Xbox One won't be loss leader for Microsoft

Microsoft will at least break even on every Xbox One sold, counter to the usual trend of high-tech hardware serving as loss leaders.

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Microsoft won't be taking a hit by selling Xbox One, unlike most other console launches. Typically, hardware manufacturers subsidize the cost of the console, which typically costs more to manufacture than its sticker price suggests. (For example, Sony famously lost hundreds for every PS3 sold.) Xbox marketing director Yusuf Mehdi says that the company plans to at least break even on each sale, rather than letting it serve as a loss leader for software and services.

"The strategy will continue which is that we're looking to be break even or low margin at worst on [Xbox One], and then make money selling additional games, the Xbox Live service and other capabilities on top," Mehdi said at the Citi Global Technology Conference, reported by GamesIndustry.biz. "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."

Sony echoed Microsoft with their plans for PS4.

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  • reply
    September 6, 2013 7:45 AM

    Steve Watts posted a new article, Xbox One won't be loss leader for Microsoft.

    Microsoft will at least break even on every Xbox One sold, counter to the usual trend of high-tech hardware serving as loss leaders.

    • reply
      September 6, 2013 8:47 AM

      Not sure how I feel about that since the trade off has to be lower specs than what would have been possible. But, I guess this is yet another example of MS trying to take a page from Apple - this time about making some profit off the device purchase.

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      September 6, 2013 9:05 AM

      I'm amazed they managed to get all the packed into that price and make a profit. Especially given how expensive the Kinect 2.0 is.

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      September 6, 2013 9:08 AM

      Seems like they were expecting to fail, or at least fall behind in the beginning.

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      September 6, 2013 9:13 AM

      Hurray for cheap 3rd world labor!!!!!

    • reply
      September 6, 2013 9:19 AM

      It's less impressive when you realize that the device is being subsidized by the NSA.

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        September 6, 2013 10:50 AM

        The NSA wants to see you masturbate to anime video games, yes.

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          September 6, 2013 11:30 AM

          All these needed to do was ask

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          September 6, 2013 1:46 PM

          I love how people on this site try to trivialize privacy just so they can support MS Xbox.

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            September 6, 2013 1:51 PM

            I love how people think that the Xbone is some sort of Orwellian master plan concocted by the Illuminati and the Lizard People.

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              September 6, 2013 3:20 PM

              Yes, they do. The NSA wants to see everything. Having information on every aspect of your life puts them in a very powerful position.

              The latest revelation from Snowden's documents is that manufacturers include back-doors to their hardware/services to allow the NSA access. This includes Microsoft: "At Microsoft the N.S.A. worked with company officials to get pre-encryption access to Microsoft’s most popular services, including Outlook e-mail, Skype Internet phone calls and chats, and SkyDrive, the company’s cloud storage service."

              http://www.nytimes.com/2013/09/06/us/nsa-foils-much-internet-encryption.html?hp&_r=0

              Given that Microsoft is already allowing the NSA access to all of their other services, it would hardly be surprising if they included a feature that allowed the NSA to connect to an Xbox and stream video and audio from Kinect. Given that Kinect is bundled with every Xbox, having access to Kinect will eventually allow the NSA to monitor about 100million living rooms. This would be very appealing to the NSA and I would be very surprised if arrangements aren't already in place to allow them access.

              With the information that been revealed about how widespread the NSA's spying operations are, and how they're targeting absolutely everyone, I'm amazed that you still think they don't want to spy on you. They want to spy on everyone and they'll use any tool available to them in order to do it.

              • reply
                September 6, 2013 3:22 PM

                That was supposed to be a reply to Endymion_. I must have clicked reply in the wrong post.

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                September 6, 2013 3:53 PM

                You really think they could send video feeds from millions of xboxes and have nobody notice? Not a single person in America notice that a large video feed is being sent at random times? Because all it would take is one person.

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                  September 6, 2013 3:58 PM

                  Yea and then they have millions of employees look over every video feed to keep track of everyone

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                    September 6, 2013 4:33 PM

                    To be fair, the NSA does data mining. It's not that they have tons of people scouring over feeds as machines crunching through the numbers and then analysts look at the numbers. At least that's how I understand it.

                    That is certainly something to worry about, though we already have that worry with email providers anyway. It's not like Google isn't data mining emails for more accurate advertising. If they wanted to, they could easily data mine for...say a presidential nominee. Think what a boost getting that kind of data would be to a presidential candidate in the US, where winning an election is often about getting your party to get off their ass and go vote.

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                      September 7, 2013 2:05 PM

                      Yeah, they're totally "data mining".

                      They mine through your video data. They use an algorithm to find out.. if video footage of people playing video games.. contains you taking part in illegal activities.

