Xbox Launch

The Xbox was launched in the U.S. on November 15, 2001, selling 1.5 million units by the end of the year. The selling price was $299, the same as the price of Sony ís PS2.

On May 14, 2002, Sony reduced the price of the PS2 console from $299 to $199. Microsoft matched Sony ís price the next day, and also reduced price in other markets.20 Even with a price of $299, analysts estimated that Microsoft was losing about $100 on each unit sold at launch.21 That same month, Flextronics announced it was moving production from its industrial park in Hungary to its industrial park in Doumen, China, in order to reduce costs.22

On September 2, 2002, Microsoft announced that Wistron Corp. would become its second producer of Xboxes. Wistron was the manufacturing arm of Acer Inc, a Taiwanese computer company. Wistron would build Xboxes in its Zhongshan, China plant, providing incremental volume and helping support the Xbox rollout into additional countries.23 In October 2001, shortly before the Xbox launch, Microsoft announced that Solectron, then the largest EMS company would provide after-sales service and support for the Xbox.

In addition to playing games, the Xbox could be used to play DVDs and as an Internet access device. A web service, Xbox Live which customers could use to download games, which was launched by Microsoft in October 2002.

The Xbox established Microsoft ís presence in the videogame market, but by the time of the announcement of the Xbox 360, it had lost a substantial amount of money. One analyst estimated that from the time of the original Xbox launch in November 2001 to the time of the announcement of the Xbox 360 in May 2005, the product had accounted for $6.1 billion in revenues and generated $4.4 billion in operating losses.24 Others estimated that annual losses were about $1.2 billion. Game sales had not yet reached sufficient volume to generate margins that overcame the losses incurred on console sales.