sony Playstation 3 there was no need. Also Microsoft did not consider the Nintendo Wii to be direct competitor to the Xbox 360 even though the Wii was considerably cheaper than the Xbox 360. It had been researched by UBS analysts that one of the main reasons why the Xbox 360 was quite cheap was that because Microsoft subsidised the cost of the console by $75. Another analysis made on the company revealed that Microsoft was losing $100 on every Xbox they sold. This was mainly due to the fact that they did not produce their core components. This resulted in them outsourcing components to Intel and Nvidia resulting in them paying royalty charges.
To worsen Microsoft’s case, the weak sales of the original Xbox resulted in them making a loss. The same outsourcing technique was also used for the Xbox sales. Simple maths would tell you that this kind of technique resulted in very high manufacturing costs alongside an average cost for the Xbox. The authenticity of this is unknown since Microsoft neither rejects it nor accepts it, since they have said that they have met their sales targets.
But Microsoft, by effective marketing techniques and selling different accessories for its gaming console has been able to beat the losses. It has been estimated that every Xbox 360 user has at least one Microsoft accessory aimed at enhancing the game. When it comes to purchasing of gaming titles the story is even better. Microsoft makes most of its sales through selling games. Because of the abundance of gaming titles being launched and the piracy protection measures Microsoft has been able to make profits on them.
Regardless of whether Microsoft reduces the price of the Xbox, the fact that it is a whole lot cheaper itself makes it much more logically option from the side of the consumers.