Because selling things at a loss is generally considered bad business
Except it is only a
temporary loss. With further miniturization of the processors and increased yield over time (meaning you can make more CPU's at the exact same cost). the same goes for the video chipset, and generally decreasing RAM cost. In addition to that, many manufacturing facilities will have paid themselves off after a while, meaning you don't need to charge a premium to recoup those investments, and can comfortably lower the price for the exact same products and still make the same (or more) profit.
The costs quoted were based on *current* prices of the components, not the projected future prices. Historically prices for hi-tech components drop tremendously over time.
Just because a device is sold at a loss at the initial launch, doesn't mean that the identical components at the identical price doesn't make a profit a year down the road.
Why is it so hard for you to believe that MS didn't make money on the xbox hardware at launch?
It's nothing more than a calculated risk.
Microsoft will do whatever it can to capture eyeballs and conquer a dominant place in your living room. They have an obligation to their investors to increase revenue, and thanks to their 85% stronghold in the desktop comuting industry, they can't do much more to grow there. They *have* to extend into other markets... And say all you want about Microsoft, they aren't very good at dealing with a level playing field, so they'll do whateverf they can to gain an upper hand quickly. If that means losing some pennies to make millions down the road, so be it. Sounds like a good investement.
Also, selling hardware at a loss and make money on accessories/supplies/software definitely isn't a novel idea. Kodak was doing it for decades with their instant polaroid camera's. Cheap camera's, miniature fortune for the film. dirt cheap inkjet printers, medium size fortune for refill cartridges, etc.