Kinect Only Costs $56 to Make

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Kinect Only Costs $56 to Make

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Technicians at UBM TechInsights took apart Microsoft's Kinect unit and determined that all of its parts are only worth a little under a third of the retail price.

UBM TechInsights is a firm that breaks down electronics into its components and figures out a Bill of Materials or BOM of how much each of those components costs. UBM then writes a detailed "teardown report" and sells that information for a hefty price to tech firms to get a sense of what competitors are up to. It's all standard business practice, but the findings from UBM's teardown report on Kinect is raising a lot of eyebrows. Kinect is on sale in many stores for $149.99 right now, but UBM believes that the chips, cameras and microphones in the unit cost a grand total of $56. For those of you wondering and are too lazy to subtract on your own, that's a profit of $93.99 for every Kinect that's sold.

Allan Yogasingam from UBM did praise the technology of the Kinect, especially the components provided by Isreali chipmaker PrimeSense, from which $17 of the $56 is attributed. "Basically, the strength of the design is the huge design win for the Israeli fabless company PrimeSense," he said. "They've provided the most innovative portion of the Kinect with their image processor, audio and video interface."

The report also noted that Kinect has far-reaching applications. "The future applications of this technology could be fascinating," Yogasingam said. "I can see this being incorporated into televisions - allowing users to chang the channel by waving their hand, essentially replacing the remote control."

It's worth noting that the $149.99 price tag also goes towards developing the technology and manufacturing it, not to mention the $400 million that Microsoft spent on marketing the launch. Still, if Microsoft is actually making 90 bucks on every Kinect unit sold, that's just silly. Hasn't anyone in Redmond heard of the concept of a loss leader?

Well, I guess you get Kinect Adventures! bundled with it too. Yay! That's totally worth the 90 bones. Nevermind. My bad.

Source: EE Times

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I think they know what loss leader is. I mean they even sell xbox low than the cost to produce it.

Jeez, $90 profit per unit? If they're bringing in THAT much, surely they can afford to price it lower.

goddamn. hell with that.

Maybe if they didnt spend... oh... i dont know.... $400 MILLION DOLLARS just to market it, they wouldent have to price it so high.

But thats just me.

Ok, i saw this and i laughed.
HARD.

Its not exactly $90 profit.

Stores are selling the units for $150. All we know is how much it might cost Microsoft to make one Kinect unit, not how much they are selling it to the stores, for the stores to sell. Its probably more around $40-50 profit for Microsoft.

holy fuck, I'm planning on buying a kinect, but knowing that, I feel microsoft is kinecting with my ass.

What about research costs, advertising, shipping, game development? all these things must be paid for too

Are they factoring in the cost of research and development? Are they factoring in marketing? Are they factoring in failed projects that are expensed against the successes?

DVDs only cost pennys to form, and maybe a dollar more to encode and maybe after packaging a whole $3 to make and bring to the consumer, but they cost $20 retail, that is nearly $17 profit before you factor in all the other cost of making movies.

That's a decent price for M$. Generally a rule of thumb is to mark something up 4x to cover your losses. Consider the price difference between products/materials for shampoo, toothpaste, audio cables, and descent restaurants. This price is nothing to complain about.

... But still I'd like it to be cheaper.

bdcjacko:
Are they factoring in the cost of research and development? Are they factoring in marketing? Are they factoring in failed projects that are expensed against the successes?

DVDs only cost pennys to form, and maybe a dollar more to encode and maybe after packaging a whole $3 to make and bring to the consumer, but they cost $20 retail, that is nearly $17 profit before you factor in all the other cost of making movies.

well yeah but the retailer takes a cut as does the shipping company, it all adds up, their not entirely ripping you off (well blu rays are, 25 quid for a single disk nonsense)

My point was more of, cost of materials =/= final cost to company.

All because they're selling each unit for a profit doesn't mean they'll ever break even. Also, please see: Price skimming

This just mean that the price will lower to $100 after about a year and maybe $75 by the summer after. Can someone look up how much the XBox itself costs parts wise, or a PS3. I know I saved a few hundred by building a computer. The unit costs 3-4 times what the parts are worth, common knowledge.

The system the Kinect attaches to is a loss leader, so yes, Redmond has head of loss leaders. I think one of them was Windows ME.

bdcjacko:
Are they factoring in the cost of research and development? Are they factoring in marketing? Are they factoring in failed projects that are expensed against the successes?

DVDs only cost pennys to form, and maybe a dollar more to encode and maybe after packaging a whole $3 to make and bring to the consumer, but they cost $20 retail, that is nearly $17 profit before you factor in all the other cost of making movies.

This is true enough, but the difference here is that you don't buy a DVD for the physical disk, but rather you buy it for the image n the disk, However you buy the Kinect purely for the hardware as the software is another cost (when I say software I mean games, obviously). Microsoft's profit is meant to come from licensing fees from the games, not from the hardware cost.....

Of course, I'm not disagreeing that the Kinect probably costs more than the sum of it'
s parts due to other issues and dev costs, but 2/3 of the price seems a little steep for dev costs. Either way my room is too small to buy one.

For that cost you can't even knock $25 off? Asses.

Yeah, it's cheap to make, considering it's mostly plastic. What you can't see are all the lines of code and man-hours spent writing said code. Then the marketing, shipping, ect.

It all adds up in the end.

Here's another way to look at it: That $15 dollar CD you just bought only cost 30 cents to make.

charging over 100% actual worth for a product?

this has been happening for a while now.

bahumat42:

bdcjacko:
Are they factoring in the cost of research and development? Are they factoring in marketing? Are they factoring in failed projects that are expensed against the successes?