                      They just have a special algorithm, you know? The kind of algorithm that can identify a human in video footage, figure out exactly what that human's doing, figure out if it's legal and put it in human readable format. And they totally care about you and all the things you get up to while you're playing Call of Duty 10.

                      COME ON.

                      And if they DO use the kinect, and it does turn out that they have some suspected criminal on a list, and they catch them making a bomb on their living room table in front of the kinect, who the fuck cares if they recorded it from the xbox? Or what if someone's illegally harbouring a dangerous fugitive and they suspect he's in x neighbourhood, do a quick scan through the footage and find that he's in a house there?

                      I honestly don't see why that's a problem, other than irrational paranoia. The only people who worry about shit like that are either so vain and deluded that they think other humans have nothing better to do than silently observe their vapid lives, or people who take illegal drugs that they justify by saying "I don't care it's illegal, it's not /really/ illegal, they should be /legalised/, I'll just keep doing this illegal activity until it's decriminalised. Why should people be able to monitor /my/ private illegal transactions with my drug dealer, or me illegally taking class B drugs in my lounge? What I do in my private home (which is under their jurisdiction) is completely up to me. If I want to murder in my house noone should be able to watch".

                      You aren't going to get investigated or thrown in a cell if you obey the law, and if you don't want to obey the law, get the fuck out, you aren't ENTITLED to the commodities that living in a society offer, like internet, gadgets, electricity, packaged food. You can go and become a self sufficient farmer off the grid if you want your privacy. But you want to live in a symbiotic society and gain the benefits of doing so? Then you have to obey its rules or adhere to its punishments, and you can't complain that they're getting better at CATCHING you.

                      There's not many rules you have to fucking obey. "Don't steal shit". "Don't hurt people". "Don't ingest narcotics". "Don't rape". You aren't being forced to DO stuff (other than pay your taxes, which keep everything running), you're just being told "You can't do this, or you can't live in our society".

                      You're born with so many rights you didn't earn, and all you have to do to keep them is NOT break fucking easy laws, so stop crying when the people trying to keep that society running peacefully get more rigorous procedures for getting rid of people who murder other people, and steal shit, and peddle drugs that pay for wars, and blow up properties and cause millions worth of damage. They're doing it because they're trying to make the streets YOU walk safer. They're only human and they'll fuck up from time to time, but who cares? You get to live in a first world country. Noone else in history ever had what you had so stop fucking whining.

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                        September 7, 2013 3:52 PM

                        Yeah, fuck rights, am I right? As long as I have my cable TV and Bud Light I don't care if the government is spying on anti-war activists.

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                          September 8, 2013 2:31 AM

                          "Rights" is a dumb first world entitlement issue anyway.

                          How did you earn those rights? By being born? By existing? Before you contributed shit to anything?

                          It's fair enough to give people a kind of.. "silver rule" set of rights where they can expect to not be harmed, but "golden rule" rights where you just /deserve/ to be able to break the law any way you want so long as you do it in the privacy of your own home is just bollocks.

                          Again, noone's making you stay in this society, you can leave your country or go off the grid, but if you want the blanket protection and benefits you get from living in a codependent group, you have to obey its rules or you're a detriment and you can fuck off. You're not special. You don't /deserve/ to be able to break laws that you think are dumb.

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                  September 7, 2013 12:27 PM

                  XBox is made by Microsoft, Microsoft has an agreement with the NSA. They will not stream all the feeds constantly, but I don't have a doubt that the NSA has total access to do so in cooperation with Microsoft and will also tap into those feeds without any warrant or probable cause.

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                September 6, 2013 5:48 PM

                You don't think every tech/gaming/conspiracy/etc. site out there is gonna be looking at what is getting sent out to the Internet the week this comes out, not to mention home users monitoring their bandwidth? It would be a brilliant spying platform, I'll give you that, but it would only be useful for the first 48 hours after the Xbone is released before there was a HUGE stink about it in the news.

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              September 6, 2013 3:27 PM

              Who said that?

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              September 6, 2013 6:33 PM

              Who are these Lizard People?

          • reply
            September 6, 2013 5:58 PM

            We love you too man, group hug.

    • reply
      September 6, 2013 9:20 AM

      Not surprising considering the bitching the stockholders were doing about spinning off the Xbox division so it wouldn't poison the ~~blessed profits~~ of the Windows/Office divisions.

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        September 6, 2013 10:39 AM

        As a SH, I would like the console to cost $250. But no one listens to me.

        • reply
          September 6, 2013 6:48 PM

          I advise you to sell and buy a better stock.

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      September 6, 2013 11:14 AM

      ROFL...like anyone thought it would be at that jacked-up price point. Good luck, MS. At $500, you're going to need it.

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        September 6, 2013 11:15 AM

        I could have seen it breaking even or being a slight loss with the Kinect thrown in.

