$499 is probably pretty aggressive- MSFT doesn't have the supply chain magic or economy of scale that Apple has. I suspect they aren't making much/any money at $499... But I think you're right that they need to buy market share with a lower price-- they are too late to the game to get a foothold otherwise unless the product is near magical.
"MSFT doesn't have the supply chain magic or economy of scale that Apple has."
I keep seeing the supply chain thing mentioned a lot. Microsoft has been in the hardware game for a long time, and the XBox has had been around long enough and shipped enough volume that MS probably has people just as competent at managing the logistics of consumer device delivery as Apple. Apple might be just a smidge better at but it's like comparing Wal-Mart to Target, Wal-Mart (Apple) maybe the #1 but Target (MS) is a logisitical behemoth in its own right to the point where the supply chain alone does not decide the winner.
"I keep seeing the supply chain thing mentioned a lot"
Because it is very important, at the same price Apple could be getting 40% profit and MS barely getting break even.
It does not matter how much Xbox they ship, but how many tablets they are already shipping, and Apple is selling millions and it has been doing for years.
this already happened with macbooks and ultrabooks, ultrabooks has been loosing money at the same price ranges because they got late.
Had to chime in on this. MSFT has had a lot of experience but not at the quality level of Apple. Look at the $1B XBOX charges. Something like 1/3 of all xboxes got a red ring of death (I know people who went through 3-4). More like Wal-Mart to K-mart :).
