Microsoft Corporation (MSFT) Loses Money on Each Xbox One Sold

Just because the Xbox One is a success in terms of sales doesn't mean it's one in terms of finances. Microsoft may not make a profit on gaming at all because of the amount of money the firm spends on research and development. One thing is clear, though the opposite is often repeated. Microsoft doesn't make money on each console it sells.

[Jalva]

This affects both Sony and Microsoft, the profit they make comes from the games and services they provide, but the consoles will always sell at a loss in the beginning.

[Abash]

What? I'm pretty sure Sony is making a profit on every PS4 sold. It has been $399 for two years now, and they have been able to cut costs for producing PS4s since the launch of the console.

It's not hard to believe MS is losing money on every Xbox One sale, they had to drop it to $349 within the year it launched and it has been selling that low for a year now. It must take a toll on them financially to have to competitively price the Xbox One the way they do

[Abash]

@Java

Maybe you should. As of May 2014, the PS4 hardware units have been making profit for Sony

http://www.ign.com/articles...

[mikeslemonade]

Microsoft messed up this generation. The hardware is weak and expensive.

Even using the UI the X1 will be slow, hang, and chug through the apps when you snap and open new apps. The 360 was a much better designed system. The PS4 has the advantage in the design.

[Ezz2013]

Well said+
You beat me to it, Abash

Sony is making money on every Ps4 and they don't need to lower the price at all.

Sony was very smart by making the most poweful console with a pretty good price.

[rdgneoz3]

Yep, Sony is already making money off each PS4 sold.

They are also hilariously making money off of each xbone sold as a result of it using Blu-Ray - licensing fees ( http://pcgmedia.com/sony-wi... ).

[Gazondaily]

And now VG chartz is a good source all of a sudden. Yay!

Everyone knows the real moolah is in le software. And XBL. And Blackjack

[Eonjay]

Yeah Sony has been making money on the PS4 for a while now. I was wondering if that mean that its selling for a profit or if they covered all the R&D costs. I assume the former because of VR...

But anyway how is it that Microsoft isn't making money on the Xbox One. The only thing I can think of is the pricecuts and the bundles.

The question that bothers everyone is the idea that the Xbox One is more than $300 to make, but then again maybe we need to add in shipping costs and advertising.

[ABizzel1]

@Abash

I'm usually not one to laugh at someone, but I do enjoy a good read every now and then.

@Mikeslemonade

At launch the XBO was overpricced for the console especially if you don't care about having Kinect, but now it's respectably priced in comparison.

I said months ago, that MS had to be losing money on the XBO, because the hardware along should be a tight fit at making any kind of profit at $350, but they also have games bundled in and many times more than 1 as well as controllers. The trolls as usual came out in full force denying it, but the fact that XBO sales aren't listed on their own, but included with 360, and the rest of their "entertainment division" goes to show something is up, and some devices need a fluff. But even now it's all still speculation, until someone releases financials (good luck with that).

Regardless the XBO is doing well as far as reaching consumers, and eventually it'll turn a profit for MS as long as the cycle of more people adopting the console, buying more games, and paying for XBL annually continues over the next several years (which will definitely happen, as long as no RRoD incident happens).

The XBO is a good console now, with a promising update to improve UI and functionality, and some great looking games for the rest of 2015 into 2016.

[XanderZane]

They didn't drop the price of the $500 XB1/Kinect model. They removed the Kinect which cost $150 and released a new XB1 model without the Kinect for $350. So they were basically selling the console at the price it was worth. Still both the XB1 and PS4 were released at a lower price then what they were really worth. The PS4 cost Sony more then $400 to manufacture and the same goes for the XB1. Neither system was making a profit when they launched. No one really knows if they are making a profit now or not. It usually takes a couple years and the release of a SLIM model for a game console to really start seeing a profit. These people are using VGChartz for sales and are making gueses, so they don't truly know either. The title should be question "Is Microsoft Corporation (MSFT) Losing Money on Each Xbox One Sold?" since they don't really know either.

