Microsoft Won’t Make a Profit Selling Xbox One X

Posted on June 15, 2017 by Paul Thurrott in Xbox One with 47 Comments

Microsoft Won't Make a Profit Selling Xbox One X

Microsoft has never made a profit selling Xbox consoles. And it looks like the Xbox One X won’t be an exception to that rule.

As you may recall, Microsoft priced the Xbox One X at $500, or about $100 more than its only real competitor, the Sony PlayStation 4 Pro. This price point is controversial in some circles, mostly because people don’t understand how much it costs to design and build hardware this powerful. But as I noted earlier this week, the $500 price point is a reasonable, if premium, price tag for a device this capable.

So this week, Business Insider asked Microsoft’s Phil Spencer if the firm would make a profit selling the Xbox One X at $500. This is a curious question, in a way, because console hardware is always sold at a loss initially. (And in Microsoft’s case, it never actually turns a profit on Xbox consoles, despite rounds of cost reductions in each generation.)

But Spencer spoke plainly, which is one of the things I like about him and the Xbox team these days.

“No.”

So that sounds clear enough. But then the publication pressed him to clarify, asking is Microsoft was “taking a loss.”

“I didn’t answer it that way,” he responded. Probably irritated. “I don’t want to get into all the numbers, but in aggregate, you should think about the hardware part of the console business is not the money-making part of the business. The money-making part is in selling games.”

Put simply, the Xbox One X is full of expensive components, which makes sense, since it is the most powerful video game console ever made. Will the price of those components come down over time? Of course. But then it’s reasonable to expect that Microsoft will likewise lower the cost of the Xbox One X for consumers in order to open it up to a wider audience.

In other words, Microsoft will never turn a profit on the Xbox One X hardware. Because they never do.

New technology is expensive. Fortunately, we also have options, and if you don’t want to live on the bleeding edge today, or simply can’t afford the price, you can always turn to the incredibly affordable Xbox One S. Obviously.

 

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Comments (48)

48 responses to “Microsoft Won’t Make a Profit Selling Xbox One X”

  1. MarkPow

    The more things change the more things stay the same...

  2. Waethorn

    In other words, devkit purchase prices and Xbox brand royalties.


    So tell me why Microsoft would want to kill that off, again?

  3. glenn8878

    Microsoft makes even less after retailers get their cut via wholesale pricing. They should consider selling subscriptions packages with software and accessories so the hit to consumers seems less onerous.

  4. Waethorn

    Sony announced less than 6 months after launch that the PS4 was making a profit.

    • glenn8878

      In reply to Waethorn:

      They must sell a lot. There's always a breakeven point.

    • Stooks

      In reply to Waethorn:

      Is that before after they sold off 3/4 of the company?

    • JudaZuk

      In reply to Waethorn:

      True, and Microsoft is also making a profit of every Xbox One sold, and with the Xbox One S they earn a little more because the prices of components have come down and they have been able to make the manufacturing more cost effective, just as Sony is making more money on the PS4 slim compared to the original PS4.


      Saying that Microsoft, or Sony is selling this generation of consoles at a loss is simply inaccurate , they both make a profit on them, not much , but still a profit.


      With the original versions of the consoles this generation it was estimated that Microsoft earned about $20 on each console sold, and Sony made $18 on each console, this has of course increased for both of them as prices have come down and the introduction of the upgraded more cost effective models.


      Of course they are not making the big bulk of the profit of Xbox and PlayStation on the console sales, that is well known, the big money is in the services that users pay for on the console platforms, but the myth that companies are taking a loss on each console sold seems to be a myth that refuses to die, just because what happened in previous generations.



  5. OMR

    $499 is "expensive"? The price differential between this and a standard xbox is less than the price of 3 AAA games. The price difference between this and a PS4 Pro is less than the price of 2 AAA titles. If you've got the cheddar for a rad 4K tv of somewhat generous proportions (the only reason you would be considering either unit), how does a $100 price delta even enter into the calculus of which system to buy?

    • Darmok N Jalad

      In reply to OMR:

      Actually, an X1X is $100 more than I paid for my 49" LG UHD smart TV last Christmas. The TVs aren't that expensive anymore.

      I think the problem here is the wide performance gulf between Xbox One and One X. One could argue that the PS4 Pro doesn't offer enough additional power to automatically justify the upgrade over PS4. The Xbox One struggles to power many modern titles at even 900P, so the performance you surrender by going with that console will be felt. I suspect that will become even more true over time as both players have a high-performance edition of their consoles.

    • Rob_Wade

      In reply to OMR: How do you figure it gives you the "rad 4K tv"? You have to already HAVE a 4K tv to take advantage of the 4K support. And even THAT'S only of use if you have actual 4K content.


