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[Maximilian Kolbe]

??? Maybe you quoted me incorrectly originally?

Im not arguing their profitable status one way or another?

I'm arguing why the article was written in the first place

Because it's a article about MS earning, the article is not just talking about Xbox.

 

[The Albatross]

Can someone explain to me Microsoft's business strategy with the Xbox?

I know they are moving more to GaaS, but they're also selling less hardware, and over time less hardware means a lower consumer base, which means less people paying for services (read: XBL) which means less revenue which means less profits. Right? Sounds like a means to an end to me.

If Microsoft can't find a way to get more consoles into homes, how is this business model sustainable? It seems to me with this they've already decided the Xbox division will just tread water for as long as it can until it sinks.

Someone please help me with what I'm not seeing here.

Microsoft typically uses their hardware divisions, which lose money, to support their software divisions, which print money.

Xbox is a valuable brand to have for Microsoft because of data, licensing, and reach into the living room, but it might never be a profitable division. The personnel (R&D), production, and recurring maintenance/support costs are sure to be more than what they turn in profit, but Xbox Live is their most successful home-grown social network, and would have been their most successful network before they purchased LinkedIn. But that said the revenue they make from XBL is less valuable than the data they collect from ~50m active users (or whatever the number is), especially because its data that companies like Google or Amazon don't yet have access to on their own products.

Companies like Microsoft are increasingly becoming data companies, not explicitly product companies. I'd imagine Microsoft sees tangential value in the Xbox Division because they haven't spun it off yet or killed it, which is something that they're usually pretty quick to do for consistently unprofitable divisions (see MS Mobile being sold off in 2016). I still think this could be a possibility and it would be much more in line with what Microsoft does with hardware in general. Basically, using their hardware as a benchmark for other manufacturers to produce their own, ala the PC market, Surface, Surface Book, Windows Phone, enterprise server, etc. I think you kind of see the beginning of this with Microsoft trying to establish a platform on PC that is identical to the Xbox, with a unified network, unified services (Mixer, XBL, etc). I wouldn't be surprised if we had some future where the Xbox exists as a platform, Microsoft continues to make a console/PC for benchmarks, and then other hardware manufacturers do the same, which is what we have in the PC space.

And in the past (and today...) this has usually worked out for them. They're the 3rd most valuable company by market cap in the world, behind Google and Apple of course.

 

[Captain Tuttle]

Wonder if an investor "leaked" this info, to stir back up the push to sell-off the Xbox brand as the rumors went not long ago

If and when MS sells off the Xbox brand it won't be because of investor pressure, investors don't really give a shit about the Xbox in general, it's a blip on MS's balance sheet

 

[ocean]

I mean if there's one writer out there who you can trust on Microsoft news it's Paul. His track record goes back to pre Windows XP days, he's always been there with reliable info.

Reading about Whistler, Longhorn and Blackcomb (internal pre release code names for what eventually became XP, Vista and 7) when I was in elementary school.

Take a look at a 17 year old article detailing an early Whistler build before it was even called XP:
http://m.winsupersite.com/article/windows-xp2/windows-whistler-2001-previewed-127351

The news is rather surprising but the source is as reliable as they get. Dude has tracked AND SUPPORTED MS for over two decades and has close ties and insider access. I mean the idea that he's somehow gonna have an anti Microsoft bias is patently ridiculous as someone who has made his entire career out of supporting promoting and discussing them.

 

[thekiddfran]

If this was true at all, why would the Xbox division still be around?

Also, shareholders would want this division dead and buried if it doesn't make any cash.

I call complete bullshit on this. They are a fortune 500 company with shareholders, they don't have vanity projects.

 

[wolffy71]

Can someone explain to me Microsoft's business strategy with the Xbox?

I know they are moving more to GaaS, but they're also selling less hardware, and over time less hardware means a lower consumer base, which means less people paying for services (read: XBL) which means less revenue which means less profits. Right? Sounds like a means to an end to me.

If Microsoft can't find a way to get more consoles into homes, how is this business model sustainable? It seems to me with this they've already decided the Xbox division will just tread water for as long as it can until it sinks.

Someone please help me with what I'm not seeing here.

Ecosystem - That's the goal ultimately. To offer a robust selection of services and hardware to get you into the Microsoft ecosystem. A loss in one area doesn't mean the whole is a failure. They want to sell downloadable media, services, software, and hardware. And they want to make the ecosystem easy and convenient which I think is where the xbox comes in. It makes it easy for the user to consume media in the home. Microsoft is moving most of their software to the service model and its easy fro them because most of the world is already customers in the software sales side. I think they envision games moving in the same direction.

The fact they are selling less xbox units cant be helping but I think they hope to leverage the PC users into the equation.That would explain a lot of the cross play and play anywhere type things. They don't care where you play, they just want to sell what you're playing thru their ecosystem, or a service you're playing it on.