[donthate]

It is hard to say if MS is loosing money or not on the hardware itself apart from the fact that this article is a speculation at best and bases it's data on vgchartz, but that is really besides the point.

MS makes tons of money on selling games and licensed products to make up for it. On top of this MS, can afford to to loose money to gain marketshare.

You contrast that with Sony, that needs the PS4 hardware profits to prop up their other divisions. In fact, the Playstation division now is funneling their profit to keep other divisions afloat. Whereas their Gakai business is a billion dollar write down soon. Their TV business isn't turning around, and their mobile business is shrinking.

If anything Sony really lucked out on the PS4, otherwise their finances would look a lot worse and bankruptcy would come a lot sooner. Prior to the PS4 release, Sony's bond was rated junk status for comparison.

So I think this discussion is moot. Why do people care if MS makes money or not? Business is strong, and MS is doubling their efforts.

I would be more concerned about the competition that has junk status bond and terrible finances like Sony. At least Nintendo has good finances and can weather the storm and continue to take safe bets with little risks.

[Ashlen]

If you took out marketing I would be skeptical. But Microsoft spends so much on marketing. I see there commercials and there advertising more than just about any company.

Microsoft has always been like this. I can remember seeing Zune commercials every break on TV as well as Vista and Windows 8 and Windows Phone each in their time.

Microsoft has had a long tradition of "if it's not selling advertise the crap out of it". Something which I have always found a little strange since historically it never really seems to increase sales.

[johndoe11211]

@XanderZane

"No one really knows if they are making a profit now or not"

http://www.ign.com/articles...

[Saigon]

On top of that Sony just released a new model that is rumored to have a smaller motherboard and many have stated the system runs extremely quieter while using less energy than the original.

To me the facts point to a price drop coming soon. But as of right now Sony is enjoying the profit it is currently making on the PS4.

[freshslicepizza]

why isn't sony passing on those savings to the consumer? we expect prices to go down on computers and pc parts and software yet many seem to think they shouldn't. odd to say the least.

microsoft lost a lot of money on the original xbox and whatever profits they made on the xbox 360 are likely being sacrificed for the xbox one. much like sony's profits from the ps2 era was dissolved from the ps3 losses.

this is why microsoft is likely pushing more into windows 10 being integrated and their own ecosystem. the xbox is just a platform to get you into windows storefront and services.

[uth11]

I believe they were making a slim profit on each PS4, $17 rings a bell

[MasterCornholio]

You couldn't have said it better.

Well said.

:)

Thanks for the link.

[APexGamer45]

@Septic

What kind of damage control was that?

We are talking about whether X1 loses money on each hardware. no?

Its like when X1 fans always bring up PC exclusive as part of "MS exclusive"

[pitzy272]

@java
Haha you're wrong. Way to be arrogant and actually be incorrect. Ps4s have been profitable for a long while.

[Sora_1994]

I always fimd fans like yourself funny i mean this is news about the xbox one nd Microsoft but you basically jus tried to throw sony in there to make it seem like a "well uh so are these guys" effect nd failed without any research. Anyway this was already known all those sales and giveaways there was no way

[DragonKing81]

@ Sora they always do that. It is hilarious though

[DragonKing81]

Wrong, you need to do some more research Jalva

[Josuey]

Ps4 is already profitable from hardware alone since day one.
http://www.dualshockers.com...

[DanzoSAMA]

"opinion piece"

[Christopher]

@Jalva: Both were making a profit on consoles at the start of this generation. What they were working against were previous R&D expenses and marketing. Neither console was selling at a loss, only selling at a rate that still wasn't showing as a net profit in the division.

Two completey different things.

If they weren't making a profit on consoles sold, then they would either be equaling out or increasing their loss in the division. But that didn't happen.

[Eonjay]

Of course the price fell for the Xbox One which meant less revenue. I think thats why we see $399 and $499 bundles for the Xbox One again.

