Hardware Analyst Breaks Down Cost Of Xbox 360's 120GB Hard Drive

Xbox 360 120GB Hard DriveRight now, I can buy a 120GB hard drive to drop in a PlayStation 3 for $69.99 from NewEgg.com [Update: I'd previously listed this as $44.99 with an incompatible drive]. To do the same thing with an Xbox 360, it'd cost me $179.99.

But why does it cost so much?

Microsoft has claimed that comparing their plug-and-play hard drive is akin to comparing apples to oranges, that Microsoft goes the extra mile to ensure the customer can simply slap their hard drive on a machine and it'll work.

MTV Multiplayer contacted iSuppli, a company with a long history of examining consumer gizmos to discover their real cost. We had them look at Microsoft's 120GB hard drive and estimate whether -- or how much -- the company's marking it up.

iSupli representative Krishna Chander expects the hard drive came from electronics manufacturers Toshiba or Seagate . When the hard drive ships to retail, it comes pre-loaded with starter software (i.e. Xbox Live Arcade trials) and "specific Gaming Instructions and some levels of the OS," said Chander.

Unlike an off-the-shelf drive that can simply be loaded into your standard PS3, Chander explained, the Xbox 360 drive's pricing also includes color tuning and packaging. This begins to drive the price up from what you might see at an online retailer like NewEgg.

The software-loaded drives are then sold to what's called Value Added Resellers (VARs). These folks take the base drives and apply the casing and packaging. iSuppli expects VARs purchase the drives for $75, before charging $5 to add their part to the final package that ends up appearing at your local games store.

These drives are then delivered to Microsoft. iSuppli believes the markup on the drives could be as much as $20, making the drives $100 a pop for Microsoft.

Microsoft then sets a suggested price for retail. In this case, it's $179.99, though retailers are free to move that price up and down (but usually don't). Amazon.com, for example, is currently offering the hard drive for $149.99 but GameStop (at least their online site) remains at $179.99.

iSuppli's estimates, however, are just that: estimates. Could Microsoft be making this much profit? One thing is clear: unlike Sony, the company doesn't have to worry about open competition among hard drive options for their console, the kind of competition that usually drives prices down.

Have a hot tip? Is there a topic that Multiplayer should be covering and isn't? Maybe you can explain why the drives aren't cheaper. Drop me an e-mail.