  6. Darmok N Jalad

    I would suspect the margin is very slim to non-existent. The bill of materials I suspect would not make it to $500, but there is assembly and shipping costs, and also heaps of advertising that has to go into this division's budget somehow.

    I would be interested to see how the Xbox Live service contributes to the bottom line though. Such services are becoming almost essential in the console space.

  7. Minok

    And that pricing is indeed just fine. But having a hardware platform that has great potential isn't worth anything. The software and support have to be there to justify my investing my money in buying one.

  8. jrickel96

    This is actually why the Xbox is in good shape as well. The Xbox attach rate is higher than the PS4, so it is more profitable on a per console basis than the PS4.


    And this must be said too - the PS4 and Xbox One both have attach rates that run ahead of most all consoles in the past. But Xbox One right now has an attach rate that is over 30% higher than the PS4. But the PS4 has an attach rate that is much higher than what the PS2 had.


    Truth is there is plenty of room for both consoles and BOTH are doing very well. Both make lots of money for their parents and BOTH makes lots of money for developers.


    But Xbox One users are more engaged and spend more money per user than PS4 users. The average PS4 user owns just under 8 games. The average Xbox One user owns about 14 games and spends more money on add-on packs based on retail data.

    • Michael Rivers

      In reply to jrickel96:

      You have links for those numbers? My Google-fu isn't good enough to find them.


      Even if the Xbox attach rate is 30% higher, it's not double, so it's not enough to make up for PS4 selling more than double the number of consoles.

      • jrickel96

        In reply to Michael Rivers:

        Internal retail numbers are not for publication.


        Ubisoft has spoken of the spending rate before and is easy enough to find people from EA and Activision stating that the software sales are about even for both consoles.


        The 30% additional attach rate is telling because a lot of PS4 money is spent on first party titles like Uncharted, etc.


        If 3 of the 7 games an average PS4 owner has are first party while only 3 of 12 games the average Xbox One user has are first party, that 30% attach rate advantage becomes much bigger in regards to third party publishers.


        Retail surveys and internal data bear this out and most think the Xbox attach rate is even better. The reason is because gift cards to each digital store are pretty even and the Xbox demographic skews to a slightly older population with more disposable income and credit cards where Playstation 4 is 50% under 21. Survey evidence indicates that Xbox digital sales could be nearly twice that of the PlayStation, putting the attach rate at nearly 50% higher and making third party purchases about even, as the major publishers have said.


        They make more per user on Xbox. That is known. Microsoft also has about 10 million more paying network subscribers than Sony.


        Again, both platforms are very successful, but one major reason Sony does well is their first party sales. Those don't help third party and first party dominance is how Nintendo lost a lot of third party development in the past.


        Did you notice how much MS focused on the third parties at E3? That was intentional. They have their own stuff to show off more, but I think their goal with the X1X and reduced price X1S is to surpass PS4 in third party sales and make the Xbox a bigger revenue source for Activision, EA, etc. That will make any exclusive marketing deals for Sony cost more money and could drive them to focus more on first party while driving away the third party.


        I think Spencer has a strategy here.

  9. Rob_Wade

    Well, they won't be sucking the life out of my wallet again, that's for sure. We spent $500 on the original Xbox One w/Kinect. At the time, it was WELL worth it because it did exactly the things we bought it for--which did NOT included gaming. Now, it does almost NONE of what we bought it for, and the Xbox One X does nothing to change that---because it's the SOFTWARE. We don't care about 4K, we don't care about console gaming, we don't care about social. So, profit or not, they aren't getting another shot at our household.

  10. 2ilent8cho

    Have Microsoft realised why the 360 was so good yet? or still scratching their head why so many jumped to Playstation 4? I'm guessing its not been addressed in this latest Xbox. I have 8 Xbox 360s and a PS4.


    Are they pushing developers to offer System Link yet? Have they got rid of the ugly tiles ? Do we have a VR option?


    Then we have the issue that is not Microsofts fault, and the Playstation suffers equally on this generation of console, local split screen or multi controller games. So many decent games on the 360/PS3 you could enjoy with a few friends, drinks and a takeaway. This generation seems to be pushing online way to much, the 360 had the perfect balance of local and internet play.


    Luckly Nintendo Switch understands local social play and has LAN and local multiplayer support on some games.

  11. hrlngrv

    IOW, razors and blades.

    Not to worry. The fact that Xbox hardware and software is all stuffed into More Personal Computing along with lots of other stuff means MSFT doesn't want anyone outside MSFT's senior management and board of directors to have a good idea how Xbox as a whole is going.

  12. jrswarr

    Polaroid lost money on every SX70 camera they ever sold. Film on the other hand made all the difference.


    If you think HP made any money on Ink Jet printers - there is a bridge in New York I can sell you.