To make sure I understand you correctly, you are saying that both consoles were being sold above cost and that profit 'happens' when their income exceeds the RD costs? Is this correct?

So then if Sony spent $500 million on RD and they make $50 a unit then they have to sell 10 million units for the PS4 to be profitable?

[Christopher]

@Eonjay: I'm actually saying that saying "consoles will always sell at a loss" is not true and that associating "division profit" which is comprised of many costs (R&D, marketing, software, etc.) is not the same as determining if a specific item is "profitable."

What this article is saying is that XBO consoles sold now (or on average) have been sold at a loss individually. They did not say that the division, even when taking out the Surface business, has not been turning a profit.

Two very different things. A console can make a profit and your division could show a loss. And that's how the 8th generation started out for both. Both were making a profit on each console sold, but were not showing an overall profit in their division.

***that profit 'happens' when their income exceeds the RD costs? Is this correct? ***

No, wasn't saying that. Was pointing out specifically that Jalva's comment was false as consoles sold were generating more money than they cost, which means they were not selling at a loss (which would thereby creating more loss for the division).

All the companies care about is overall profit, but we're looking at just one portion of that (console hardware specifically). As to if they are selling consoles at a profit now, I'm not sure of. MS has been running some stellar sales that are ridiculous and definitely have other costs attached to them, but they could still be breaking even depending on the cost to build an XBO. I personally do believe they have been selling console hardware at a loss since the price cut, but I still think they are making a profit overall in their division.

[otherZinc]

This is an extremely misleading article.

M$ makes $41 per XBOX ONE. The console is still at asking price of $500. $350 without Kinect, $150 Kinect sold separately.

The article also failed to state in its NPD Console Sales loss to the PS4; that it was up 44% versus this time last year.

This will be another failed attempt at slowing XBOX ONE Sales as the XBOX ONE will have a record breaking October with Halo 5 Guardians releasing October 27th.

With all the smear tactics ongoing, this will be one of M$s greatest Achievements ever.

[Nekroo91]

The only failed attempt i see here its from you trying to understand how the market works.

The loss comes from research a development costs of the Kinect not the cost of the console itself.

Sony was able to clear the R&D costs in 6 months because it doesent have any gimmicks while MS tried to do something new actually but the market wasn't ready for it.

But Sony will make the same mistake with VR cause it costs alot of money to develop that and if the price isn't right.... we all know

[Christopher]

None of these has to do with how many XBO consoles are sold or who sells more consoles, only about how much profit is made from each console sold.

If there's anything misleading here, it's your understanding the topic at hand.

[Malice-Flare]

that $41 gets eaten up by all the marketing deals and bundles they have right now. even with 1st-party games, MS would rather have sold those games than bundle it for free...

don't forget the retailer fees...

[Automatic79]

This website has no real references just assumptions and it is using Vgchartz. Lol

[Christopher]

Well, it did use their financial statements and most industry forecasts are based on "forecast" numbers, which are all subjective but based on data collected similar to VGChartz...

Look, I get disagreeing, but this is how many things in the business world are actually measured as far as potential and estimates.

[alti]

Ps4 has been profitable for sony since day 1. That's what you get when you're a manufacturer that actually knows how to make hardware.

[Wh15ky]

I think it's more a case of that's what you get when a manufacturer learns from it's mistakes.

[alti]

^that too.

[kenwonobi]

No this isn't true of Sony this generation anymore. They've already been profiting off ps4 for some time now.

[iamnsuperman]

Not this time around. The biggest aim from all of them was to make a profit with each system sold. Microsoft could not do it as they had to drastically cut the price and do it early. Sony have been making a profit on their system for some time now (which was a big departure from the mentality of the last generation)

[alabtrosMyster]

The XB1 was designed to be priced much higher thant its current going price (what is it 300 - 350$? when they sell most of their machines... people wait for black Friday kind of deals to buy this machine, the sales are pretty low for the rest of the year, at regular prices).

