Microsoft Business (Office), Windows and Server & Tools divisions are their money makers. Everything else is chump change in comparison.
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Analyst: Xbox "generates" $2 billion in losses for MS. Hides it with patent royalties
- Thread starter ekim
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Microsoft Business (Office), Windows and Server & Tools divisions are their money makers. Everything else is chump change in comparison.
CadetMahoney
Member
pretty much, reads like a FUD piece.
Brad Grenz
Member
This guy has no clue what he's talking about. Losing money on what? The hardware is profitable. Xbox Live Gold memberships are basically free money. Royalties cost them almost nothing and bring in huge cash for the unit. They're certainly not spending Billions on first party software development. It's no secret they used the division to huge craters in their balance sheet like Windows Phone and the Kin, but they usually slush the money over from Xbox, not the other way around.
Acheteedo
Member
Surely that would be more than offset by the royalties on the game sales themselves. MS make a fortune on CoD.
I guess that put to rest the validity of the messenger.
If he's that close to MSFT, if he was seriously telling that MSFT plan to axe its Windows line of product I'd take a closer look to the info before dissmissing it entirely.
iamshadowlark
Banned
Dude is a personal friend of bill gates and was a senior analyst at GS. He probably knows a bit better than you.
CadetMahoney
Member
So the title says xbox, but it's all the electronics division combined (Zune/Windows phone etc.)
It's like combining the electronics division for Sony (PS3, TV's etc.) and saying "Playstation is losing X".
It's like combining the electronics division for Sony (PS3, TV's etc.) and saying "Playstation is losing X".
cebri.one
Member
RTFA, it's $2.5b for the total division and $2b for the xbox endeavour.
That means that they're losing more money on this than shit like Bing
Like to hear why this guy is wrong and not just looking at NPD data as the proof. Things to consider is that MS closed a whole bunch of studios and then opened up a bunch more that have done next to nothing in terms of putting out a product yet. They spent 100 million on a controller that doesn't seem like much of a departure and was something that didn't really need fixing. Also, wasn't there that report on how much each of the big tech companies spend on R and D and wasn't MS by far the most even though they are late to every single market they are in aside from OS and Office?
He has some credibility but....
It doesn't matter. 2 billion lost PER YEAR for the last two years of the Xbox 360.
That just doesn't tally right no matter which way you look at it. That's 4 billion in losses in the last 48 months for the Xbox alone unless I'm reading it wrong. Credibility or not, that such an enormous number that it willfully invites skepticism.
You can even throw XBONE R&D in there and the numbers still don't sound right. It would also mean other things, like OEM's on the phone side must really have zero faith in WP as a platform if they would all collectively pay 2 Billion+ a year and release Android phones versus dropping Android and going with WP.
Somehow I get the feeling things aren't this grim for MS.
It doesn't matter. 2 billion lost PER YEAR for the last two years of the Xbox 360.
That just doesn't tally right no matter which way you look at it. That's 4 billion in losses in the last 48 months for the Xbox alone unless I'm reading it wrong. Credibility or not, that such an enormous number that it willfully invites skepticism.
You can even throw XBONE R&D in there and the numbers still don't sound right. It would also mean other things, like OEM's on the phone side must really have zero faith in WP as a platform if they would all collectively pay 2 Billion+ a year and release Android phones versus dropping Android and going with WP.
Somehow I get the feeling things aren't this grim for MS.
They're losing billions on Bing too according to Sherlund.
http://www.businessinsider.com/nomura-note-on-the-future-of-microsoft-2013-11
You're absolutely right, brain fart on my part.
Actually if the xbox market is such a burden it makes Ballmer departure even more logical...
And so Bing is losing 1.5B a year according to him as well? Maybe in the beginning, but still I don't believe that today. I'm not saying the man is wrong, but if these two things are causing these kinds of losses, its because of mismanagement or something else, it cannot be normal. XBOX should not be losing that kind of money annually. Not even Bing should....
NavyPharaoh
Member
Other posters seem to be mentioning this and the ppl keep ignoring it so saying it 1 more time won't hurt
king picollo
Member
There is no way they'd keep it going if they were losing that much.
Either Microsoft are bad at business or that article is bollocks.
My money's on the second one.
Either Microsoft are bad at business or that article is bollocks.
My money's on the second one.
Indeed. The lost opportunity cost is probably a bigger deal, though. Imagine if Microsoft had invested all that Xbox money and talent into Windows Phone/tablets instead. They'd be in a much better position for the future.
Reading the article it doesn't actually say which it is overall or per year, the implication though IMO is per year.
Sephiroth503
Member
This would seem to be over all the years, no way they are making that kind of a loss on a yearly basis.
The Antitype
Banned
So they've been profitable since 2008?
What the fuck is the writer of this piece smoking with this '2 billion a year in the red' narrative?
Since they were focused on the failing game market (sorry guys this is what it is) they're getting marginalized on their more lucrative businesses.
They're facing stiffer competitions than ever in their Office and Windows lines.
If semiaccurate is to be believed, their server business is floundering and need serious investment to be salvageable even.
They totally missed the whole mobile revolution of the last few years and they're now in a market where basically they can't leverage their main strength to make headways in the tab market (the market that is eating the life out of regular pc sales).
I'm not even sure their cloud solution is that competitive considering the competition.
Read what he's saying.
He's saying that the Android royalties are bringing in $2 billion a year. Microsoft is using this $2 billion to offset the losses of the 'entertainment and devices division', making it look healthier than it is.
