Yet the ‘wisdom’ on this forum is that taking a loss at launch (let’s say 100) isn’t worth it and would never repay itself or be too big a gamble...yet the bigger the risk (loss per unit) potentially the better (bigger) the launch and whilst the initial loss would be substantial those early adopters would likely pay it back (as it were)?
All purpose Sales and Sales Rumours and Anecdotes [2019 Edition]
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Yet the ‘wisdom’ on this forum is that taking a loss at launch (let’s say 100) isn’t worth it and would never repay itself or be too big a gamble...yet the bigger the risk (loss per unit) potentially the better (bigger) the launch and whilst the initial loss would be substantial those early adopters would likely pay it back (as it were)?
There's a big difference between say consoles and mobile contracts though.
You're forced to pay monthly for 3 years. The TCV is guaranteed with low risk. Cost of acquisition can be more heavy handed because of this.
With console subsidies, you can't force users to purchase software, so the risk assessment is larger cost of acquisition needs to be more carefully thought out.
I don't think that's true. It's been proven in the economics (comparing PS4 to PS1, PS2, etc) that in the past, loss-leaders meant major lost revenue. PS4 and such prove that nowadays, ongoing revenue is far higher making a loss-leader more affordable, but that's only since network revenue has become a thing.
I would suggest that the wisdom is that it's complicated and that how much a console maker may be willing to subsidize is dependent on a lot of factors that we, the general public, are not privy to. I would agree that the rise of additional revenue streams such as network services subscriptions and digital storefronts has probably increased the palatability of some degree of initial hardware losses, but as to whether there would be a willingness to lose 100s of Millions to Billions of dollars? I have no idea. I don't think, though, that these additional revenue streams mean that the hardware designers get a "blank check".
It would never be a case of losing 100s million/billions. It'd be a case of investing that much to get higher profits. Obviously, if loss-leading nets no gains it'd be business stupidity, and the move would only be made if losing that much per unit results in more over the lifetime of those profits than not loss-leading.
https://themakoreactor.com/features/xbox-one-india-story-failure-to-find-an-audience/3431/
Somes sales update of consoles sales in india and some explanation about Xbox division problem in India
Somes sales update of consoles sales in india and some explanation about Xbox division problem in India
Oh yes, I totally get that they are apples to oranges!
I just think the evidence is there that early adopters spend more money, so the more early adopters you can get then potentially the quicker you can make back the loss.
FWIW I think 100 is too high, but I just wanted to clarify I wasn’t talking above 100!!
Kind of used short-hand there, but I meant lose hundreds of millions to billions in the short term. Even if you sell the hardware at cost or at a small profit console hardware launches are really really expensive. Losing significant money on the hardware just increases that expense and the more you sell the higher the additional expense and the longer before the red ink turns black again. I think there has to be a tipping point there where losing additional money on launch hardware is not tenable.
I feel like early adopters are the type thar buy anything with a NEW tag on it. Why lose money with consoles sold to them?
Why have consoles been sold with even big loss at launch? Has something changed? If I remember right Ps4 sold at fairly minor loss at launch.
To me it looks like major goals of selling at loss is to gain rapid market penetration and market share. Fix profitability with next process node and shrink(not that easy anymore). Now that we have truly overlapping generations, slowed down moore's law, bc and even promise of cross play is there any reason to sell at major loss?
Market share doesn't start from 0 anymore. Launch games could keep running on older console(s). There also is no quick price reductions due to ever and rapidly improving manufacturing process/maturization of esoteric chips(cell, powerpc,...).
To me selling at major loss doesn't make sense anymore.
Microsoft could decide to pay to win. If ms really splurged on hw and let's say has 100$ more BOM(bigger soc, more memory, better build quality) for same retail price as sony that would be financial suicide. 100 million devices times 100$ makes investors unhappy. Sony likely hasn't deep enough pockets to even consider this type of approach.
To me it looks like major goals of selling at loss is to gain rapid market penetration and market share. Fix profitability with next process node and shrink(not that easy anymore). Now that we have truly overlapping generations, slowed down moore's law, bc and even promise of cross play is there any reason to sell at major loss?
Market share doesn't start from 0 anymore. Launch games could keep running on older console(s). There also is no quick price reductions due to ever and rapidly improving manufacturing process/maturization of esoteric chips(cell, powerpc,...).
To me selling at major loss doesn't make sense anymore.
Microsoft could decide to pay to win. If ms really splurged on hw and let's say has 100$ more BOM(bigger soc, more memory, better build quality) for same retail price as sony that would be financial suicide. 100 million devices times 100$ makes investors unhappy. Sony likely hasn't deep enough pockets to even consider this type of approach.
Right.
I think if there are subsidies its only because the console itself is priced out of the market, making the only feasible way to continue your business is to eat the subsidy to even allow your business to exist. More reminiscent of consoles back in the day and I'm not necessarily sure if we are there again. With a console with backwards compatible library, your mates that do upgrade can still play games with you during the transition years. This makes for the case that subsidy may not be all that important and users can wait over time for the price to drop.
Unless winning the launch cycle is absolutely critical to success, I can't see a subsidy of great amount at all.
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Loss leading adds significant longevity too IMO. Imagine a PS2 spec'd to PS2's launch price. It'd have been inferior to the machine that was released and grown relatively old and weak faster. The more hardware you can cram into your console, the greater its future-proofing. But of course, the greater its price, limiting sales, or the greater the losses and the worse the profits or, at its most dire, the greater the long-term business loss.
