Kinect Only Costs $56 to Make

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randomrob:
See this is why I've never paid Microsoft for anything ever. Because they're cheap....

That made me chuckle :)

randomrob doesn't get that because of him, microsoft is losing money and is forced to raise the cost of things to stay afloat, like say the Kinect.

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

research? Microsoft is putting existing tech into a box. Its tech has been around for decades. They are building a game console addon, not researching a damn nuke.

Ahahaha.
That's quite a profit.

You know exactly what company exec think when they sell gaming hardware that isn't lossleader:

"Hey, we don't even have to make any good games to serve our customers, just reach for a wider and wider and wider audience and everyone who buys one... well fuck that, we've got our profit from them"

Look what happened when PS3 was a huge loss leader, how much time, money and effort Sony spent on building an amazing games collection for PS3:

SHOOTERS: Resistance (2, 3), Uncharted ( 2), Killzone (2, 3), SOCOM (Con, 4), MAG, Warhawk, Super Stardust HD, Pixeljunk Shooter (2)

PLATFORM: Folklore, Heavenly Sword, Ratchet & Clank (Tools, Booty, Crack), Infamous (2), Demon's Souls, God of War 3, LBP (2), Dark Mist

DRIVING: Motorstorm (PR, Apoc) Wipeout HD Fury, Gran Turismo (Pro, 5), Twisted Metal

3rd Party choosing PS3 exclusive: MGS4, 3D Dot Game Heroes, Ridge Racer 7

Now that's a company making money off GAMES, the things that really matters when it comes to gaming... not mere hardware.

I highly doubt Microsoft is making $90US a unit on these, I imagine that between $30-40US is going to the retailer on each unit, with the rest going to Microsoft. And when you consider the development, marketing, production (it's more then just parts boys and girls), packaging, and shipping costs that number shrinks fast.

As for those claiming that the profit margin is too big, I just want to laugh, there are some, even if the numbers in the article were accurate representations of what Microsoft was getting on each sale (and as I pointed out above it's not, not after other costs are factored in), it's nothing, it's maybe 250% at most. I use to work a store that sold the cheapest USB/DVI/VGA/etc cables in town and we still made 2000% net profit on them. It helped make up for big ticket items were making maybe 5-10% net on (which is bugger all).

The profit margins on consumer electronics aren't that big, just think about what you are paying for a T-Shirt, a plain T-Shirt, and then think about the cost to produce it, and you'll see a profit margin of around 5000% net.

Personally I made up my mind not to buy one before the price was released, because it's just not my thing, but I'm happy they are actually making money on this device; the concept of loss-leading is patently stupid, and too many companies do it, leading them to try forcing the consumer to buy software.

Ultratwinkie:

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

research? Microsoft is putting existing tech into a box. Its tech has been around for decades. They are building a game console addon, not researching a damn nuke.

and I'm sure you could put together the off the shelf parts, write the software, test it, fix any glaring bugs, concept it, etc, etc, etc... without spending a fortune.

Just because tech has been around a while doesn't mean shit when it comes to developing new applications for it.

Treblaine:
You know exactly what company exec think when they sell gaming hardware that isn't lossleader:

"Hey, we don't even have to make any good games to serve our customers, just reach for a wider and wider and wider audience and everyone who buys one... well fuck that, we've got our profit from them"

Look what happened when PS3 was a huge loss leader, how much time, money and effort Sony spent on building an amazing games collection for PS3:

SHOOTERS: Resistance (2, 3), Uncharted ( 2), Killzone (2, 3), SOCOM (Con, 4), MAG, Warhawk, Super Stardust HD, Pixeljunk Shooter (2)

PLATFORM: Folklore, Heavenly Sword, Ratchet & Clank (Tools, Booty, Crack), Infamous (2), Demon's Souls, God of War 3, LBP (2), Dark Mist

DRIVING: Motorstorm (PR, Apoc) Wipeout HD Fury, Gran Turismo (Pro, 5), Twisted Metal

3rd Party choosing PS3 exclusive: MGS4, 3D Dot Game Heroes, Ridge Racer 7

Now that's a company making money off GAMES, the things that really matters when it comes to gaming... not mere hardware.

That's a joke, if anything loss leading has the opposite effect, they pander, and only make "big sellers", refusing to take risks, look at all the squeals in that list...