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        September 6, 2013 11:52 AM

        the PS3 sold at a significant loss out of the gate at $600 so it'd hardly be that surprising

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          September 6, 2013 12:12 PM

          Blu-Ray laser diodes were cited as a major contributor to component cost; that started to go down as the years went on. I also wouldn't be surprised if yield on the Cell was another contributor.

          That said, I don't think any console manufacturer will want to lose money per console on launch anymore. The Wii U sold at a loss at launch (but don't mistake that as the reason it's doing bad; that's mostly the fault of game lineup and game designers not properly using the touchscreen controller in non-annoying ways). This is also most likely the end of proprietary chipsets as they were previously known (which is a funny loopback to the days of the 70's and 80's; the 2600 and NES were based on MOS CPUs that were relatively standardized).

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            September 6, 2013 12:19 PM

            why did consoles go with proprietary chipsets?

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              September 6, 2013 1:34 PM

              Probably so you can't use them for things other than what they were intended for.

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                September 6, 2013 6:16 PM

                That, and...

                - Back then, the x86 architecture wasn't as conducive to a game console's requirements as they are now (...well, maybe it's more of a game console's requirements fitting very well in a low-power x86 CPU now).

                - There were a lot more options for CPU manufacturers, and Sony had their own microprocessor division that could make cutting-edge designs, such as the Emotion engine in the PS2.

                Maybe I should retrench my statement of consoles going on proprietary chipsets, because on searching Wikipedia, I'm seeing that the Genesis and Atari Jaguar made use of Motorola 68000 architecture, and the Nintendo 64 was based off of a MIPS R4200 variant. The PS1 was also MIPS processor based. The mid to late 90's was a very intersting age of computing, in terms of how many different RISC CPU architectures were out there (MIPS, Hitachi SuperH, SPARC, Motorola 680x0).

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                  September 6, 2013 6:30 PM

                  ...actually, the Emotion Engine is based off of MIPS, and was a collaboration with Toshiba. http://en.wikipedia.org/wiki/Emotion_Engine

                  But it seems to be far more of a custom design than what's going on these days. It is sort of weird tracing back the lineage of CPUs; Nintendo seemed to be 6502-architecture centric until the N64, when they went to MIPS; I'm seeing a lot of 68000 in the 90's. I feel like I want to chart the base CPU architecture origin out per company... which will then end up with the Wii U being PowerPC, and the PS4 and XBox One being AMD-manufactured x86-64.

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            September 6, 2013 12:27 PM

            agreed, just historically there's still no reason to assume consoles aren't sold at a mild loss or break even (unless you're Nintendo). Will be curious to see what it looks like for the PS4. Sony can't really afford to take huge losses at this point, while MS can but would certainly prefer not to.

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            September 6, 2013 3:26 PM

            The blu-ray at least paid off to some extent by establishing it as the primary HD format.

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              September 6, 2013 3:35 PM

              I wonder, is Blu-Ray really that profitable for Sony considering the costs to get it out there and how rapidly it's being displaced by streaming?

      • reply
        September 6, 2013 12:12 PM

        Kinect... Hdmi capture chip... There's some non cheap components in there.

    • reply
      September 6, 2013 1:29 PM

      Good for Microsoft. They already broke into the market with XBOX, expanded upon it with XBOX 360, and now they can sell these systems without losing money for a change.

    • reply
      September 6, 2013 1:41 PM

      My guess is Sony has to be making money/breaking even on their console as well. It's relatively similar spec wise and while it's $100 cheaper, doesn't have kinect.

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        September 6, 2013 3:37 PM

        I'm not sure those statements are contradictory, it could mean the console COGs is ~$250 and the Kinect is another $250. Regardless, I'm not sure why a random game dev would have any insight into the COG of either part of the hardware, even more so months before full production has started.

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          September 6, 2013 6:51 PM

          Well why would they lie? Developers just go around making shit up for fun off the record?

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            September 6, 2013 7:27 PM

            Well people do do that all the time. Alternatively they are misinformed. Like I said, why would a random game dev know the exact COGs breakdown of hardware that isn't even final?

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              September 6, 2013 8:38 PM

              Misinformed I feel is more likely than make it up. I don't know why they would or would not know. I know that I hear a TON of shit unrelated to my job because someone I work with talks to someone else we both work with who goes to a meeting with owners of said company who tell them things about when those owners met with another studio who met with MS or Sony etc. In that case it's credible sources but they may have been misheard something at some point and this I could have incorrect info when it filters to me.

              or

              I might just happen to know someone with direct knowledge of the topic and they tell me because I asked.

              Point is, I hear lots of random bits about things so I wouldn't be shocked if a random MS developer did or did not know the cost breakdown of the console. I mean MS may have gone over the cost in a company meeting with everyone to brag they are not losing any money on the console and then a ton of random people at MS Xbox would know.

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