100% agreed, and it's all down to Ballmer. While I'm sure he's good with numbers, it's obvious that he has no vision.
Remember this? http://www.youtube.com/watch?v=eywi0h_Y5_U
Says it all, really.
graywolf323
Member
they seem to be on the question mark step still
it's entirely believable because the PS2 was the most successful console of all time and Sony managed to use up all the profits on R&D for the PS3 IIRC
As far as I know, MS have never published the opertaing profit/loss for Xbox. It has always been grouped in with other products/divisions.
Entertainment & Devices is the current division that contains Xbox, and its profitable. But as per the OP, thats due to the $2B patent troll profits, which obstificates the staggering Xbox losses.
Compare to Nintendo and Sony, who always report directly their gaming revenue and opertaing profit / loss.
MoGamesXNA
Unconfirmed Member
I'm genuinely skeptical of that figure. MS isn't stupid and the development of the Xbox One wouldn't have put them in the red to that extent.
NemesisPrime
Banned
And the Android royalties should go where then exactly? It is just FUD.
There's a reason why Nintendo dropped out of the high-end hardware race, and why pretty much everyone in the electronics industry is avoiding it like the plague. Microsoft are getting tired of the Xbox and Sony is in the dire position of even razer thin profit margins are worth their time compared to their usual losses.
It would likely be part of the Xbox strategy to lose money at first.
The original Xbox will have been a cash dump, there would have been 0 expectation to make money with that, going up against Sony, Nintendo and Sega isn't an easy thing to do and R+D for a console is a lot of money combined with a loss leading strategy for hardware sales, factor in replacing 14 million power cables, Building/Buying games studios and creating exclusives for a console with a 20 million install base isn't going to be profitable.
Moving towards the 360, they had to compete against the PS2's successor, they had to invest heavily in: Studios, online infrastructure, exclusives, they sold consoles at a loss, they did the R+D for the console, they had to pay for RROD replacements and they started getting towards profitability which would have been the goal.
After this they had to invest in Kinect.
The research costs of creating the XB1 are massive as well as buying exclusive partnerships.
tl:dr - Games consoles don't make much money at first unless you have a near monopoly.
FUD is actually MSFT putting Android patent trolling royalties free money in the division that is losing tons of money instead of putting it in another division (like say mobile device or even lawyer fee or something).
The way it's done they can claim that their gaming division is making tons of money when that's quite clearly not the case to anyone with the finer details.
Disgusting strategies, Google really needs to end that....
forcefullpower
Banned
This is probably why they board want rid of xbox. All the profit they are making is being funnelled down the xbox drain.
If xbox didnt exist they would be 2 billion in the black. Now I know why the investors are so keen on getting rid of it.
If xbox didnt exist they would be 2 billion in the black. Now I know why the investors are so keen on getting rid of it.
No.
Microsot makes money in Windows and Office.
Microsoft Gaming makes money in patent trolling.
What do you mean?
Its not that the Android revenue shouldn't go to the same division that is home to their mobile group. Its that revenue isn't disclosed, so investors look at the Entertainment & Devices division and assume all the product streams within it are turning a healthy profit. Where as they're not. They're just having their massive losses and failures hidden by the whopping great chunk of patent cash.
killer rin
Member
Thats not entirely true. The facility is also used to test Surface and other hardware projects.
The Antitype
Banned
Fair enough.
I don't see how it's possible they're blowing 2 Billion a year on Xbox. They've basically been selling the 360 hardware at a profit since at least 2008, they make licensing fees off every game published on the platform, they barely make any first party software and all of it tends to sell well (Halo, Forza, Fable, Kinect shit), plus Live subscription fees and ad revenue.
You can't blow 2 billion on like 3 games a year, advertising, and exclusive contracts for DLC and the odd game. It must be ALL R&D if it's true, in which case, I can't imagine the kind of stupid shit they're trying and failing at.
His analysis isn't about where the Android royalties should go.
His analysis is that a particular division, which the current management team wants to expand and a group of investors wants to spin off, is presented as a lucrative packaged goods business by management but instead appears to make most of its money in licensing. The takeaway being that the packaged goods side can be dumped completely and money will continue to flow in.
It's the one-step-up version of "EDD looks good because of Xbox, and is hiding Zune/WP7 bombing".
If he's right, then most of this thread is correct, it is huge mismanagement rather than any negative judgment on the current Xbox product. And it's entirely possible he is; as has been pointed out, everything we know points to Xbone R&D costs being huge, significantly outpacing PS3's, and PS3 rapidly ate through PS2's lifetime profits that were significantly higher than X360's.
If we trust Microsoft's own numbers, you can get also make a pretty sizable dent. See the $500m prelaunch blitz for Kinect or the $1bn of development and marketing support for launch-window Xbone titles, a number which was thrown around BEFORE Titanfall exclusivity.
Did you miss the whole Kinect 1 on xbox?
That was basically a console launch right there with all the cost attached on it.
That couldn't possibly have been cheap.
Which makes no sense, because Android was very tiny in 2008. So how did the division not lose billions then (with higher hardware costs, less gold subscribers).
So unless they've somehow started manufacturing 360s at a much higher cost than 2008, it doesn't make sense.
The Antitype
Banned
Right but that wouldn't account for 2 billion dollars per year, it would show up as one or two particularly expensive years. Spikes in spending that are gone the next fiscal year, post launch.
The article seems to be saying that the Xbox division is losing 2 billion a year, each year.
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