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[Hero of Legend]

they're moving away from hardware to a hardware-agnostic business that sells software and services.

Are you speculating a Minecraft route where they do go multiplat at some point? I'd be lying if I said I didn't think it'd benefit them in certain scenarios (such as getting Rare's lot on Switch for example).

Are they not 100% doing XBO+PC games and zero XBO-only games now? That's good and bad (good since PC gamers are a huge market, but bad if they want the XBO to seem viable I think). Is there incentive for folks to buy an XBO other than 360 BC (though still far from 100% right?) and now OG Xbox games IIRC. But just for actual new games... what really is there? I'm curious.

 

[legend166]

The raison d'être of the entire Xbox product line has pretty much ceased to exist.

Microsoft got into the market because they thought the next stage of development in computing was the whole "battle for the living room". That personal computing would move from the PC to the loungeroom, and whatever device was under the TV would be the most important thing in the house.

They see Sony selling 100 million PlayStations and think it's a threat to Windows, because if people transition from the PC to 'set top boxes', they won't be running Windows and they won't be buying Office. So that's why Microsoft got into console gaming in the first place and why they were willing to spend billions pushing what by any metric has been a spectacularly unprofitable product line.

You could still see it in their Xbox One strategy - how much time did they spend during the launch build up talking about the set top box capabilities? Going back to the 360, it was definitely instrumental in the push towards apps on TV (Netflix, Hulu, etc, etc).

The problem is, while Microsoft is focusing on winning your living room they let Apple and Google win your pockets, which is where personal computing actually went to after the PC. Meanwhile, people can replicate all those functions Microsoft were pushing beginning with the 360 using $40 dongles, or even better, they're all just built directly into the TV. And they're running Android!

So a decade ago that division seemingly had a blank cheque to do whatever they wanted because it was seen as the future of Microsoft's core business (personal computing operating systems). Now, not only is it clear that set top boxes that control the living room are clearly not the future, Microsoft's actual core business has pivoted hard to enterprise. So the Xbox business can't be a loss leader any more. It needs to be run as a profitable business by itself. Obviously Microsoft think they can do this or they would have pulled the plug.

The question is how do they react after the Xbox One ends up selling something like 40% less than its predecessor. Is it worth it for the MAUs? I'm very curious to see what they do after the One X and if they launch a new device against the PS5.

 

[eerik9000]

Any sources/links to check out those numbers and sales data? I've seen they turned over $443M last fin year so I'd be interested in seeing the profit numbers of $166M you mention.

Here you go, it's public information: http://www.allabolag.se/5568192388/mojang-ab

For 2016 I used current SEK/USD exchange rate so it might have been a bit more in USDs a year ago, for 2013 dollars I used the figure provided by Mojang themselves back then.

That's not how it works. First off it was purchased with money stored off shores that couldn't be brought back to the US because they'd have to pay taxes on it. Minecraft itself has sold 70+ million copies since the purchase and that doesn't count the spin off. It also allows MS to use it for education purposes. Also it's not counting the DLC proponent and any licensing. It's not about just recouping the money, which they will do in far less than 10 years

Sure, whatever makes you feel better.

 

[Unknown Soldier]

I didn't know it was that bad. I mean I knew how widespread RRoD was but sheesh.

Everyone who bought a 360 on launch had to get at least one replacement. All 360's sold more or less in the first 1-2 years of availability had the flaw which eventually caused them to fail. I was a launch 360 buyer and I finished the gen on my 3rd 360 and my story is commonplace.

 

[Shin]

It's up in the air what he means, be it since the beginning or currently.

Sometimes I wish Microsoft and Sony would join hand and make a system together.
MS could handle the hardware, infrastructure and Sony the studios and game development.
A system they both finance and is powerful to match modern day PC's and the games run on said console, PC's and everything.
They could eat up Steam's market space and maybe even surpass it if they do well enough, probably more profitable for them both in the long run.

 

[hydrophilic attack]

Everyone who bought a 360 on launch had to get at least one replacement. All 360's sold more or less in the first 1-2 years of availability had the flaw which eventually caused them to fail. I was a launch 360 buyer and I finished the gen on my 3rd 360 and my story is commonplace.

nah

not every early 360 adopter was a committed enough user to trigger/care to fix the issue

 

[TimeEffect]

That's surprising to me. Is Playstation profitable?

 

[Lys Skygge]

That's surprising to me. Is Playstation profitable?

I'm pretty sure PlayStation is Sonys most profitable division.

 

[DocSeuss]

I'm pretty sure PlayStation is Sonys most profitable division.

