Microsoft confirms it doesn't make money off Xbox console sales — it's all about the software

Xbox Series X, Xbox Series S
Xbox Series X, Xbox Series S (Image credit: Matt Brown | Windows Central)

What you need to know

  • More Microsoft insider info came to light today thanks to the Epic Games v. Apple trial.
  • Microsoft has officially declared that it sells its Xbox consoles at a loss.
  • As is typical in the industry, the company makes its money via software.

More interesting Microsoft news has arrived thanks to the Epic Games v. Apple trial. As part of a line of questioning revolving around the differences between app stores on consoles versus mobile despite the fact that both take 30% revenue cuts (a contentious figure which is at the center of the entire Epic v. Apple trial), Microsoft's revenue model for Xboxes was brought up.

Lori Wright, Microsoft's head of Xbox business development, was asked how much margin Microsoft makes via Xbox console sales. Her reply was straightforward: "We don't," she said. "We sell the consoles at a loss."

It was left unclear whether Microsoft ever profits off console sales, as later on in the lifecycle of hardware, then-outdated components typically become cheaper to produce. But even when a console becomes cheaper to produce, at that point in a device's lifecycle, it's also typically sold for less, so perhaps Microsoft means that under no circumstances does it ever truly make a noteworthy profit off its consoles.

It's a well-established fact that console makers sell their machines at a loss, even in the case of the PS3 back when it was $600 at launch. Still, hearing Microsoft reaffirm this fact at the start of the Xbox Series X's lifecycle tells us that not much has changed from a business model standpoint.

The end goal of console makers remains to sell software and, in Microsoft's case, Game Pass subscriptions. After all, why go through all the effort to sell a consumer on a single piece of software that's a one-time purchase when you can sell them on all software at once via a single subscription that brings in dependable recurring revenue?

Robert Carnevale is the News Editor for Windows Central. He's a big fan of Kinect (it lives on in his heart), Sonic the Hedgehog, and the legendary intersection of those two titans, Sonic Free Riders. He is the author of Cold War 2395. Have a useful tip? Send it to robert.carnevale@futurenet.com.

10 Comments
  • Many documents reveled again : " On a vraiment l'impression que les Usa et le tribunal travaillent pour leur champion Apple, mais c'est bien normal"
  • If we leave out talking points like Tencent's stake in Epic Games, both Epic Games and Apple are American companies. I'm not sure what you're getting at here, Philippe -- if you're claiming the court favors Apple due to bias, this might not be the best angle to approach it from.
  • Curious which side asked Microsoft about this. Perhaps Epic was trying to make the case that Apple can't use the same argument as console makers taking 30% from games, because the console hardware is sold at a loss, while the iPhone is not. Or, was Apple just seeking this information early to address it as part of a general defense around their 30% cut... Interesting either way.
  • An Epic lawyer posed the question. As for the intention, I think you're on the right frequency--helping differentiate Apple's and Microsoft's 30% cuts as much as possible is definitely the goal.
  • And a sensible one.
    If anybody tried to sell a console at iPhone prices they'd die overnight, whereas plenty of companies do fine selling phones at lower than Apple prices without any walled garden support.
    Consoles need the walled gardens for both revenue and gameplay fairness, as well as security, Apple can only claim security. And even that is a stretch. Windows and Linux do fine security-wise withiut lockdowns.
  • Well, working its way up to the best is multiple witnesses testifying that Stadia is basically over. LOL I have no idea what that has to do with this case but. Funny as hell.
  • I'm with you on this one. :-)
  • Wow, consoles don't make money for the first few years, in other news the sky is blue.
  • It's difficult to admiss things as Halo are "consommables".
  • It's probably because scalpers are buying up these consoles like hotcakes... Another reason why scalping like this should be illegal.