There's a clear sweet-spot there somewhere. The cheapest option will get old quite quick (see NSW and its rather low resolution games hitting even a couple of years in) while the most expensive, future-proof, 3DO levels of hardware just won't sell. If we look at $100 loss though, imagine a $400 BOM PS5 with a $100 SOC, and then imagine it having a $200 SOC instead and sell at a $100 loss. That's a lot more SOC. $100 loss could make a significant difference to the platform. $100 loss is the difference between an HDD based machine and an SSD one. It's the difference between a 12 GB console and a 24 GB console. It's IMO enough to make a real value difference that consumers will want. Going beyond that, more losses probably won't result in much better interest and sales. So for me, using sophisticated back of the envelope calculus and beer-mat set theory, I'd be looking at a designing a $50-$100 loss-leading box with those additional costs marked for rapid reduction and not sunk into a component that won't shed those losses within a couple of years.
There's a clear sweet-spot there somewhere. The cheapest option will get old quite quick (see NSW and its rather low resolution games hitting even a couple of years in) while the most expensive, future-proof, 3DO levels of hardware just won't sell. If we look at $100 loss though, imagine a $400 BOM PS5 with a $100 SOC, and then imagine it having a $200 SOC instead and sell at a $100 loss. That's a lot more SOC. $100 loss could make a significant difference to the platform. $100 loss is the difference between an HDD based machine and an SSD one. It's the difference between a 12 GB console and a 24 GB console. It's IMO enough to make a real value difference that consumers will want. Going beyond that, more losses probably won't result in much better interest and sales. So for me, using sophisticated back of the envelope calculus and beer-mat set theory, I'd be looking at a designing a $50-$100 loss-leading box with those additional costs marked for rapid reduction and not sunk into a component that won't shed those losses within a couple of years.
Does it matter anymore? We have bc between generations, generations overlapping more and midgen boosters coming out. The business model has changed away from one off esoteric platforms and starting from scratch.
Other aspect is raw performance versus price. Ps4 hasn't price reduced as well as previous generations and next gen will likely be even worse,...
A lot of the perf improvement in pc side has come from ever bigger chips and higher power draws. Unfortunately that type of scaling would make expensive and hot console.
If you can't produce a machine capable of differentiating itself from the previous generation, what's the point of releasing a new generation?
If the traditional console model can't be followed any more, abandon generations entirely and just have a rolling platform with biennial/triennial updates. No more PlayStation 5 or 6, and only PlayStation. For the moment, Sony are gunning for a new generation that eclipses PS4, so they'll need a box for that and a loss-leader will help establish that.
Another way to look at the situation is to expect launch model to be the cheaper base version. Whoever likes to have the most powerful console likely needs to wait until the more expensive midgen boosters are out.
That said, reaching too far at launch might make midgen booster rather difficult as the base console still is expensive to make and the market at very high price points seems to be pretty small based on what we see at market now.
Seeing that we have pretty generic pc hw in consoles, midgen boosters and next gen beeing bc makes me think consoles are already pretty much as much generationless as pc hw is.
That said, reaching too far at launch might make midgen booster rather difficult as the base console still is expensive to make and the market at very high price points seems to be pretty small based on what we see at market now.
Seeing that we have pretty generic pc hw in consoles, midgen boosters and next gen beeing bc makes me think consoles are already pretty much as much generationless as pc hw is.
Consoles aren't generationless as they aren't separated from the hardware through drivers. Hence PS4Pro's peculiarities in design and need for PS4P specific upgrades instead of it just playing the same executable in better quality. A generationless platform would need to be designed with software developed as such with iteration 1, so potentially PS5 could be the start of just PlayStation. What it can't be is PlayStation 4+2 transparently playing PS4 games at 4K with extra features.
I think this is probably the aim here. If the goal is to have your console last for exactly 7 years, they predict out what the hardware will require to make it happen. Subsidies will come into effect after the fact I guess. That is logically where the sweet spot must exist.
Sigfried1977
Legend
Well, outside the US, both the PS2 as well as the original Xbox were kinda spec'd to their respective launch prices (or at least much, much closer). We had to cough up 870 DM for the PS2 and €470 for the Xbox. That's a far cry from the modest $300 both hardwares were going for in the US, and no amount of VAT would get you anywhere near those differences . I don't think it was a much different story in the UK, either, wasn't it?
I'm arguing from consumer pov. Launch ps4 games work on ps4 pro, ps5. Likely those games will also work later in ps5pro. This is giant difference compared to previous generations.
So far ps4 has price reduced from 399$ to 249$. Imagine if sony had taken 100$ loss to launch better hw at same time. Would ps4 be now 349$ instead of 249$? How would that pricepoint affect sales? Will next gen BOM price reduce slower than current gen?
To me it seems optimal stack for sony is
199$ ps4, 299$ ps4 pro, ps5 at launch 449$ and eventually price reduce around 299$ and bring ps5 pro to high end around 499$. I'm not äsure if ps6 is needed as we might already have seen our last real generation where there is no consumer facing BC.
Basically cover different pricepoints via different products that can make profit.
How does that affect the choice whether to sell PS5 at a loss? Is that a $449 PS5 with a $449 BOM, or a $449 BOM with a $549 BOM, the latter meaning a machine that better differentiates itself from 4Pro and gives PS fans a better reason to buy PS5 instead of ignoring it?
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