I thought their insurance division was their most profitable?

 

[Armaros]

I'm pretty sure PlayStation is Sonys most profitable division.

Pretty sure insurance was, everyone was surprised that they #1 sold insurance, #2 that it was a huge revenue and profit share for Sony.

 

[Ozzy Onya A2Z]

Here you go, it's public information: http://www.allabolag.se/5568192388/mojang-ab

For 2016 I used current SEK/USD exchange rate so it might have been a bit more in USDs a year ago, for 2013 dollars I used the figure provided by Mojang themselves back then.



Sure, whatever makes you feel better.

Thanks for the source. So why does your link only report 38 employees when over 100 are now employed in various countries and multiple offices around the world? Where is the breakdown of merchandise and licensing vs just game creation? I don't see any of those particulars that your comment referenced being inclusive. It also flies in the face of the recent fin report from MS of $443M for last financial year revenues of Minecraft subsidiaries.

Just looking for an accurate breakdown here, not being combative or are smartarse. I feel it's indicative of this thread and the views on Xbox profitability in general, so much gray area and misinformation it's hard to actually drill down to specifics, even in just a minecraft segment.

 

[Welfare]

Reading "growing profitably" to me means the division is growing while still being profitable, or growing while not incurring losses.

Also, the 360 after the RROD write off was profitable every year, so Thurrott is just straight up wrong in the context of annual profit.

 

[hydrophilic attack]

That's surprising to me. Is Playstation profitable?

it's profitable by a considerable number in dollars, but as someone said itt, the margin (as a percentage) is pretty fucking thin

 

[00ich]

The raison d'être of the entire Xbox product line has pretty much ceased to exist.

Microsoft got into the market because they thought the next stage of development in computing was the whole "battle for the living room". That personal computing would move from the PC to the loungeroom, and whatever device was under the TV would be the most important thing in the house.

They see Sony selling 100 million PlayStations and think it's a threat to Windows, because if people transition from the PC to 'set top boxes', they won't be running Windows and they won't be buying Office. So that's why Microsoft got into console gaming in the first place and why they were willing to spend billions pushing what by any metric has been a spectacularly unprofitable product line.

You could still see it in their Xbox One strategy - how much time did they spend during the launch build up talking about the set top box capabilities? Going back to the 360, it was definitely instrumental in the push towards apps on TV (Netflix, Hulu, etc, etc).

The problem is, while Microsoft is focusing on winning your living room they let Apple and Google win your pockets, which is where personal computing actually went to after the PC. Meanwhile, people can replicate all those functions Microsoft were pushing beginning with the 360 using $40 dongles, or even better, they're all just built directly into the TV. And they're running Android!

So a decade ago that division seemingly had a blank cheque to do whatever they wanted because it was seen as the future of Microsoft's core business (personal computing operating systems). Now, not only is it clear that set top boxes that control the living room are clearly not the future, Microsoft's actual core business has pivoted hard to enterprise. So the Xbox business can't be a loss leader any more. It needs to be run as a profitable business by itself. Obviously Microsoft think they can do this or they would have pulled the plug.

The question is how do they react after the Xbox One ends up selling something like 40% less than its predecessor. Is it worth it for the MAUs? I'm very curious to see what they do after the One X and if they launch a new device against the PS5.

Cobtrolling the defacto PC api and the leverage they have through that is another good reason to keep engaged in gaming.
Without it games could become multiplatform on pc and play on linux as well. Steam is already waiting for that scenario.
Microsoft might be forced to make Windows (near-)free to compete. Meaning not making a lot of money.

 

[hzsn724]

Makes sense. I mean a few million consoles sold is a drop in the bucket compared to Windows PCs. Can't imagine them getting excited for a million units of a game moved when their entire company deals with billions of moving parts.

 

[eerik9000]

It also flies in the face of the recent fin report from MS of $443M for last financial year revenues of Minecraft subsidiaries.

It does not as it also states that Mojang AB revenue last financial year was 3,779,830,000 SEK which today would be around 465.5 million USD. Revenue does not equal profit.

 

[Hydrargyrus]

Masters of spinning

 

[Compsiox]

Xbox has always been a part of MS's contingency plan for a "post-PC" future, as were products like Zune, Windows Phone, etc. Compared to most of those failures, it's doing remarkably fine. It'll never make up for their failure to succeed at mobile hardware/OS, of course.

They should take up android for their phones. I know that goes against their Windows everywhere thing but no one wants to miss out on all the apps in the other stores.

They should just bite the bullet or get out all together.

