Xbox One will be break-even or profit-making from launch

[BajiRav]

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

 

 

Microsoft's Yusuf Mehdi has revealed that each sale of an Xbox One will be a break even transaction for Microsoft at the very least, suggesting that the machine is to be sold at profit from day one - a feat normally reserved for Nintendo.

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Speaking at the Citi Global Technology Conference on Tuesday, Mehdi told listeners that: "the strategy will continue which is that we're looking to be break even or low margin at worst on [Xbox One]," he explained, "and then make money selling additional games, the Xbox Live service and other capabilities on top.

"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."

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Answering more directly to the question of margins, Mehdi highlighted the importance of the revenue stream from XBL memberships as a growth factor - a subscription which Microsoft obviously hopes many customers will continue on its new machine.

"We've seen our Xbox Live subscription service continue to grow. We're up to 48 million members now. We're shipping more games than we've ever done before. Those are things I look to to say, 'hey we can grow not just top line revenue but also profitability.'"

 

[jerzdawg]

Even more of a reason to throw in a game in the US and the other launch countries. 

[Showan]

No wonder they refuse to back off the $499 price tag.  There will be $$$ made or breaking even on every console sold.

 

So MS wants to start off in the BLACK for this generation.  Sure I would love a $400-$450 on the Xbox One, but if its going to be profitable from day one, that means everything Xbox should be improved faster, because they are not recouping from a loss on the system.

 

If this is going to benefit you MS... We the consumers better get some benefits from this as well...

[123456789A]

Can't blame them for wanting to sell the console at what it costs them to get it to market (break even) or even making a little bit of profit (that's business).

 

As long as it has fun games, I'm sold.

[Growled Member]

Sounds like they have learned their lessons from the 360 and are doing things a bit different this time around.

[spenser.d]

If this is going to benefit you MS... We the consumers better get some benefits from this as well...

 

You mean apart from getting an amazing console that's well worth the price tag?  It's ridiculous to hold these companies to a standard of losing money on their products.  The only reason they've been doing so is because they'd have lost more money by trying to charge any more.  $500 for something that'll last me a decade isn't exactly a crap deal and if they're actually making money off of it, it'll benefit everyone in the long run.

[Showan]

You mean apart from getting an amazing console that's well worth the price tag?  It's ridiculous to hold these companies to a standard of losing money on their products.  The only reason they've been doing so is because they'd have lost more money by trying to charge any more.  $500 for something that'll last me a decade isn't exactly a crap deal and if they're actually making money off of it, it'll benefit everyone in the long run.

 

 

What I mean is this...  no $$$ lost on each console sold (starting from day one)... that means R&D, manufacturing, advertising... is basically to an extent covered with each system sold (even possibly making a few bucks on each one sold)...  So that means with each game sold (digital & physical) $$$ is being made from day one... Xbox (Xbox Live) is profitable from the GATE...  

 

That means I want a better Live (I know Live is awesome where it stands now)... More $$$ put toward new and exciting features... and yes.. it can mean more original tv shows (tv,tv,tv  :D)... Expanding beyond 300K servers sooner rather than later...  Funding BIGGER AAA games...etc...

 

I don't mind giving a company $$$ if it's for the things I like and want.. And they are making the effort to give bigger and better.. and not just hording the $$$...  Sure they have to get paid for it (don't mind that either)...

I don't expect it to be free...  

 

Those are all benefits for us the consumer...

[spaceelf]

Am I missing something or are you both arguing the same point?  hah

 

The reason they can't sell below cost even if they wanted to is they're directly competing with the PC OEMs this go.

 

That's likely going to cause a major disruption in computer sales in the short term.

 

Software sales aren't necessarily guaranteed to be as high either when the box is so capable wrt computing.

[BajiRav]

You mean apart from getting an amazing console that's well worth the price tag?  It's ridiculous to hold these companies to a standard of losing money on their products.  The only reason they've been doing so is because they'd have lost more money by trying to charge any more.  $500 for something that'll last me a decade isn't exactly a crap deal and if they're actually making money off of it, it'll benefit everyone in the long run.

I think you misunderstood him, his point can be explained in this manner,

 

Xbox 360 hardware was subsidized at launch, so game/service prices were accounting for that subsidy (razor blade model)

Xbox One is not subsidized at launch, so game/service prices should reflect that? (electric shaver model)

[spacer]

How can it be determined if this console (or any console) is profitable "from the start"?