  13. DWAnderson

    I believe late in a console cycle, the hardware is generally cheap enough to make that actually making some profit on each piece sold is possible. That being the vast majority of money is made when software (e.g. games) is sold.

  14. CaedenV

    MS has no major exclusives, and are charging $100 more than Sony... I just don't get what they are thinking. If people want something expensive, then they are going to go crazy expensive, otherwise they go for the cheapest offering. The OneX is going to be a non-starter.


    Also, what is the point of 4K gaming exactly? I mean, I love 4k for my desktop, but that is mostly static images and text which really gain from the added resolution and realestate. 4k gaming (and movies) looks a little better than 1080p... but it isn't exactly a night-and-day difference worth a price premium. Most people could see 1080p content with decent AA/AF turned on and would not be able to see the difference during gameplay. Sure, scrutinizing still images the difference is obvious, but when in motion... it really isnt there.

    I would really like to see the focus on more HDR and VR content, those are far more important than 4k for content with motion.

    • DocPaul

      In reply to CaedenV:

      To my eyes there is a night and day difference between 1080p and 4k video.

    • Stooks

      In reply to CaedenV:

      I am going to upgrade my Xbox One original with a X and it will be connected to a 1080p gaming monitor. Everyone has their reasons. I want a faster console. My games will go faster. They will not dip into dynamic resolution mode as often if every at 1080p and that is un-patched. If patched at 1080p I will get those same speed bumps plus better graphics, like supersampling.


      I have a gaming PC, a really fast one and games look and run great on them. That said in the MP games I like to play (all multi-platform) the cheating is destroying the experience on the PC. BF1 is a perfect example. I am hoping the X closes the graphics gap, not totally, but enough and gets rid of the cheating or 98% of it.


      https://www.youtube.com/watch?v=VdGV1jT7e0E&list=WL

    • Mestiphal

      In reply to CaedenV:

      there is a night and day difference when going from 720p to 1080p, and you are not doubling your resolution as you are with 4k. yes, of course if you have a small... say 40" tv, you won't be able to tell much difference, but on the current market bigger = better, and you'll find most displays to be about 65"

      • Tallin

        In reply to Mestiphal:

        It's diminishing returns, though. The closer you are the more PPI matters. You have to be within 7 feet of that 65" screen before you start being able to notice a difference between 4k and 1080p. And you have to be less than 4 feet from the screen to gain the full benefits of 4k.

  15. DocPaul

    Nintendo doesn't sell consoles at a loss. This is why they ceded the specs arms race to Sony and Microsoft and have instead focused on constantly reinventing what a console is.

  16. Jester

    Appears like the Xbox One X is going to be using checkboarding scaling like the PS4. If that's the case why would you pay $100 more for the same resolution. Also for a year now MS has said the "Xbox One X is a True 4K console". Can someone enlighten me what the difference is between true and native 4K? I kinda assumed they were the same thing.

    • Stooks

      In reply to Jester:

      The devil is in the details.


      You can probably make any game work at 4k just by setting the graphics to low quality.


      For medium/high quality graphics settings then you many get native 4k on games that are less demanding, like a racing game (Forza) or for a more demanding game you will need to employ some tricks, like checkerboarding or dynamic resolution.

      • Mestiphal

        In reply to Stooks:

        I remember a game back in the day, Asheron's Call 2, it was nearly impossibly to play in Ultra High graphics, cause, well 17 years ago PC's weren't what they are today. Anyhow, in Ultra High graphics you would have tall grass which would hide monsters, but when you played the game with a low resolutions it was like playing without any environment, you could see everything.

    • Waethorn

      In reply to Jester:

      Destiny 2 is locked at 30 fps on all consoles.

    • Patrick3D

      In reply to Jester:

      Phil Schiller has made it clear in interviews that Microsoft does not dictate to developers what resolution a game must ran at and so forth. Every developer is free to decide for themselves what the best resolution, rendering technique, framerate there game should run with. The console itself is fully capable of native 4K games and there will be games that run natively at that resolution. The notion that using dynamic resolution is deceptive or bad is absurd, what matters is that the game is fun to play.

  17. toukale

    I think this is asking the wrong question. The question that should be asked is, why does xbox one X exist? What problem is it trying to solve or address? From my point of view, this product exist to do one thing, and that is to change the narrative/pr issues Microsoft have been dealing with the past few years. The Xbox division needed a win, anything that could change the narrative that the ps4 was kicking their butts. It first started with the first announcement at E3 in 2013 and Microsoft have been on their heals since. When both consoles launched, the narrative quickly turn to ps4 was more powerful and the gaming forums went at it. Then came the sales numbers, and we all know how that's been going. Finally the ps4 pro.

    Microsoft badly needed a change in narrative/pr and that's what the "X" will give them. This console will not change their sales numbers fortune, the ps4 will continue to outsell them. They will not be making a profit from selling the hardware at the current cost. But what it will definitely do for them is change the current narrative, and we all know that group badly needed it.