 

[Mechazawa]

Wasn't the Xbox division saddled under the same umbrella as all that Windows phone stuff?

That probably fucked em over for a few years.

 

[Deputy Moonman]

Everyone who bought a 360 on launch had to get at least one replacement. All 360's sold more or less in the first 1-2 years of availability had the flaw which eventually caused them to fail. I was a launch 360 buyer and I finished the gen on my 3rd 360 and my story is commonplace.

I had two and never had any issues thankfully. So no not everyone had to get a replacement. And there will most definitely be another xbox down the road beyond the one x.

 

[Neuromancer]

I believe it. The next question/answer is pretty rough, too:

“Analyst predicts an Xbox One X failure in the near future”

Just one?

 

[Shubh_C63]

Well it was common knowledge that X360 didn't turn a profit because RROD and their return program.

But XB1 ? Not even a dime profitable ?

I simply am baffled because even if they are doing worse than their competitors, 2 machine released with combined sales of (+30M??) and no serious problems with hardware where you need to invest more than what you put out on paper at time of launch, IS strange.

I don't know but did WiiU with just (+13M?) Sales didn't turn a single dime profitability for Nintendo ?

 

[hydrophilic attack]

I believe it. The next question/answer is pretty rough, too:

yeah, i don't know what he was on about there

 

[Ozzy Onya A2Z]

It does not as it also states that Mojang AB revenue last financial year was 3,779,830,000 SEK which today would be around 465.5 million USD. Revenue does not equal profit.

Of course revenue ≠ profit . Your link does contain a profit percentage of 45.80% though, which would equate $213M profit not $166M as you mentioned.

Also I would expect Microsoft International Holdings to have revenue in addition to Mojang and handle some licensing deals or merchandising from the US. I don't see anything in your link if Mojang handle merchandising themselves. 343 has what 500+ employees and handles all their Halo games, media, merchandising and licensing etc. I don't see how Mojang would be handling all those business segments with just over 100 staff and create the cross platform games they do.

My point is there is more than just the financial report of Mojang AB at play, a secondary point to that is your link is missing elements at face value e.g. no of employees worldwide, profit analysis etc. I don't think it's the full picture.

 

[hydrophilic attack]

PS: now I have to go watch GoT since you seem to be pretty high on it tonight!

actually the books-readers' thread already made me sort of not like it

 

[dragonelite]

Microsoft as a whole needs some major restructuring. I don't know how that company is profitable period.

The cloud....

 

[DarkConfidant]

Seems like Microsoft. They kinda just have been running on being business's de facto software company.

Xbox and Zune are projects that don't fit into the rest of the company because of how...fun they are.
When the first one came out my friends and I all figured they were just going to keep pouring money into games until they eventually struck some inevitable gold and starved Nintendo Sony and Sega out.

I resigned thinking that way as I got older, but this makes that seem oddly true.

Bless those dudes at Xbox

 

[Vidal]

(talking about revenue and profits) If Microsoft owns AND maintains LinkedIn, I don't see any problem with the Xbox division.

 

[James Scott]

While I imagine the title is not true, I wonder what's the future for Ms.

Hiding numbers it's hard to say if Xbox One is doing well or not.
They're probably making a ton off services but I wonder how long that can last if they're not selling a lot of hardware.
Pulling away from exclusives gives few reason to buy Xbox.
I wonder if XOX is their last kit or if they'll keep making revisions like it for awhile.

Well, I'm interested to see where they go anyways

 

[-Stranger-]

I don't believe this.
I do know they make more $$ on software sales than hardware though.

 

[Chobel]

That's not how it works. They "broke even" on their purchase after a year


It means what most of us (except Chobel) have thought. IMO Paul was talking about overall since the beginning they are not "profitable". They have had plenty of quarters of "profit" sure, but overall it's going to be in the red (OG Xbox, RROD). The reason I posted in the other topic with links to Nadella was because people were questioning Xbox One being profitable TODAY. From Nadellas statement it seems they are in a "profitable state". People can take that how they will but I take it as the common definition of the term for that when brought up in financial calls and briefings

Edit: or Thurott is just confused about something, somewhere, somehow

Paul Thurrott would have to be beyond ignorant (in finance reporting) for that to be the case, and I seriously doubt that. I mean the guy has been reporting MS quarterly earnings for years now to not know what "profitable" means.

 

[ethomaz]

I thought it was common sense and that is reason for some part of MS shareholders wanting to cut off Xbox division from MS.

