The fundamental problem with the OXbox, which I used to call Xbox 1 until Phil Spencer fagged up the brand, is that Seamus Blackley is a giant fucking idiot who doesn't know how manufacturing cost curves actually work. Mind you, this is stuff I haven't really been on top of for 20 years, so details are collapsing together, and I am probably misremembering a few here and there, as well as looking things up as I go to refresh. Now, IIRC, Blackley asked the same question a lot of PC Master Race types asked, "Why do consoles have custom hardware with barely any RAM when parts decline in price so aggressively over time, and you can get that same or better performance for much cheaper later on? They're just wasting money on R&D!" I think he claims he had this genius idea of building a PC and just waiting for prices to come down while he was on an airplane and sketched out the price curves on a napkin. I could have hallucinated that.
Indeed, from a surface view of your 1999 PC Master Race gamer, it seems like Sony, Sega, and Nintendo are just fucking stupid. Take the N64, you have a custom 99 MHz MIPS CPU. Let's just pretend it's about as powerful as a 66 MHz Pentium. Black observes, gee, in 1996, that P66 is kinda pricey, but by 1999, it's going for peanuts. Nintendo is just crazy for putting a custom CPU in its machine. He also observed HDDs drop precipitously in price over time. From vintage ads, I found that at Best Buy in 1996, a 1.6 GB HDD was priced at $239.99. Just 2 years later, a 4 GB HDD was priced at $179.99. So he figured you can break the bank putting comparatively high-end PC parts into a console, and you'll get an absolutely rockin' machine that in 2-3 years is going to cost you next to nothing.
Unfortunately for Microsoft, Blackley did no investigation into
why PC parts get dramatically cheaper over time, especially back then. See, there are a few reasons, and none of them apply to consoles. The first is a yield/volume play. You release a bleeding-edge chip on your bleeding-edge process, and since the yields kind of suck, it's super expensive. Over time, you improve yields, you can bring prices down, and you can sell piles of chips. But there is a catch...this play only works for a chip that has a lot of market longevity, and you typically make minor design changes. The Pentiums that Intel was selling in 1999 weren't identical to what they launched in 1993. And it only works as long as you have volume. If you buy 5 wafers of chips from a manufacturer, you pay a shitload more per wafer than if you buy 500.
Problem with consoles is that once you ship, you are locked in on that design. You can't change how the thing works at all, or you run the risk of a game not working on every model of the machine (infamously, Nintendo made some small design changes with the SNES which screwed up a few games). So with the OXbox, it had a customize Coppermine-based CPU. When it launched in 2001, Intel was already moving on from Coppermine to Coppermine T. I seem to recall that Microsoft's Xbox division was the only company buying that specific CPU from Intel, meaning it was a low-volume play, and therefore they got charged out the ass for the entire life of the console. They were in an even worse spot with the GPU. Not only was the NV2a in the Xbox not quite the same as the GeForce 3 or GeForce 4, meaning Microsoft could never take advantage of volumes, but NVIDIA completely discontinued production of that architecture in 2003. So with both processors, Microsoft didn't realize any of the expected savings Seamus Blackley drew on his napkin.
But it gets worse.
See, the reason those rock-stupid, mouth-breathing retards at those slant-eyed Jap companies did things the way they did is when you own or license the IP, you can shop around for the best deal you can get on manufacturing. Maybe Motorola designs your CPU, but NEC manufactures it, and 2 years later, you get a better offer from LSI. There were a lot of foundries back then. Since you're not going for high volumes, you gotta be able to shop around. Microsoft's contracts locked them into buying chips direct from NVIDIA and Intel, so no shopping around. Seamus Blackley didn't think to get a flexible IP license because he just assumed American chip companies would reduce his costs over time as a law of nature.
Intel wasn't and isn't in the business of licensing its CPU IP anyway, which is in large part why the Xbox was the first and last game console to have an Intel CPU.
Oh, and it gets
even worse.
Back then, chip scaling was pretty linear. If you were fabbing a chip at 180nm, you could bring that design over to 90nm later without drastic revisions. Doesn't work that way any more, but it did then. If you have a successful console, you launch revisions as improving process node technology enables you to consolidate chips and shrink things down. That's something you can do when you've got enough control over your the IP to do that. So for example, Sony's PS2 had a separate CPU & GPU, each on a 180 nm process. Later, their PS2 Slim used a single 90nm chip that integrated both of them together. More chips per wafer, smaller PSU, smaller case, less powerful fan...it all combined to be able to make a
much cheaper box
. Nintendo did something similar with the Gamecube and called it a "Wii." Microsoft couldn't do that, because, again, they were buying chips direct from Intel and NVIDIA. Since both those companies had Microsoft locked into "fuck you, pay me" contracts, they had zero incentives to move fabrication over to a 90nm process. Fans speculated about an Xbox Slim, but it was never gonna happen, because Intel and NVIDIA had zero reason to make it happen.
I didn't even mention the hard drive issue. Apparently, Seamus Blackley never thought to talk to any manufacturer about HDD costs. There is a large fixed costs associated with the mechanical parts. In that era, price per GB was falling precipitously, but what he didn't notice was that low-size HDDs disappeared off the market. The ones being sold for cheap were overstock. The reason the SNES, Playstation, Dreamcast, and N64 didn't have hard drives wasn't because the Japanese are stupid and can't do math. It's because there's a price floor on the things that doesn't fit with their business model. And because, for whatever reason, they were stuck with 8 GB, taking advantage of any kind of volume pricing on commodity drives wasn't an option. At least they weren't locked into a single vendor, like they were with the CPU and GPU.
The overstock thing is a huge thing PC people miss. The reason last gen parts are typically cheap isn't because they got cheaper to make. It's that the new gen parts make them obsolete, and this makes the price the market accepts go down. 8 GB HDDs were really cheap in 2001...if you were buying out overstock. Not if you were making new ones..
After completely fucking up everything with the vendor relationships & IP ownership of the original Xbox, Microsoft realized that those slant-eyed dopes from across the Pacific actually knew a thing or two about how to manufacture a custom appliance cheaply, and with the Xbox 360, licensed CPU IP from IBM, co-designed a custom GPU with ATI that they outright owned the IP for, and stayed flexible with their fixed storage, using commodity laptop drives later in the machine's life. Thus they were able to keep costs under control with design refreshes, ultimately releasing a Slim that, like the PS2 Slim in the previous generation, combined the CPU and GPU onto the same die. Which, again, they could do because Seamus Blackley's idea of buying slightly modified PC chips directly from manufacturers on the expectation hoping prices would come down on their own turned out to be magical thinking.