The PS4 is still mostly a 399$ in the US.... with bundles... and the hardware was designed to be priced lower at this point (but sales are still on target for this price range...)

[iTechHeads]

Microsoft loses money on Xbox consoles sold at $350.
This has nothing to do with Sony. It doesn't affect them at all.

[user9950279]

I'm not surprised that the hardware isn't making money. MS' new strategy seems to be to slash and burn all barriers to entry. Get everybody onto their latest platform, and then make bank in software and services.

Some logic there, I think.

[Wh15ky]

"MS' new strategy seems to be to slash and burn all barriers to entry. Get everybody onto their latest platform, and then make bank in software and services."

That's generally always been the strategy of console makers, nothing new with that approach.

"Not a discussion I even remotely care to have."

You can't have a discussion, even if you wanted to, you're out of bubbles.

[SteamPowered]

In the long run, Xbox will make it up with monthly Xbox Live charges.

[22CobraKing]

But isn't Xbox live money mostly used to keep it running

[SteamPowered]

...Not sure if I should take you serious or not. I highly doubt the cost of maintenance is $60 annually for an online service for a single gamer.

[Nekroo91]

He is right MS makes arround 1 billion from xbox live, the same will happen to Sony or even higher because it sells more consoles.

[Professor_K]

software sales

[alabtrosMyster]

No, like PS+ xbox live gold is used mostly to boost profit margins... it's the same as the store's extended warranties!

Sure they give you something in exchange, but it cost them next to nothing to get you to depart from your money... I'm not saying that either service is "bad" just stating the facts about the business side of them.

[04STIBluByU]

When the ship is sinking you either patch it and hope for the best or you jump ship and save what you can.

[Professor_K]

I would hardly consider it a sinking ship. Xbox is still making a great amount of profit through xbl, more than psn despite the larger instal base. It is also making a decent amount of profit through software sales.The console is no where near as bad in shape compared the x360/ps3 at launch.

[Father__Merrin]

Ps4 makes money on each unit since day one, xbox1 looses money on each unit since day one.

I predict Microsoft to make amends on the next Xbox,

[ABizzel1]

Both consoles didn't turn a profit until early 2014. But XBO didn't start losing money, until they were forced to drop price and SKUs, because the PS4 sales were still blasting off after the launch rush, while XBO numbers were falling fast.

MS is in a decent place now, since R&D and manufacturing cost have to be diminishing, and they can stay at $349 for a while, and make up any loss with software and XBL subscriptions with just a singe year of service. XBO is going to be just fine.

PS4 on the other hand, is just doing the impossible. They turned everything around from the PS3, and winning EU by a blow out, and took back the NA market (although it can still be a toss up between PS4 / XBO), and they still have their $400 launch price nearly 2 years later. They could very well drop to $349 this holiday with the XBO, and cause MS even more grief, but I feel they'll wait until after their fiscal period for that when the HUGE 2016 exclusive drop back to back to back..... I doubt it'll happen, but 2016 will be the determining point of if the PS4 will be able to pass the PS2. If a price drop and huge AAA exclusive make sales skyrocket again, it's going to be a close one.

[alabtrosMyster]

In Canada the PS4 is now around 500$ in some places :-/ because our money is devalued... I got it at 400$ can at launch!

I wonder what this is doing to sales of the system... XB1 is more reasonably priced here for sure...

[XanderZane]

LOL!! No. Both consoles weren't making profit on day one. Only the Wii U and Wii did that. The PS4 didn't start making profit until 8-10 months after it launched. Microsoft $500 is making a profit now, but it wasn't when it launched. The $399 XB1 (without Kinect) were also making a small profit in late 2014. Neither consoles were making profits on their hardware at launch.

[1nsomniac]

Again this story is absolute BS. We know this already & Microsoft have said it themselves in interviews. They use same factories & same components just modified under pretty much the same contracts as the 360. They absolutely do not lose money on each console sold.

