Microsoft says it never made any money selling an Xbox console

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A photo of an Xbox Series X console

Image courtesy of Microsoft

Microsoft, like Sony, has focused on high-end video game consoles with an emphasis on graphics technology. As a result, these consoles tend to be very expensive to produce, and it typically takes years for production costs to drop and start making a profit per console sold. But apparently, in the case of Xbox, there was never a time when Microsoft made any money.

“Has Microsoft ever made a profit on the sale of an Xbox console? Microsoft lawyer Lori Wright, vice president of Xbox business development, asked today. as first noted by The Verge reporter Adi Roberterson.

“No,” Wright said in response.

The startling revelation was made today during Apple’s ongoing lawsuit against Epic Games, in which the Fortnite developer is pressuring Apple over the closed nature of its App Store. Other companies have been embroiled in the proceedings, forced to answer awkward questions or disclose private conversations. This is how we learned about Sony’s aversion to cross-play, and Apple CEO Tim Cook had no idea who Epic CEO Tim Sweeney was.

And that’s also how we learned that Microsoft never made any money selling an Xbox.

Where Microsoft makes its money – and a question at the heart of this lawsuit – is by taking a percentage of the profits from each game sold on the Xbox platform. It is standard practice in the console industry to take 30 percent of every transaction. This is also how Apple manages the App Store, although Apple has announced that the discount drops to 15% for smaller-scale developers.

Microsoft wouldn’t be in the Xbox business if it didn’t help the company.

He has also been transparent about such losses before. In 2017, Xbox chief executive Phil Spencer told Business Insider US that the company was not making a profit on its new Xbox One X. But Spencer was also quick to point out that it wasn’t a loss, either. It could have been the breakeven point.

“I don’t want to go into all of the numbers, but overall you should be thinking that the hardware part of the console business isn’t the lucrative part of the business,” Spencer said. “The lucrative part is selling games. “

Sony operates in a similar fashion, with Nintendo, a company less invested in digital services and subscriptions, tending to value profitability on hardware as soon as possible.

“Uneconomic hardware certainly played a bigger role in the late 90s and early 2000s (oh and the PS3 era lol)” Daniel Ahmad, senior analyst at Niko Partners, said on Twitter. “The PS5 and the X / S series are selling at a loss right now, but will most likely become profitable across the board. Nintendo is kind of an outlier. “

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