Yeah, it's pretty irresponsible for the inital article to say that MS is making $93.99 profit on each Kinect, not to mention it betrays a fundamental lack of understanding of business.

Cost of parts != cost to manufacture. It is merely one component of that. I guarantee you that the parts used in your brand new car do not come anywhere near to the price you paid for it.

As for the discussion on loss leaders -- the hardware manufacturers don't really try and make money off the hardware. It's always the software (games) that are the true source of profit. You do what you need to to get your hardware into homes and claim as much market share as possible. Then you can make money off the licensing for the games to use on your system. The more market share you have, the more third parties will want to make games for your system, which turns into more profit for you.

That coffee doesnt come cheap you know.

lol @ the ignorance of people raging against these figures without thinking them through.

It's like whining that CD's or copper wires or brake pads are cheap, without taking a minute consider that it's what musicians, electricians, or mechanics DO with materials that contributes to their worth. The materials that went into the computer you're using right now probably cost half as much as what you paid for it. Wanna bitch about that now too?

tkioz:

Ultratwinkie:

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

research? Microsoft is putting existing tech into a box. Its tech has been around for decades. They are building a game console addon, not researching a damn nuke.

and I'm sure you could put together the off the shelf parts, write the software, test it, fix any glaring bugs, concept it, etc, etc, etc... without spending a fortune.

Just because tech has been around a while doesn't mean shit when it comes to developing new applications for it.

shelf parts = manufacturing, cheap.
software = already written and tested by many college students working at MIT, government programs.
testing = cheap workforce, testers get paid below 40K.
concepts = already done.
fixing bugs = changes in code.

its not all that expensive.

So building one myself would be cheaper than buying one?
Not that I have the skill to do so... yet.

It's way too expensive for an add-on though.
They could probably turn it into a complete stand-alone console and charge $50 more...
But at least now it remains compatible with 360 games (since the 360 is still the console).

Greg Tito:
Kinect Only Costs $56 to Make

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.
...
It's worth noting that the $149.99 price tag...

Math fail. $56 is a little OVER a third of $149.99

I'm more interested in how much it costs to make a PS3 and 360 controller for them to be 50USD, that's insane. Hell PS2 controllers peaked at 25, I can't imagine the parts for even that costing THAT much.

Hasn't anyone heard of a middle man? The retailers don't buy the kinect for 150 dollars. The distributors don't buy it for 150 either.

Kinect costs A to make
Microsoft sells to a distributor for B (profit = B-A)
Distributor sells it to Retailer for C (profit = C-B)
Retailer sells it to consumer for D (profit = D-C)

Everyone gets their cut of the pie. Microsoft doesn't get the whole pie. Please this is basic friggin economics.

God forbid they make a profit out of something they make.

the antithesis:
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.

I have to agree.

The price also accounts for all the research that went into it, the service cost of putting it together, the market, shipping etc. I am honestly surprised that it costs so much to make. I was ballparking it at around 25 dollars personally.

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

This, exactly. Plus global distribution, plus retailers who also need to make money off it. You got my attention with the atricle so you have done your job Greg, I still think it is a little short sighted however.

Materials is just one part of the cost of the unit. They are entirely ignoring

Labor
Packaging
Shipping
Product Management
Product Support
Marketing
Administration

Also, the entire retail price doesn't go to Microsoft. If the Kinect is selling for 150 dollars, then you can imagine that the retailers profit margin on that is about 20-30% at the bare minimum, so Microsoft is probably lucky to make 10-20 dollars a unit on these, which would mean that their margin is about 10-20%, which is actually razor thin on consumer electronics.

Seriously, you guys complaining about the price of the Kinect, you *really* don't want to know how much you get gang raped on margin off that bottle of coke your slurping down right now. Pull your heads out and at least learn some of the basics of how your own damn economies work.

Icehearted:

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.

Considering the manufacturing costs and the retailers slice they are probably making only 40-50 US dollars.

Damn micro$oft for making profit on something they worked hard on!

azzurro27:

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

This, exactly. Plus global distribution, plus retailers who also need to make money off it. You got my attention with the atricle so you have done your job Greg, I still think it is a little short sighted however.