[JRobes]

hmm, maybe they shouldn't have dumped all that R&D money into the Kinect peripheral that no one wanted.

[Godmars290]

Yeah, such shouldn't be happening or still a thing a few year post release.

Probably has something to do with the changes/removal of their DRM/always online policies.

[S2Killinit]

Well i think the difference is that MS had to drop their price sooner than they anticipated, because the demand for xbone was low, and then they had to add all those free games. Mind you these were not bundles, they were giveaways which probably cost MS a pretty penny. I think they should soon begin to make profits on their console because im sure they are working hard to reduce cost.

Edit: just to clarify, having read the article its not only saying that they are loosing money on each console sold... Its saying they are loosing money on Xbox as a whole business, that is way worse than loosing money on each console as the title reads.

[Kayant]

They may be but using toilet tier source in anyway doesn't help

"VGChartz isn’t the best source for hardware sales data, but we’re going to use it to model some of the numbers as we don’t have the data from Microsoft. The outlet estimates that about 8.5M units of the Xbox One were sold between July 2014 and June 2015, the period we’re looking at."

Edit - If only one day people will stop taking titles as gospel...

[FallenAngel1984]

Considering how many price cuts and deals that Xbox One has had, its not really surprising that it's selling at a loss. Meanwhile PlayStation 4 has stayed at the same official price since launch so Sony is making loss like they usually do at the start of a generation.

Speaking of which its interesting to note that despite all of Microsoft's aggressive marketing with Xbox One, its still selling worse than PlayStation 3 in the same timeframe. This is in due part to which brand the global market prefers.

[Christopher]

It's still selling better than the PS3. It's the 4th best selling console so far. That could change as it is very close to the PS3, but I doubt MS will let that happen.

[Spotie]

But isn't it only selling better due to the front-loaded sales of the XB1's launch? Outside of the extremely impressive launch numbers, isn't the XB1 actually BEHIND the PS3?

[Christopher]

@Spotie: Actually, no. It wasn't until the 14th month that it started approaching PS3 sales rates. See the image I posted below (15.2.1) in response to FallenAngel.

[FallenAngel1984]

No Xbox One is selling worse than PlayStation 3

http://www.vgchartz.com/art...

http://www.vgchartz.com/art...

Not to mention that Sony reported that they shipped 14.41 million PS3s at the end of June 2008, and Xbox One has shipped lower than that total in the same timeframe.

This would make the X1 the sixth fastest selling console behind Wii, PS4, PS2, PS1, and PS3. At least Xbox One is selling faster than Xbox 360 though.

[Christopher]

Don't rely on VGChartz. Use real numbers.

http://s481.photobucket.com...

[FallenAngel1984]

Yet PS3 was still selling better than X1. Consider that X1 had the second largest launch ever and how its sales dropped off later on. Then consider how PS3 had an average launch and it kept up the momentum.

The fact that both were on par with each other in the May of their second year on the market at the 12 million mark shows that PS3 sold at a much better better rate after launch than X1 did. PS3 also had a global boost in its second June after MGS4 launched while X1 had nothing to boost global sales in its second June.

PS3 sales were indeed ahead of X1 at the similar timeframe. Sony shipped 1.56 million PS3 units in Q1 2008 while Microsoft shipped a combined total of 1.4 million Xbox 360 and Xbox One units in Q1 2015. Now subtract the 360 numbers from that total and you'll see that X1 numbers are much lower in that time period. This info comes directly from each of Sony's and Microsoft's quarterly financial reports.

As for VGC, I find that its very close enough to the actual numbers.

[u4one]

pretty old news that consoles make money on software, not hardware. this goes for most if not all consoles. thats why they care about attachment rates and usage metrics. they only care about console sales for the attachment.

[Macdaddy71]

Every time Sony MS Nintendo system don't sell like ppl want them to they lose money,... All three have lost money at some point,.. MS n Nintendo the only ones with cash in the bank, MS lost money on a lot of tablets phones ect, Sony lost money on phones, tablets, ect... They all make money n lose money... When you write...write about them All!!!

