Microsoft: Xbox One Won't Lose Money at Launch

[Sarah LeBoeuf]

Microsoft: Xbox One Won't Lose Money at Launch

Cost-reducing measures could make Microsoft's next console its first to be profitable at launch.

Consoles aren't usually profitable at launch. To keep new systems affordable and grow a user base, publishers are usually willing to take the financial hit early in a new generation, hoping it will make up the loss with software, accessories, and services. This is true of the original Xbox and Xbox 360, neither of which were profitable at launch. Microsoft, however, believes it can break this trend with the Xbox One. According to Chief Marketing Officer Yusuf Mehdi, the Xbox One is poised to at least break even, and might even have a small profit margin.

The comments were made at the Citi Global Technology Conference earlier this week, where Mehdi explained that cost-reducing measures on the Xbox 360 made after launch can now be used in Xbox One's production. "...We're looking to be break even or low margin at worst, and then make money selling additional games, the Xbox Live service, and other capabilities on top," he said about the Xbox One.

It even sounds like an Xbox One price drop could already be in the cards... eventually. "And as we can cost-reduce our box as we've done with 360, we'll do that to continue to price reduce and get even more competitive with our offering."

Meanwhile, the aging Xbox 360 is now "incredibly profitable." As Mehdi said, "You've seen us over the years constantly be focused on profitability and improving year over year," and now the Xbox 360 is paying off "in the tail" of its lifetime.

Making a console profitable at launch is no small feat, though it's worth noting that the Xbox One is launching at a whopping $500 in the United States--a full hundred dollars more than the PlayStation 4, its direct competitor, and twice the price of the Wii U. Microsoft may see its first launch profit if the system sells well, but whether or not customers are willing to accept that price tag remains to be seen.

Source: Polygon [http://www.gamesindustry.biz/articles/2013-09-05-xbox-one-will-be-break-even-or-profit-making-from-launch]

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[JamesBr]

As long as another massive recall doesn't happen anyways....

 

[TiberiusEsuriens]

I'll bet there is a price drop after the holiday season, but no more than $50 less. A lot of it will come from kinks being ironed out in the manufacturing process and cheaper non-vital materials (such as casing), but the actual tech isn't going to magically get cheaper or pay for itself.

 

[MCerberus]

Microsoft is sure of this, they've moved all the stock to retailers. They can deal with it if it doesn't sell.

Sony should have a pretty decent margin on their hardware though. They don't have the Kinect albatross draped across their neck.

 

[fix-the-spade]

"Cost-reducing measures"?

Henceforth referred to as 'three sixty-ing'

They've cut the costs and pushed up the clock speeds to compensate for the slow memory, I can see no possible mishaps.

Interesting that both Sony and Microsoft are reported to be selling at profit on launch day, the Ps3/360's various debacles must have really, really hurt them.

 

[Adam Jensen_v1legacy]

Yeah, but it's available almost nowhere, almost nobody wants it and there's a cheaper and better alternative.

 

[Roxas1359]

I see "cost-reducing measures" and my mind instantly thinks back to the RRoD since it was mainly shoddy soldering that caused so many 360's to die so fast. Cost reducing measures can be a good thing, but hardware failures definitely aren't something that are new to Microsoft.

Let us not forget the lovely bon fires the first Xbox consoles would cause, or the RRoD that still plagues some people to this day.

 

[omega 616]

I read "we used really cheap parts and made it in sweat shops, so expect us to have a higher failure rate than the 360 did".

What other cost reducing measures can there be? You can't sell expensive parts cheaply and make a profit, things are cheaper are usually lower quality, lower quality means it's more likely to break, more likely to break means higher failure rate...

 

[ohnoitsabear]

And yet, even with cost reducing measures, it still costs $100 more than it's nearest competitor, and probably more expensive than most people are going to be willing to pay. Funny how that works sometimes, isn't it?

 

[Living Contradiction]

Cost-reducing, eh? Y'know, there's a wonderful way to reduce the cost of an XB1: don't buy it. Mind you, that's a consumer cost-reducer and not one that would benefit Microsoft.

Hmmm. Maybe they'll rely solely on viral marketing and social media. I mean, if they don't advertise the system on television, they'll save lots of...ah.

Well, phooey.

 

[Zeckt]

Honestly, this is the worst possible thing to hear from microsoft from people who were effected by the RROD. Microsoft wants to be cheap again, at MY expense when the console dies in 2 years? they won't get profit from me as I won't buy it.

 

[Diablo1099_v1legacy]

Isn't it weird that they have to point out that they aren't going to lose money at launch? What's the name of that Trope?
Suspiciously Specific Denial?

 

[Chester Rabbit]

You're right there Microsoft. I won't lose money at launch, after launch on the other hand...

 

[Saltyk]

And yet, even with cost reducing measures, it still costs $100 more than it's nearest competitor, and probably more expensive than most people are going to be willing to pay. Funny how that works sometimes, isn't it?

Honestly, this is the worst possible thing to hear from microsoft from people who were effected by the RROD. Microsoft wants to be cheap again, at MY expense when the console dies in 2 years? they won't get profit from me as I won't buy it.

The both of you pretty much sum up my thoughts on this.

I really don't see many people buying the Xbox One over the PS4. If all you want is a game system to shut up Timmy, you will buy the one that is cheaper and also lets you buy a game for the price of the other. And if you want it to play CoD, why not buy the cheaper option? That alone will cost them sells.

On the other hand, I have been seeing nothing but signs that make me fear this console is launching before it's ready. I've been expecting a RROD-2.0 even before now, and this only makes me think that is a certainty.

Combine these two facts, and the much smaller launch and I can't see the Xbox One being top dog at the end of the year.

 

[Erttheking]

Keep telling yourself that Microsoft. Personally I want to see how the damage you've done to yourself in the past year comes back to bite you. Not enough so that your console division goes under, but enough to hit you where it hurts. Your wallets.

 

[JenSeven]

Wait, so everyone that pre-ordered an Xbone will be paying premium price for what Microsoft themselves already confirmed to be an overpriced piece of cheap components...

Yeah. Makes sense.

 

[SpAc3man]

Cost-reducing measures could make Microsoft's next console its first to be profitable at launch.

"Cost-reducing measures"?
You mean as in "We put subpar hardware (for todays standards) into this 'high-end' device"?

Not really. While the specs compared to a PC are pretty low the very efficient nature of programming something that has a very (relatively) limited number of applications that it is designed for will more than compensate for any perceived lack of power. The 360's CPU didn't even have out-of-order execution capabilities and it still manages most modern games. To put that in perspective the only mainstream x86 CPU without OOE is the Intel Atom and even that is getting it for the next update. Once developers put aside the software API and start developing games in x86 assembly there will be even more efficiency gains.

I would say that the reason they have managed to cut costs would be largely down to the fact that they are using an architecture that is widely used is consumer devices. Anything that isn't x86 or ARM these days is a waste of time and money.

 

[rofltehcat]

I for one am pretty happy that the 3 cents per machine saved by using low quality solder will make the console profitable even without selling any games. I am pretty confident that this will never ever cause any problems.

 

[Shamanic Rhythm]

"Don't worry, consumers! It may be more expensive than the nearest alternative but it costs us nothing to make! Wait, where are you going? Come back!"