That is very interesting that they do that for cheap massproduced consumer goods. I mean I can understand doing such tradeoffs in very expensive stuff that is expected to last for decades (industrial machines, space probes etc), but that the manufacturer cares enough about the lifetime (beyond the minimum warranty period) of their goods is somewhat surprising in this day and age.
If you want to minimize warranty expenses in order to maintain anything resembling profit, then you need to engineer you product so that the average useful life is well beyond your warranty period. The math is brutal: An solid net profit margin for a typical manufacturer is around 5-7%. Even warranty rate of 5% would send you deep into losses. So the average durability of your product needs to be 2 standard deviations above your warranty period. Of course, not everyone takes advantage of warranties, so you might discount durability to account for that.
Also, with regard to the gp specific point about the discussion being in regard to a gaming console: they want the product to last as long as possible. Each additional function unit in existence counts toward their installed base and increases the attractiveness for third party developers.
> If you want to minimize warranty expenses in order to maintain anything resembling profit, then you need to engineer you product so that the average useful life is well beyond your warranty period.
Or the flip side, if you want to go that way. Higher reliability allows you to offer a longer warranty, attracting either higher prices or more customers.
This is part of how Japan made themselves mainstream car sellers in the US. They calculated that the cars had to be more reliable, because in the early days without a lot of infrastructure, recalls would be very expensive. So they made the cars reliable. Allowing them to offer longer warranties.
I just bought a two year old Toyota, after driving a Honda that I bought new for 25 years.
You are assuming a normal distribution of failures. A sufficiently evil company would design their failure curves to be as flat as possible until the warranty period expires and then rapidly increase to 100%.
The practice still makes no real long-term sense though. What do you do after `warranty_period` expires and no one wants to buy your products anymore?
Presumably, ceteris paribus, companies do attempt to design their failure curves to be as flat as possible. Otherwise they are wasting money on components which will survive longer than the whole product. (There is no One-Hoss Shay (http://holyjoe.org/poetry/holmes1.htm))
Well it depends.. even if an Xbox1 has a -10% profit margin and a 10% failure rate.. Microsoft can still make back their money on game licensing and xbox live fees.
For something like a car or a Microwave this is not the case, but this is why the profit margin on a Microwave is closer to 50% than 5%
Be careful not to confuse gross profit with net profit. Gross profit is how much money you make less the raw cost of materials. Net profit is your final profit after accounting for labor, marketing, support, overhead, taxes, and so forth.
For example, take a look at the financials [1] for Black & Decker, a manufacturer of tools. For the quarter ending 4/4/2015, they had gross revenue of 2.6 billion. Less cost of goods sold, they have a gross profit of almost 1 billion, or about 61% gross margin. But then observe all of the numerous expenses and taxes they have, which causes their final Net Income (aka net profit) to drop to 162 million, or a net margin of about 9%.
9% can be considered an outstanding rate of return in this industry. If you could come up with a way to build a manufacturing company with such a return, you could have your own IPO.
Someone more cynical might conclude that they are interested in the MTBF because failures on the early end of the tail that ARE within the warranty period will cost them money.
Why be cynical? That's engineering. Real engineering is about materials, cost and time (if you leave one of those out, you're either doing research or just aimlessly puttering around ... maybe both :-) ). There are other dimensions, too. In the consumer market, engineering is also about the reliability that you want your customers to experience.
Companies that make console hardware want you to be happy; they're not going to ship you a hunk of hardware that generates a Warranty Expired Interrupt at one-year-and-one-day because they want you to keep buying games and services. Having to buy a new console is a hassle. Maybe you'll buy the competitor's console instead, who knows?
On the other hand, console margins (and yes, generally they have margins these days and are not sold at a loss) are razor thin. There are knife-fights in meetings over three cent changes to components because at production scale those pennies rapidly turn into millions of dollars. You don't make a console with a reliability of 20 years because it would cost way too much and be obsolete long before the failure curve started to inflect.
So you optimize the product lifetime for user expectation of value, how long you think the technology will remain relevant, what the market will bear, and a bunch of other things (chip sourcing, cost of manufacture, architectural headroom and so on). This involves hard-won experience, spreadsheets, testing, figuring out how vendors are lying to you, plane trips to godforsaken industrial parks, and fist-fights in hallways. It's awesome :-)
Are there companies selling stuff that will break the moment the warranty is over, or earlier? Sure; they are betting that actually getting warranty service is so inconvenient that you won't bother. On the other hand, having watched (from the outside!) the execution of a product-recall-scale warranty, I was impressed with the company's professionalism, and it didn't strike me as a company that didn't care about repeat customers. It sucks on both sides for something like this to happen, but there's very little cyncism involved.
Yes, that's all true and the use of the word cynical here is more nuanced. GP seemed to be impressed that a company was producing a quality product as an end in itself - providing consumer surplus for not necessarily any benefit to the company. A more cynical view is that they are doing that because it will produce a better outcome for them as well. Yes, it's a beautiful system and everyone wins, but, generally, altruism would be viewed as a higher motive than self-interest.
I can provide a different and less cynical interpretation for your example too. Companies that sell stuff that only lasts until the warranty is over are providing a valuable service for customers who don't want to pay as much as they would have to for a higher quality product which would outlast its warranty.
A console is often a loss leader, so the company may want it to last much longer. Ideally, you want them to last ~2 generations. So the used market keeps companies producing older generation games for as long as possible.
I wouldn't think it was that surprising. Businesses, especially consoles, want to be seen as reliable and good quality in order to develop a strong relationship with their customers. If it commonly fails right after the minimum warranty, then why would someone want to buy something again that is unreliable? They wouldn't and would go right to the competition.