I also think they feel at some point the hardware will be irrelevant a lot like what pc ur on is irrelevant to them but that's kind of a different argument.

 

[HueyFreeman]

But the entire 'set top box' future Microsoft was trying to stop Sony dominating never eventually. They've spent billions tilting at windmills. They could have spent zero dollars and achieved the same outcome because the smartphone was going to come along and destroy the very notion of the box under the TV controlling everything.

Meanwhile, they completely missed the market on the biggest innovation in computing (said smartphone) since the PC.

Hard to argue with this.

 

[TheThreadsThatBindUs]

If this was true at all, why would the Xbox division still be around?

Also, shareholders would want this division dead and buried if it doesn't make any cash.

I call complete bullshit on this. They are a fortune 500 company with shareholders, they don't have vanity projects.

Sony financed their TV and PlayStation divisions that were losing them millions of dollars each year, until they eventually turned things around.

The key here is sales revenue. Companies spend multiple millions of dollars growing their businesses to a point where they're making sales revenues on the level of MS' Xbox brand. When you're bringing in tens of billions of dollars each year in sales revenues, whilst loosing money, the answer isn't to cut your losses and kill the business outright, it's to understand why your cost base is so high and look for ways to improve productivity/efficiency so that you can return to profitability.

Which is what you're seeing with MS now, hence why so few exclusive games developed and published, as well as no more ridiculous announcements for $500 million deals with the NFL. Spencer has had his operating budget slashed dramatically, and so when you hear him saying things like "now that we've finished developing XB1X we can focus on software", it's legitimately because his budgetary constraints have limited software development because of his hardware development, indicating a fixed budget for the overall Xbox business, as opposed to separate software and hardware budgets.

 

[Wiped89]

Microsoft launched the Xbox because they were really worried about PlayStation taking over the living room and pushing out Microsoft to replace people's PCs in the future. They were worried that as PlayStation gained more multimedia and PC like functionality, people would buy PS consoles instead of PCs with Windows.

To that end, fighting for that living room space was worth throwing money at regardless of whether it was profitable in its own right.

Looking back now, the real threat to MS was from phones and tablets, not PlayStation, but that's not how it looked in 2000.

 

[border]

At some point, MS will have to wonder how much more money they plan to throw down this pit until there is a result and if that is going to be worth it going forward as a business concern. I really think there will be very hard decisions to make soon as to whether they will go forward with the development of an Xbox Two hardware, especially since they seem to be completely unwilling to invest in software development at this point.

That's the thing though -- there aren't really any hard decisions. The Xbox makes so little difference to their bottom line as a company that it really makes no sense to kill the brand. What they've built cannot easily be regained, and the money they're gambling with is essentially pocket change. There's really no impetus for executives or investors to kill Xbox because that action would not yield an appreciable gain in the company's financials, and it would isolate them from a ton of young money-spenders that have no other use for MS and its products.

 

[Sectorseven]

If this was true at all, why would the Xbox division still be around?

Also, shareholders would want this division dead and buried if it doesn't make any cash.

I call complete bullshit on this. They are a fortune 500 company with shareholders, they don't have vanity projects.

It's in an awkward spot. It has too much inherent value to simply abandon, but at the same time it's this giant slug of a division that I can't see anyone wanting to spend billions on to at best break even.

 

[Colbert]

Sony financed their TV and PlayStation divisions that were losing them millions of dollars each year, until they eventually turned things around.

The key here is sales revenue. Companies spend multiple millions of dollars growing their businesses to a point where they're making sales revenues on the level of MS' Xbox brand. When you're bringing in tens of billions of dollars each year in sales revenues, whilst loosing money, the answer isn't to cut your losses and kill the business outright, it's to understand why your cost base is so high and look for ways to improve productivity/efficiency so that you can return to profitability.

Which is what you're seeing with MS now, hence why so few exclusive games developed and published, as well as no more ridiculous announcements for $500 million deals with the NFL. Spencer has had his operating budget slashed dramatically, and so when you hear him saying things like "now that we've finished developing XB1X we can focus on software", it's legitimately because his budgetary constraints have limited software development because of his hardware development, indicating a fixed budget for the overall Xbox business, as opposed to separate software and hardware budgets.

I agree with most written in your comment but can you provide a source for that quote you have in there? Thank you in advance!

 

[Beer Monkey]

It's hard not to root for Microsoft failing and going the fuck away.

Oh, god, no. The competition is essential. Arrogant Sony would get far more arrogant and fuck us gamers greatly.

 

[Tycho_b]

Oh, god, no. The competition is essential. Arrogant Sony would get far more arrogant and fuck us gamers greatly.