 

You would need to know the total number of units that will ever be sold (or, since that's impossible to know, use the most plausible expected number of units sold), multiply that by the price of each one (the price will vary by region and by date) and then compare it to the R&D, marketing, production, distribution, and money-hatting expenses already spent. Then an only then would you know if the console was profitable "from the start" or not. AND, that's assuming the sales numbers hit the expected goals.

 

It would be more accurate to say "Microsoft needs to sell X amount of the consoles to break even."

[George P Global Moderator]

How can it be determined if this console (or any console) is profitable "from the start"?

 

You would need to know the total number of units that will ever be sold (or, since that's impossible to know, use the most plausible expected number of units sold), multiply that by the price of each one (the price will vary by region and by date) and then compare it to the R&D, marketing, production, distribution, and money-hatting expenses already spent. Then an only then would you know if the console was profitable "from the start" or not. AND, that's assuming the sales numbers hit the expected goals.

 

It would be more accurate to say "Microsoft needs to sell X amount of the consoles to break even."

 

 

Without knowing the R&D costs for it I think what they mean is the same thing Nintendo had going with the Wii, unlike in the past they're not selling each unit at a loss and hoping to make it up on the games/content later.  They just mean that each unit is going to sell at cost (break even) or for a small profit.   Which is good, because that means they're going to make back the initial investment quicker now, not 5 years later like in the past. 

 

So, if you follow this scenario and they're making their money back from the start and not still losing in the hardware at retail they could, I dunno, a year from now, cut the price down.    This really should allow for them to reduce the price and match Sonys PS4 faster,  I bet Sony is still selling each PS4 unit at a good chunk of a loss even at $400.   So are they going to try to stay cheaper than the XB1 when the XB1 cuts it's price to match the PS4?  I don't know but it'll be interesting to find out, I think it'll be too soon for them to cut a year from now but MS probably can because they've already started making back their money from day 1.

[giantpotato]

Am I the only one who thinks this is a bad thing as a consumer. When the 360 and PS3 launched they rivaled high-end PC GPU's at the time, and sold at a loss because they had the latest technology. This generation they're selling at a profit because they're using the equivalent of mid-range PC components. 

 

Hell, I bought and ATi 5850 4 years ago that has more compute power than the PS4 and Xbox One.

 

At launch the 360, PS3 supported 720p, now it's 7-8 years later and we're hearing some of the games at launch will still only do 720p. 

[StandingInAlley]

I think this is a good thing. I would rather have them making some profit than making a loss and some investor/shareholder giving an idea to hive off the entire Xbox business :/

 

Edit : This is also a good thing because in case the console is not doing well, there is a room for price cut. If they are already making a loss then chances of a price cut are slim since it will add to the woes of making a bigger loss.  :|

[giantpotato]

I think this is a good thing. I would rather have them making some profit than making a loss and some investor/shareholder giving an idea to hive off the entire Xbox business :/

 

Edit : This is also a good thing because in case the console is not doing well, there is a room for price cut. If they are already making a loss then chances of a price cut are slim since it will add to the woes of making a bigger loss.  :|

 

Microsoft is big enough that none of that matters. Just look at Surface. They can't just kill off the XBOX division completely if the console itself doesn't make a profit, the profit lies in all the other areas (Xbox live, games). As a consumer wouldn't you rather pay $500 and get $600 worth of hardware, than pay the same price and get $450 worth of hardware.

[psionicinversion]

i bet both systems are sold at a break even point. the only problem is i think dx12 maybe released next year so the gfx architecture may become more efficient/adding on better graphical capabilities. will have to see what amd and nvidia come up. for amd its the release after volcanic islands which incorporates dx 12 i think so there basically outdated less than a year later!

[Skiver Veteran]

Am I the only one who thinks this is a bad thing as a consumer. When the 360 and PS3 launched they rivaled high-end PC GPU's at the time, and sold at a loss because they had the latest technology. This generation they're selling at a profit because they're using the equivalent of mid-range PC components. 

 

Hell, I bought and ATi 5850 4 years ago that has more compute power than the PS4 and Xbox One.

 

At launch the 360, PS3 supported 720p, now it's 7-8 years later and we're hearing some of the games at launch will still only do 720p. 

But wouldn't mid range PC components still cost around ?1000 to build a base unit regardless? 

Plus as far as I am aware with the two APU's that both MS and Sony are using, are hardly off the shelf parts?