    • Mestiphal

      In reply to toukale:

      no need to go so deep, your question can easily be answer "What problem is it trying to solve or address?", the fact that there are 4k televisions/monitors in the market, and currently the only way to play on that resolutions is on a PC

  18. mebby

    What about the PlayStation? Assume they also make $ on games, accessories, etc.

  19. BoItmanLives

    Not sure I believe it. Seems more like PR damage control since it's the internet is on fire about it being overpriced. "B-B-but we're not making any money on it". Even if true, that's not the customers problem.

    • JudaZuk

      In reply to BoItmanLives:


      Xbox One X is not overpriced, it is actually an amazing price for what you get. Besides same people claiming it is overpriced seems to be the same people that for a year now have claimed the console will cost $700 or more at a minimum. They are simply clueless and every time you challenge their claims it all falls apart.


      So many people now , claiming to be PC gamers, (or journalists) and being experts at building the ultimate PC rig are commenting all over the internet saying "it is better to buy a PC", and "you can build a PC with the same specs for $470" are talking out of they a*s


      Several of them I have told:

      great you can build me a PC with the same performance for less money?

      How about I give you $700 and you build a PC for me that has 12GB GDDR5 memory, offers 6TF, has a CPU with DirectX instructions built into the processor, a Ultra HD Blue-Ray player, 1TB storage, Windows 10, a controller and all fits inside an area of 11.8 x 9.4 x 2.4 inches so it fits neatly under my TV , and that is silent and have no Cooling issues, and that lets me just push a button and within second lets me play games and where I never have to worry about drivers etc.


      You build this for $499 and keep the differences and make a cool profit of $201 , and I pay only $700 and get an amazing gaming PC , it is a win win for both right?


      Some how they can't seem to do that.. :)


      If you just look at the prices of some PC components you soon realise that what you get with the Xbox One X for only $499 is an amazing deal.


      Some Examples:

      Ultra HD Blue-Ray player - $129

      Radeon RX 470 (4GB) - $219


      Congrats, 2 components and you are already up to $348 :)

      And the RX470 with only 4GB RAM is of course not at all powerful enough to compare, but that is just to get a cheap price to show how stupid the statement of building PC with same power for $499 or less really is.

      Add an Xbox controller, about $65, because I don't want keyboard and mouse playing in front of my TV and you are already over $499 .. and that is with a GFX card , a Blu-Ray player and a Controller only.

      No RAM, no OS, no Case, no power supply, no CPU, no storage etc. with less then $99 left to spend .. good luck with that. And you need a GFX card for at least $400 to get the same power or even comparable power of the Xbox One X .. you will end up with a price over $1000 -$1300 and the it is still not as optimised as the Xbox One X is where Microsoft have tested all the different components from different vendors so they work optimally together, minimise length of the cables, airflow etc.

      • Stooks

        In reply to JudaZuk:

        Please don't let facts get in the way :)


        I have read that the GPU is more in line with a 570 or 1060 in terms of power.....so please up the price of your PC parts!


        Also it is never just about the power of the PC. PC games are never optimized to the metal like a console game is because a end user might have all kinds of different hardware, OS versions, patch levels, driver levels etc. Where everyone on the Xbox One has the same OS, patches and drivers, with two known hardware configurations. Same for the PS4.


        The other thing never brought up in the PC vs console rants is the cheating. Cheating is so utterly horrible on the PC on the multiplayer games. Just google for cheats on our favorite PC multiplayer games. There are whole companies with web sites and youtube channels showing how their cheats work. You buy them and there is nothing illegal about them. They come with simple GUI's to pick which cheating features to enable. The game makers can't fight them and have given up in many cases. Since any software can be installed on a PC it is impossible to fight this. In BF1 on the PC it so out of control it has ruined the game. With each patch you get a day or two of normal gaming before the patches are updated. You also see many names getting kicked from the servers because the new patch detects the cheats for a few days.


        On the console you can hack it but it is so much harder and about 98% less prevalent than on the PC. The gaming experience for a popular multiplayer game is just better on a console today.

        • Waethorn

          In reply to Stooks:

          To be honest, there's lots of cheating on consoles too. People run proxy servers on their PC's to intercept game calls to the multiplayer servers. It's just networked cheat mods.


          BF1 is just as bad on consoles - you have people shooting through map geometry from outside the map.

  20. ponsaelius

    So Microsoft make no profit on Xbox and the current generation has sold 30million units. This warrants continued investment in a company that is primarily an enterprise and productivity company.

    Whereas mobile phones that dont make a profit and the current generation has sold way more than 30 million and is key to UWP, AI, ambient computing with Cortana, search, services and so on is abandoned.

    Totally logical.

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