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November 24, 2005

Xbox 360 launch notes

Posted by David Hunter at 11:28 AM ET.

There’s been plenty of Xbox 360 coverage everywhere in the last few days and I’ll pass on the profiteering, thuggery, and rioting as they were sadly predictable. More worrisome though are the reports of glitches, although it remains to be seen how common they are.

However, there were some unusual items that I thought were worth noting:

- Just like the original Xbox, Microsoft will lose money on every Xbox 360 it sells. That’s not unusual in the game console biz, but there had been speculation that Microsoft would reduce the amount of the loss on the Xbox 360 and that certainly didn’t happen (note that the following are “bag of parts” costs without assembly and other costs):

… pushing the loss per unit to $126. These estimates include assumptions that Microsoft is getting a discount on many components.

That was the case with the first Xbox console, which contained about $323 worth of parts and materials when released, but sold at retail for $299. It’s certainly not going to help Microsoft reverse the trend of losses in its home-entertainment segment. In the fiscal year ended June 30, that unit lost $391 million on sales just shy of $3.25 billion. That’s a little more than 8% of Microsoft’s total sales of $39.8 billion.

A Microsoft spokeswoman said that the company’s plan calls for a “gross margin neutral” strategy through 2006, meaning that between the sales of consoles, game software, and accessories, it expects to essentially break even. Profits should follow in 2007.

- As far as making it up on the games, Microsoft is not following the other console game publishers to a new $60 (US) price level:

Microsoft wanted to reassure consumers that they’d be able to get top-of-the-line titles for the next generation at the same price they have paid for current generation games, says David Reid, the company’s director of platform marketing for the Xbox.

“Our perspective on this is clear,” Reid says. “We believe we can have a good business model in parity with what we have today (on pricing).”

- Leander Kahney spots an interesting press release about the development of the acclaimed Xbox 360 UI:

According to a press release, the UI was developed by a UK consultancy, Akqa, and was perfected using good-old usability testing.

- Jonathan Hayes, the design director for the Xbox 360, also brought in some outside talent:

He started by hiring Astro Studios, the San Francisco firm that had designed the high-powered, high-testosterone gaming PCs from Alienware. But he also wanted to merge the Western concept of power with an Asian influence of grace, so he also brought on Hers Experimental Design Laboratory in Osaka, Japan, which had designed PCs and cell phones for the Asian market.

- (Via Todd Bishop) One of the more highly touted members of the launch game lineup, Perfect Dark Zero, almost didn’t make it out the door in time:

In order to guarantee Xbox 360 launch-day availability of flagship title Perfect Dark Zero, Microsoft sent the game to manufacture before it had passed certification.

It was an extraordinary gamble. The game passed certification after the disks had been pressed. If the company had waited for certification to come through before okaying manufacture, Perfect Dark Zero would not have been available at the launch of Xbox 360.

Having ordered replication of the disks, Microsoft and Rare had to cross their fingers for a positive certification. If Microsoft’s notoriously strict procedure – which we understand was not eased for PDZ in any way – had failed, the disks would have been trashed and the game would have been late.

Rare is Rare Ltd, a 20-year old game design studio now owned by Microsoft that is headquartered in Twycross, England “on a remote piece of farmland in the rolling English countryside, dozens of miles from the nearest big city.”



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2 Responses to “Xbox 360 launch notes”

  1. Microsoft News Tracker » Sony stock nosedives on PS3 reports Says:

    [...] If you are waiting for an industry consortium to decide a specification, you’re standing still. That’s not even a good scapegoat. As for the Merrill Lynch report: Sony has indicated a Spring launch for its console in Japan and the industry is not expecting a North American launch until November. But Hitoshi Kuriyama of Merrill Lynch in Japan says there are reports that the PS3 could be delayed by between six and 12 months, meaning an autumn launch in Japan and a late 2006 or early 2007 launch in the US. Thereby handing the Xbox 360 a big lead. Also, Merrill Lynch analysts in San Francisco have estimated that the initial bill of materials for PS3 could approach $900, falling to $320 by three years after launch. All consoles are subsidized, but $900 would indicate a significantly higher price or a significantly higher subsidy than the Xbox 360. [...]

  2. Microsoft just can’t resist dabbling in hardware design -- Microsoft News Tracker Says:

    [...] Doesn’t sound much like Microsoft (MSFT), does it? But it is. BusinessWeek has learned that a team of 20 in-house designers has been working quietly for the past 18 months on an elegant new look for PCs that will run Microsoft’s next operating system, Windows Vista. It’s a major departure for the company, which historically has left design to the likes of Dell (DELL), Hewlett-Packard (HPQ), and Gateway (GTW). Persuading the hardware guys to embrace the toolkit won’t be easy. They’re already working overtime to build better-looking gear on their own. Microsoft for years has pushed their functional specifications via the Windows Hardware Engineering Conferences and other mechanisms, but style? Microsoft is no newcomer to hardware design, of course. The company has made PC mice and keyboards for years. The Xbox game console has been a hit. Microsoft is working on a music player, Zune, that it hopes will rival the iPod. Microsoft’s mice and keyboards are nicely done, but they’re a niche and the Xbox 360 was created with significant outside design help. I expect that the same is true for the Zune, so it’s not quite clear exactly what Microsoft brings to the table. More to the point, the PC business has some tough cost strictures: But trying to transform the PC ecosystem—even peripherals makers such as Logitech received the kit—takes things to a whole new level. It reflects the fact that the economics of the computer business is changing. The PC world used to be divided into two camps: those who made lucrative software and the poor schlubs who built the low-margin hardware it ran on. [...]

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