Microsoft Claim They Have Never Made Money Selling Xbox Consoles, and I Believe Them.

[Shagger]

According this article from PC Gamer, Xbox business development vice president Lori Wright speaking as a witness in the Apple vs Epic trial (as discussed HERE) when asked what Microsoft profit margin for Xbox consoles, she replied (I am paraphrasing a bit) "We don't have a profit margin on Xbox Consoles. We have always sold them at a loss.".

 

I'm not supprised by this because hardware sales just isn't where the money is made on game's consoles, especially in the last 20 years that Xbox has been around. It's all about games, accosories, software and subscriptions. 

 

Are you supprised by this? 

[Patrik]

26 minutes ago, Shagger said:

Are you supprised by this? 

Nope.

it makes sense if you look at the price per performance the consoles are offering compared to their pc's equivalent, you'll find out that they are way cheaper, for example, a PS4 offers you GTA V on 30 fps on low settings for a price of 200$ (in 2014 for example), a pc that offers you the same performance surely costs more, which means, the console is being sold at loss

[The Blackangel]

Actually, I am very surprised by this. If she was honest, and they are selling them at a loss, then why are they still making them? That just doesn't make sense in a business sense. If the cost to a manufacturer to make something is $500, and they sell it for $300, then they're idiots. It just doesn't make the slightest bit of sense. If that's the case, they should have quit at the 360. Atari knew when to bow out. Sega knew when to bow out. Xbox should have learned from them. Maybe the Series X/S is their version of the Dreamcast. A last ditch effort to remain in the console market.

But either way, they're fucking morons.

2+2 does not equal 5.

[Crazycrab]

They make their money from accessories, XBox Live and commission on software sales, that's how the console market has worked for years.  To make a decent profit on hardware they would have to sell each XBox Series X for at least $800, maybe more.  It's the same story with PlayStation, I remember articles about the original PS3.  Despite it being sold for $600 Sony were still making a loss on every single one.

 

History has proven that the sales and marketing strategy of trying to make money by selling hardware doesn't work.  Back in the nineties they tried with consoles like the 3DO.  They outsourced a number of different manufacturers each making their own version of the 3DO who could make a profit for the sale of the consoles and the publishers making money of the games... And it failed miserably because the buy in was just to high for most gamers.  It was a similar story more recently with the whole Steam Machine debacle.  Making money through the sale of console hardware alone does.. not.. work.

[Shagger]

1 hour ago, The Blackangel said:

Actually, I am very surprised by this. If she was honest, and they are selling them at a loss, then why are they still making them? That just doesn't make sense in a business sense. If the cost to a manufacturer to make something is $500, and they sell it for $300, then they're idiots. It just doesn't make the slightest bit of sense. If that's the case, they should have quit at the 360. Atari knew when to bow out. Sega knew when to bow out. Xbox should have learned from them. Maybe the Series X/S is their version of the Dreamcast. A last ditch effort to remain in the console market.

But either way, they're fucking morons.

2+2 does not equal 5.

 

In fact, it makes perfect sense. 

 

What's most important is that the console gets into your home. Once it's there, Microsoft (or Sony, because they don't make money on selling the PlayStation console itself either) can then sell you games, accessories, subscriptions and so on. Say you buy an Xbox Series X, then over the course of just the first year you have bought mayby 8 games, a second controller, a DLC here and there and a year of XBL Gold. I can all but garentee you that, even if was a $200 loss on the console itself, Microsoft would be in the black by the time that year is out. That's how consoles make money. That's also why PC's are much more expensive because manufacturers of PC components don't see a penny from the sales of games, subscriptions and other software and have to make that mark up through the hardware itself. 

Edited May 10, 2021 by Shagger

[The Blackangel]

I must just not understand business then. In my mind, if you're not making money from a product, then you're doing something wrong, unless you're a non-profit.

[Patrik]

1 hour ago, The Blackangel said:

then why are they still making them? That just doesn't make sense in a business sense

They didn't mean they are losing in general, they just mentioned that they are losing when it comes to selling consoles, they are still making money in general, that's like selling forks on a loss but earning double of that loss  from selling food

[killamch89]

It's very widely known that both companies sell their consoles at a loss but due to the sheer volume that they'll sell, they'll make up the difference in due time so it's not a surprise.

[Patrik]

here i found a pretty similar thing, not the same topic, but same concept

https://www.quora.com/Why-do-printer-companies-sell-their-machines-at-a-loss-and-have-the-refill-cartridges-cost-more-than-the-machine-alone

[Syntax]

I always figured they sold them at price or even at a loss. Most of the money is made up on memberships, video games published by the manufacturer, and just by sheer volume which results in then being ahead just not anywhere on the hardware size (but the overall picture). 

[Heatman]

Seriously, it totally doesn't surprise me one bit because even if they sold the hardware, it wouldn't be that much compared to what money is realized from the games etc.