Eh no, the 360's actually been either sold at a profit or breaking even for most of it's existence. In May of 2007, the 360 Elite was estimated (by the same company doing this breakdown) at a cost of $323.20/unit, while launch price (april 2007) was $479.99.

400 million on marketing and there have been flames directed at tor for spending 300 million on making a game :P. well the 300 mil figure was pulled out of some disgruntled persons arse, but still now when are games going to start costing 150 bucks to cover their r&d bug fixing marketing and etc costs?

150 is too much for a gimmic box especially when their competors is cheaper to get up and running. granted the kinetic is rather handy for some things and is pretty slick but ms is making a pretty darn penny on each one sold.

It's a shame this story is spun so horribly.

It doesn't factor in the shipping costs per unit, the fact retail stores up the prices to make their profit, the different VAT percentages around the world.

It also isnt anything new that a product is sold at such a high ratio to cost to make. You think those dollar cans of cola cost a dollar to make?

mad825:
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.

If you actually read the Thread you will realize he did said that.

"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. "

Too smart to read, ehh?

Greg Tito:
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.

Hmmm, not really. Fail. :(

Jesus Phish:
It's a shame this story is spun so horribly.

It doesn't factor in the shipping costs per unit, the fact retail stores up the prices to make their profit, the different VAT percentages around the world.

It also isnt anything new that a product is sold at such a high ratio to cost to make. You think those dollar cans of cola cost a dollar to make?

Yeah, they should really pull this one quickly, bad article.

Is this really a surprise to anyone?
Microsoft are making a lot of money?
Oh well, I'm just satisfied in knowing that I'll never give them an extra 90 dollars.

DayDark:
I feel microsoft is kinecting with my ass.

Tee hee.

I love how so many people read the head line and starts raging over how wrong Greg is, while he spesificly pointed out himself: 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.

Gigaguy64:
Ok, i saw this and i laughed.
HARD.

Me too. Especially when thinking about what it was supposed to be capable of compared to what they made it capable of.

They cut the technical appeal and then hit up the casual base for an extra hundred bucks. Yeah, kinda amusing.

praetor_alpha:

Greg Tito:
Kinect Only Costs $56 to Make

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.
...
It's worth noting that the $149.99 price tag...

Math fail. $56 is a little OVER a third of $149.99

Maybe it is because they added the manufacture cost?

He said the parts cost a little under a third of 150.
and the title says kinect cost 56 to make.

edit:
Never mind.
"but UBM believes that the chips, cameras and microphones in the unit cost a grand total of $56."
shows that the guy that wrote this fails at math.

Jesus Phish:
It's a shame this story is spun so horribly.

It doesn't factor in the shipping costs per unit, the fact retail stores up the prices to make their profit, the different VAT percentages around the world.

It also isnt anything new that a product is sold at such a high ratio to cost to make. You think those dollar cans of cola cost a dollar to make?

Except it's in comparison to units which sell at a loss factoring those in. It's not spin, it's within the context of the way a console or major peripheral is marketed. And while it doesn't cost a dollar to make a can of soda, Pepsi isn't selling you a can of cola to push you into the market for something else.

Everything else is silly. Markup on computers and electronics tend to be small by comparison. VAT is hardly an issue, especially when you factor that VAT makes (for example) the UK price roughly 1.6 times that of the US, not impacting the base price as given. Pushing a console or peripheral at a loss improves penetration and allows you to move the items which are more important, those licensed games you want in people's homes. Actually, there's a lot more benefit to market penetration that improves the value of selling at a loss, too.

Excludos:
I love how so many people read the head line and starts raging over how wrong Greg is, while he spesificly pointed out himself: 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.

It's worth noting?!?!? This isn't "worth noting", this is the article. If anyone who read this thinks that there is a $90 plus profit for Microsoft, then this article is not only heavily biased and very misleading, it is downright irresponsible.

Also, do people think Microsoft owns all their distribution and shipping companies they use? How 'bout all the Wallmarts, Gamestops, GAME stores, Best Buys, etc.?

well i would never pay for the casual family oriented stuff but still that's crazy over priced

Gigaguy64:
Ok, i saw this and i laughed.
HARD.

This.

How many Kinects were made with just the "Massive Ad Budget"

..

and the Kinect spam of Escapist readers >.>
Ownd!

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