[FoxyGotGame]

VG Chartz are merely speculating using historical business practices/models, they don't really know anything. With all the great deals on X1 it wouldn't surprised me if X1 wasn't making a profit.

But, that's not the consumers concern. This is not Sega, it's MS, and last time I checked MS weren't hurting for money. Even if the Xbox Division is taking losses, I think MS know they can afford to take the hit on X1. I don't doubt lessons will be learned for Next Box /

Edit

@u4one

Article subject is Xbox so I'll comment only on Xbox. Should a PS4 equivalent surface, likewise I'll keep it PS4 only.

[showtimefolks]

I think this is no surprise since Xbox one went from 499 to 349 within a year and had to cut kinect.

Last gen ps3 was loosing money but that was understandable because of it using blyray and cell processor. Even thought it was hard to develop for, no one can deny it was much more powerful than Xbox 360

This is not true for Xbox one compared to ps4. It's a weaker than ps4 ( thee are more games that look and play better on ps4 compared to Xbox one)

Also ps4 makes money from each unit sold
It makes money from ms using bluray(license fee)

So while Xbox one looses money Sony still makes money from each Xbox one sold.

Totally bad management from Microsoft. How could they scew up this bad after last gens RROD which cost them BILLIONS

No doubt they will make some money back from software and other from Xbox live. I don't think it's unusual that Xbox one isn't being sold at a profit up front.

But does this mean Xbox one or Ms will be huge affected? I seriously doubt that

Xbox one will be quite successful console at the end of the day just like how ps3 was. But I don't think success means coming #1 because you sell 75 plus million yet still be succesfi, but ps4 is on pace to sell 100 plus million

[raggy-rocket]

Ok this whole topic doesn't really matter, but what he's suggesting is that the Xbox hardware DOES make a profit, however, overheads, bills, wages, R and D would bring it down to a speculated loss. I only say this because people are saying the hardware is making a loss, but I don't get that impression from the article

There was an article post-launch of Xbox One showing the cost of development. The Kinect added $100-150 so right now I would estimate they're breaking even/making a small profit on the hardware and making up the rest of the net profit up through subscriptions and software sales (perhaps another explanation of their first party focus. They publish it, they get more money).

Xbox is too big a brand for MS (and Nadella is crazy about the MS brands), so as long as they keep funelling money into Xbox and making it better, I'm a happy gamer

[XeyedGamer]

Sad.

[kenwonobi]

Sony operates on a profit from its console. Dropping the camera. Making Xbox include a bluesy, concentrating on hardware for mostly gaming, concentrating on a focused hardware helped turn profits immediately. They also sell a huge amount of software with such a huge lead. Xbox has some issues. They started well but man PS4 is just on another level.

[IrishSt0ner]

They actually sold for more than the manufacturing cost on release day, although that still means they sold at a loss for obvious reasons.

I don't know just how much they make through all the other content and Gold, I just know personally I've gave them well over £1000 through their ecosystem since...

You know, the same way consoles have always generated the bulk of their revenue.

[F0XHOUND]

I lost one of my damn bubbles because I joked about the Xbox.... even though clearly I've sided with both Xbox and PlayStation never singled one out..... I want my bubble back Microsoft. Just do one decent thing today, ONE! Give one back!

[TheGreyest]

Everyone is praising Phil Spencer for what he's doing for some reason. He's only really convincing the company his division is worth burning money on constantly and putting their jobs at risk.

[Azzanation]

How is this news? Both Sony and MS lost money last gen on Hardware aswell. It only takes 1 subscription and its profitable. Also doesn't Sony source there machine from China? Isnt that why the build quality is cheap?

[DolbyDigitized]

Can't be doing that poorly...Microsoft said that $880M of that came from Surfa"ce. That means that the Xbox One made $1.05B in sales in the quarter, which it recorded as its fourth quarter of 2015." Besides, I don't really concern myself with Microsoft's finances too often.