[George P Global Moderator]

I think people are really taking this raw power thing for granted.  You're forgetting a key part here, the advantage of why I personally buy a console, while I also still game on the PC, is because I know that spending that money means I'll be able to play games just fine, smoothly and without issue 5, and now even 7+ years from now.

 

So what if my PCs GPU has way more power?  I used to own a HD 5770 till it started to choke on the newest games, I had it for ~3 years or so, now I got a HD7870 2GB for $250 or so, half the price of the Xbox One, and how long will this be good on the newest games?  Another 3 years?  I really don't see it cutting it for 7+ like I know I'll get from the new consoles.

 

So yes, go on and on about how much more powerful the PC is, that's all well and good, but when a new game comes out a year from now that pushes your shiny new PC to the point where you're thinking of upgrading your GPU again then I'd like for you to remember how much you're getting ready to spend so you can boast.

 

Heck, I'm not a stickler for top of the line gfx and I have no issue with gaming at even 720p on the PC if it's smooth but as far as some of the people on here, if it's anything less than 1080p then it's not good enough. 

[giantpotato]

But wouldn't mid range PC components still cost around ?1000 to build a base unit regardless? 

Plus as far as I am aware with the two APU's that both MS and Sony are using, are hardly off the shelf parts?

 

Not really, here's a mid-range system for ~$400. http://www.makeuseof.com/tag/3-affordable-amd-apu-powered-diy-computers-that-you-can-build/

 

They're not off the shelf parts, but you're still getting less value for your money if they're selling the consoles for a profit. 

[Albert]

who are these nincompoops kidding? where are the sales numbers to show they are breaking even? oh i forgot. it's not even launched yet. lmfao.

[Growled Member]

who are these nincompoops kidding? where are the sales numbers to show they are breaking even? oh i forgot. it's not even launched yet. lmfao.

 

Even after launch we'll never know for real what the true numbers are. Microsoft has been known to fudge on any real numbers.

[trooper11]

who are these nincompoops kidding? where are the sales numbers to show they are breaking even? oh i forgot. it's not even launched yet. lmfao.

 

 

Um... its a goal for them.

 

Why do you guys have to jump on every little thing that is said? 

[JonnyLH]

Not really, here's a mid-range system for ~$400. http://www.makeuseof.com/tag/3-affordable-amd-apu-powered-diy-computers-that-you-can-build/

 

They're not off the shelf parts, but you're still getting less value for your money if they're selling the consoles for a profit. 

Completely different, and wouldn't run no where near as fast as the next-gen consoles. Can people stop comparing them to PC's already because they hear x86?

[giantpotato]

Completely different, and wouldn't run no where near as fast as the next-gen consoles. Can people stop comparing them to PC's already because they hear x86?

That setup has 1.4+ Tflops of compute power, and can easily pull off 720p60 or 1080p30, same as the Xbox One. Yes, the consoles have a different architecture and some specialized chips, but from what we know so far the performance is comparable. 

[JonnyLH]

That setup has 1.4+ Tflops of compute power, and can easily pull off 720p60 or 1080p30, same as the Xbox One. Yes, the consoles have a different architecture and some specialized chips, but from what we know so far the performance is comparable. 

Not at all. Just because the CPU cores use the same instruction set, it has no bearing on the actual architecture of the system which are all custom built and share hardly any of the buses and data transfer methods of the PC. Then there's the software overheads on the PC with OS's etc. Not comparable, because unlike a console, a PC has a lot else to process while its gaming while a console has specialised parts to offload miscellaneous tasks which are usually handled by the CPU and the GPU. Just because you hear the same TFLOPS number, doesn't mean they're similar by any means. The console has prettier games on much less because it has to work on much less while its playing the game and it also can manage its data much faster compared to the PC.

[giantpotato]

Not at all. Just because the CPU cores use the same instruction set, it has no bearing on the actual architecture of the system which are all custom built and share hardly any of the buses and data transfer methods of the PC. Then there's the software overheads on the PC with OS's etc. Not comparable, because unlike a console, a PC has a lot else to process while its gaming while a console has specialised parts to offload miscellaneous tasks which are usually handled by the CPU and the GPU. Just because you hear the same TFLOPS number, doesn't mean they're similar by any means. The console has prettier games on much less because it has to work on much less while its playing the game and it also can manage its data much faster compared to the PC.

 

So does the 3GB of memory reserved for the OS on XBOX One not count as overhead? The XBOX One will have tons of overhead. You can now easily switch out of games and run apps simultaneously. There will be a process constantly recording game video. All those extra features need resources ie. overhead.