 

[D.Lo]

Many of us have wondered if they were profitable right now, it seems unlikely given their price cutting strategies. Shame this doesn't give ballpark figures of the losses

The original Xbox lost 4 billion net, back when it was a bit more out in the open. What happened next was the first half of the 360 lost another 3-4 billion or so (at the same time Sony reportedly lost 5 billion on the PS3, so that's actually quite good given RROD!), but the figures started to get murkier over the years as Zunes and PC gaming etc started to be rolled into the 'Entertainment and Devices' divisions in their various forms. The latter half of the 360 possibly made some of that back on some relatively slim profitability, but if it did surely they would have made that clear without any obfuscation with other products in the division. We have no good data. So if using this info we spitball the Xbone at say a 2 billion total loss (?), we're possibly talking about the Xbox division as a whole having lost around 8 -10 billion dollars total since 2002?

What a crazy market distortion over such a huge period of time. Every competitor in the market was fighting a force with essentially unlimited financial reserves and for whom making money, or even breaking even or any sensible return on investment, ever, was not required. The exception being Sony who have essentially done the same thing most of the last decade as well, but having won this (much more conservative box than last time) round have started to chip away at their overall loss total.

THIS is why nobody has entered the console space in almost two decades. It's not been a real open market in a decade, it's been a money pit/strategic piviot/vanity playground.

 

[Chille]

Well it was common knowledge that X360 didn't turn a profit because RROD and their return program.

But XB1 ? Not even a dime profitable ?

I simply am baffled because even if they are doing worse than their competitors, 2 machine released with combined sales of (+30M??) and no serious problems with hardware where you need to invest more than what you put out on paper at time of launch, IS strange.

I don't know but did WiiU with just (+13M?) Sales didn't turn a single dime profitability for Nintendo ?

Unlike Sony and Microsoft, Nintendo never sell there console at a lose hardware wise so they probably did make some profit on the Wii U.

 

[Renekton]

Do streaming devices (eg Chromecast, Steamlink) render the living room battle pointless?

 

[D.Lo]

Unlike Sony and Microsoft, Nintendo never sell there console at a lose hardware wise so they probably did make some profit on the Wii U.

Nintendo did have some loss quarters during the Wii U/3DS era. The box itself still likely didn't lose much, but marketing and others spends vs revenue didn't add up for a while.

It has hard to say though, they are a smaller company and do less things, and sell most of their items overseas, so they are more exposed to currency fluctuations than multinationals. The quarter they returned to profitability was because of the Yen, not more sales, for example.

 

[v1oz]

They lost billions of dollars with the first XBOX. My guess is that at the moment the business is just about breaking even. There's a reason why Nintendo pulled out of the gaming arms race. They just couldn't afford to loose the money on hardware and aldosterone are spend as much on large mega budget first party ganrzs

 

[ProBusinessgamer]

Well the ONLY people who know are MS, from what i read in there financials...the xbox brand makes money as a whole. To give misleading statements is actually an illegal act, so while the word respectable, and "insider" is used to give them validity, i will trust the quarter and quarter of financial statements showing profit...now i will say, that they have not always made there goal, but thats not the same as losing money... its just not making as much as you thought.

 

[wumster3000]

This is one of the worst most uninformed post I have ever seen. Microsoft is one of the most profitable companies in the world.

Then his edit is even worse. He's aware, but then calls them inefficient and bloated. Lol. I would love to see an inefficient company's market cap be over half a trillion.

 

[LiquidSolid]

It's up in the air what he means, be it since the beginning or currently.

Sometimes I wish Microsoft and Sony would join hand and make a system together.
MS could handle the hardware, infrastructure and Sony the studios and game development.
A system they both finance and is powerful to match modern day PC's and the games run on said console, PC's and everything.
They could eat up Steam's market space and maybe even surpass it if they do well enough, probably more profitable for them both in the long run.

No thanks.

Unlike Sony and Microsoft, Nintendo never sell there console at a lose hardware wise so they probably did make some profit on the Wii U.

This is a myth. At the very least, Nintendo were selling the Gamecube at a loss when they dropped the price to $99.

 

[Sky Interloper]

I know Thurrott sometimes has a tendency to overstate things, but it wouldn't surprise me at all that the gaming hardware business never has been a boon for the organization. Even so, I don't see Microsoft abandoning the brand, as it is one of the conerstones of consumer mindshare alongside Windows and Office.