DVDs only cost pennys to form, and maybe a dollar more to encode and maybe after packaging a whole $3 to make and bring to the consumer, but they cost $20 retail, that is nearly $17 profit before you factor in all the other cost of making movies.

well yeah but the retailer takes a cut as does the shipping company, it all adds up, their not entirely ripping you off (well blu rays are, 25 quid for a single disk nonsense)

Well they say the development cost for the first prototype is 35k or smthn. Everyone knows how much marketing costs but i don't think that is factored in...

What about the people putting the fucker together? I mean, that's gotta be worth something, right?

Glad my xbox doesn't have one.

vxicepickxv:
The system the Kinect attaches to is a loss leader, so yes, Redmond has head of loss leaders. I think one of them was Windows ME.

Yea, questioning Mircosoft not knowing loss leader is a pretty dumb move, it is how they got so rich in the first place.

Em as far as I remember from Junior Cert Business studies I think I remember the thign fairly well Loss Leaders are actually illegal.

eh, this article is misleading...there are many other factors which will cost MS money, just because the hardware may cost $56 doesn't mean that they are getting the full profit of $93.99.

to remind you idiots that delivering(transporting),retailing, production and the packaging have a fair bit of a cost in itself.

Not considering research, marketing, prototype and copyright expenses.

That's like saying movies only cost what the plastic for the dvd costs.

Glademaster:
Em as far as I remember from Junior Cert Business studies I think I remember the thign fairly well Loss Leaders are actually illegal.

You are thinking of bait and switch, which is a form of fraud. A loss leader in the sense of the term being used in this article is perfectly legal.

tk1989:

Glademaster:
Em as far as I remember from Junior Cert Business studies I think I remember the thign fairly well Loss Leaders are actually illegal.

You are thinking of bait and switch, which is a form of fraud. A loss leader in the sense of the term being used in this article is perfectly legal.

Well I don't know it may differ from countries but I am quite sure that it is illegal in Ireland anyway.

loss leaders are legal. Who ever said they aren't?

SpaceSpork:
What about the people putting the fucker together? I mean, that's gotta be worth something, right?

actually no. Manufacturing is actually CHEAP. Did you know that the CDs that games are put on can be mass manufactured for PENNIES? i am not lying, CDs literally cost pennies for a shitload of games.

Manufacturing = cheap
retail = assholes who mark it up from 100%-1,000% of production value.

Jkudo:

bahumat42:

bdcjacko:
Are they factoring in the cost of research and development? Are they factoring in marketing? Are they factoring in failed projects that are expensed against the successes?

DVDs only cost pennys to form, and maybe a dollar more to encode and maybe after packaging a whole $3 to make and bring to the consumer, but they cost $20 retail, that is nearly $17 profit before you factor in all the other cost of making movies.

well yeah but the retailer takes a cut as does the shipping company, it all adds up, their not entirely ripping you off (well blu rays are, 25 quid for a single disk nonsense)

Well they say the development cost for the first prototype is 35k or smthn. Everyone knows how much marketing costs but i don't think that is factored in...

Thirty-five thousand for a prototype? Man, we've got to hire these guys to do government work.

Seriously, the average salary for a single hardware designer is $95k a year. That's one person who is focusing on crafting a piece of hardware. How many designers were on the Kinect team? How many years did they work on this thing before they were able to craft something that wouldn't be as delicate as an eggshell, would actually do what it's supposed to, and would not bankrupt Microsoft to build and sell?

The cost of the physical materials to make something are almost invariably the largest costs which means they usually get the most fanfare, yet there are dozens if not hundreds of smaller costs that can change the price of an item dramatically.

How much more would these parts have cost if the Kinect was made solely in America (keep in mind now, it's an Israeli company that makes the chips)? How much is being spent to ship those parts to the manufacturing plant? How much are the factory workers who have to assemble all those parts pulling down? How much are their bosses getting paid and their bosses' bosses? How much is being paid to the shipping companies that bring these units to market? How much profit are retailers being allowed to keep for putting Kinects in their stores? For pity's sake, take the marketing budget by itself. If Microsoft were to sell a Kinect to every single person in the United States (300 million, give or take a few million), that would mean $1.33 of every single unit would go towards paying for the marketing of that unit. And there have already been extremely cynical opinions directed at MS for thinking they could sell five million of 'em. Five million units sold would equate to $80 of marketing cash per unit.

All of a sudden, that $94 difference between base elements and final price tag doesn't look all that big, eh?

See this is why I've never paid Microsoft for anything ever. Because they're cheap, greedy bastards and I can get anything they release (that I actually want) better and/or cheaper elsewhere. I write this from an Ubuntu operating system. :)

Actually, tripling the base cost to set the retail price is not that uncommon. I used to work in a restaurant and the way the meals would be priced was to take the cost of the main entree, say a nice steak, and triple it. Soup, salad and sides wouldn't be counted but they're cheap so they're easily covered. So a $20 porterhouse steak would go for $60. Beef is expensive but it comes with endless bread sticks.

So this price point with that cost is not that unreasonable nor surprising.

randomrob:
See this is why I've never paid Microsoft for anything ever. Because they're cheap, greedy bastards and I can get anything they release (that I actually want) better and/or cheaper elsewhere. I write this from an Ubuntu operating system. :)

Good thing there are people like you to make up for those of us that are either too lazy, hypocritical, or indifferent to evoke change with our own cash.

I don't care how much R&D went into this thing, that markup is way too high to be remotely excusable. Not that I care, since I have never intended to buy one anyway. Way to piss on your users, Microsoft.

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