Sony isn’t exactly making a killing on their high tech, next generation gaming console, the Playstation 4. In fact, Sony isn’t even making $20 bucks for each PS4 they sell. The estimated cost of goods and assembly, according to AllThingsD, is a whopping $381. They’re selling the PS4 for $399. That leaves a measly $18 of profit margin, but don’t forget the costs of R&D, marketing, advertising, etc…
On the one hand, that number should absolutely blow you away: Apple’s profit margin on the most recent iPad, for example, is estimated to be well over $200. Heck, forget dinner and a movie, you can’t even get dinner these days for less than $20. And considering the amount of entertainment the PS4 is likely to bring into your home and life, couldn’t Sony have charged at least $449 without too much decline in consumer demand? That $50 price increase would have added $50 million dollars to Sony’s bottom line in a single day.
On the other hand, the $18 profit margin is a considerable and surprising improvement from the profit margin of the Playstation 3. Those numbers were so pitiful that the term “profit margin” doesn’t even apply: Sony lost an estimated $206 for every PS3 they sold when the device launched.
Why build and sell such a high stakes product at a loss? To build an immense user base which you can then leverage and monetize. Software companies have made an absolute killing by attracting a massive audience to a free service and then monetizing those eyeballs (think Facebook, YouTube, etc). If Sony were to sell the PS4 at break even prices, you could argue they’re doing the same exact thing, only using their gaming hardware as strategic bait.
Consider Apple, a much more comparable competitor, who makes a boat load of money on fees and licensing from their iTunes product. They attracted a massive following with hardware and then monetized those consumers. Perhaps Sony thinks it can do the same and I don’t doubt them.
The stakes go further than just this generation of consoles, though. Where will gaming head in the next 5 or 10 years? How about the home entertainment industry as a collective whole? Where will Sony and Microsoft fit into that picture?
That battle is being fought right now, and clearly, affordable pricing to maximize customer acquisition is part of Sony’s strategy.