Of course - and since Nadella became CEO - Microsoft as a whole has been in a state of flux. A full transition to the cloud and a complete integration to the Windows 10 platform (UWP) is probably in the cards for the division, but I still expect another piece of hardware beyond the Xbox One X. As for the future, I'm not entirely sure what is going to happen, but considering the big trend in both software distribution and media consumption is subscription-based, hardware-agnostic services, I see the brand pivoting towards that (while also leveraging the currently growing Azure-based backend).

 

[Norse]

I mean, that's normal for so many tech firms. Doesn't mean the business doesn't have value. Look at Amazon as an example:

They're not very profitable either but they're one of the most important businesses today.

You have to pay taxes on profits.

 

[Chille]

No thanks.



This is a myth. At the very least, Nintendo were selling the Gamecube at a loss when they dropped the price to $99.

From what I can tell even at launch the console only cost around $100 to make so probably by then it was even cheaper to build.

 

[jonno394]

Do streaming devices (eg Chromecast, Steamlink) render the living room battle pointless?

Not yet. Maybe one day though.

 

[leeh]

Paul Thurrott would have to be beyond ignorant (in finance reporting) for that to be the case, and I seriously doubt that. I mean the guy has been reporting MS quarterly earnings for years now to not know what "profitable" means.

Yeah, he's too much in the know and one of the best MS 'insiders' there is, so to speak.

Not read all this thread, but I'm presuming this is more big picture after the RROD write off?

 

[Champion]

Unlike Sony and Microsoft, Nintendo never sell there console at a lose hardware wise so they probably did make some profit on the Wii U.

They sold the Wii U at a loss for over a year. 3DS was also sold at a loss because they slashed the price early on.

 

[Gamezone]

That's crazy if true, they really been throwing money in a hole for 16 years ? Not even during the 360 era? Even with revenue from Xbox live ? I know the red rings cost billions but it's hard to think that they're still in the game

Just like they're keep throwing money at their mobile division?

 

[Colbert]

Let's look into into it from a business perspective:

HW:

From a HW perspective Xbox had a negative net income in the first couple of years because selling the console for a loss with the OG Xbox and the RROD disaster with the Xbox 360.

Those cost are depreciated by now and there is not impact on the balance sheet or P&L anymore.

Since then the hardware side has improved by the fact that they sell the Xbox One with a very small gross profit margin now.

From a current business POV the HW side of the business is profitable even with a very small margin which is by the way common in the HW business (with the exception of Apple). But just ask Dell, Lenovo, Sony, IBM, HP, ....

I assume 10% gross profit margin at the highest.

SW:

The software side of the business has a high gross profit margin by default even if games tank from time to time. The longer a gen lasts the more each release is leveraging from the install base. Means the business grows which each console sold with a high gross profit margin including 3rd party published games because of the royalties (console taxes). Even more so with digital sales as some of the cost for retail is converted into additional gross profit for Microsoft itself.

The SW business since its beginning is a major driver for profitability of the whole Xbox Business. I assume 50% of gross profit margin in average at a minimum.

Services:

With Xbox Live there is a steady revenue stream with an assumed medium gross profit margin. As the services is based now on already existing infrastructure with in the Azure Cloud now the profitability may have increased compared to the past as the IT infrastructure and service stuff is leveraged to a higher degree. By continually growing the subscription base the profitability will grow too but not at the same pace as it would be possible with software.

I assume a gross profit in the range of 20%-30%.


Conclusions:

Xbox Lifetime Business profitability:
The lifetime profits made by SW and Services if offset by the losses on the hardware side. Though those losses were depreciated a long time ago and have no impact on current or future balance sheets or P&Ls anymore! Break even for the hw business break even still a long way to go when looking into just the hardware business profitability.

Xbox current profitability:
Every part of the Xbox business is in a profitable state and software sales (game sales) and services (subscriptions) are the main drivers for that. If you look into the current balance sheet and P&L you also can see Xbox has grown to a point it noticeable contributes to the overall revenue and profit of Microsoft and due to it is be mentioned/discussed in investor calls and meetings more often than in the past.

 

[D.Lo]

Xbox current profitability:
Every part of the Xbox business is in a profitable state and software sales (game sales) and services (subscriptions) are the main drivers for that.

Your summary claims the exact opposite of the claims of Thurrott. He says they are not profitable now.

You also cannot separate hardware and software of a closed console, you can't cut the unprofitable hardware and keep your profitable software, the former is the only reason for the latter.

 

[rockyt]

The only thing being called out is the "growing profitably" term which could mean anything.

Obviously Nadella knows if they're really profitable.

Therm growing profit is a bit tricky. If it was profitable he and they would say it is profitable. The term here is more in that the margin of loss is less thus making or growing profit.