Microsoft confirms it doesn't make money off Xbox console sales — it's all about the software
Xbox consoles aren't profitable.
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It was left unclear whether Microsoft ever profits off console sales, as later on in the lifecycle of hardware, then-outdated components typically become cheaper to produce.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?
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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 firstname.lastname@example.org.