If not MS some other company would be here to compete.

Also to be fair, the period of biggest Playstation dominance (PS2) wasn't bad for gamers at all.

It's hard to gauge real performance of Xbox as MS it changed divisions few times and apart from first years it was always merged with other products so we only get basic information on consoles performance. But switch to new metrics (MAU vs sales) will tell You all about the performance and how it is perceived internally.

Also - even Fortune 500 have projects which are hard to understand at first when You look at the current performance, as long as they fit some long-term strategy are fine.

 

[spiderman123]

Could be why we've seen very little investment into exclusives.

 

[malboroking]

If this was true at all, why would the Xbox division still be around?

Also, shareholders would want this division dead and buried if it doesn't make any cash.

I call complete bullshit on this. They are a fortune 500 company with shareholders, they don't have vanity projects.

Microsoft has tons of vanity projects.

 

[Banjo-Kazooie]

Sony financed their TV and PlayStation divisions that were losing them millions of dollars each year, until they eventually turned things around.

The key here is sales revenue. Companies spend multiple millions of dollars growing their businesses to a point where they're making sales revenues on the level of MS' Xbox brand. When you're bringing in tens of billions of dollars each year in sales revenues, whilst loosing money, the answer isn't to cut your losses and kill the business outright, it's to understand why your cost base is so high and look for ways to improve productivity/efficiency so that you can return to profitability.

Which is what you're seeing with MS now, hence why so few exclusive games developed and published, as well as no more ridiculous announcements for $500 million deals with the NFL. Spencer has had his operating budget slashed dramatically, and so when you hear him saying things like "now that we've finished developing XB1X we can focus on software", it's legitimately because his budgetary constraints have limited software development because of his hardware development, indicating a fixed budget for the overall Xbox business, as opposed to separate software and hardware budgets.

That NFL deal was more for surface anyways. The NFL app was just a nice touch

 

[SpotAnime]

.

.

.

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Thanks all. I guess they have the data to see a certain percentage of their consumer base will stay in their ecosystem, and so they'll just pay for the services and that revenue stream will continue. Data collection is the other big thing.

So then, MS isn't really playing the long ball anymore. They know what they have today, they know what they can salvage and sustain in this generation, and they probably have a good idea of the numbers thst will carry over to the next one. In the event they see some drastic uptick in consumer base (either with the X or the Xbox Two), then they will expand their business model somewhat to ensure those new consumers don't leave as well.

Actually, it is pretty smart. It's no longer about whether people want to buy the next Gears or Halo, because the people they are now aiming for are those who buy the hardware and subscribe to Game Pass. Or the base who want to play multiplayer, they'll buy the games and a year (or more) of XBL.

I think they are creating their own competition with the PC. People who want to play the next Gears or Halo and own a gaming PC will by the game there, they don't have to pllay for console hardware, and they don't have to pay for XBL. But they do have to pay for Windows. Hmmmm....

But then there are people like me who buy their hardware and tons of games, but have shifted purchases over to PC and PS4 because they aren't really speaking to me as a consumer anymore. I'm more likely to abandon XBL, I canceled my EA Access account and I won't pay for Game Pass, because I've become disenchanted with the Xbox as a brand. But then again maybe I'm already discounted from their strategy.

 

[Dash_Riprock]

I mean, yeah. People have been saying this for a while. First Xbox sold at a loss for its entire cycle. Then came the 360 with the RRoD fiasco. Even if the XB1 had been a megahit that kept a stronghold on the NA/UK market I still don't think Xbox would be out of the red.

What I really find hilarious is the fans that take Microsoft's (And Sony's, and Nintendo's) PR statements at face value. This is a Fortune 500 company that has shareholders to answer to, people. You really think they are not going to do their best to spin everything in the best possible light for them?

 

[hydrophilic attack]

So 4700 employees if I'm reading that right? That's not just contract termination fees, that's over $100k each. That will be including relocation aswell as other factors that wouldn't be relevant to the closure of studios. I'm guessing a lot of that is from the Nokia/Mobile phone stuff? I can't remember exactly what went down with that though but I know they had major changes to it last year.

I'm not exactly sure which number is relevant for the number of employees. They throw around a lot of them, These reports are confusing as shit for a layman to read lol. (After trying to read one it became VERY clear that the guy who said that I would easily be able to find whatever numbers I was in denial for not accepting out of hand was completely full of shit). But a bit $100000 per employee is about what I would expect (source: family members and acquaintances with around that level of education and skill that have been hit by redundancies). A reasonable severance package for this kind of skilled position in Europe would be around one year of salary (give or take) and a reasonable salary for this kind of position would be $50000 per year. Then add some stuff for taxes, pensions, and other relocation costs. Severance packages for skilled workers in the UK are obviously much higher than severance packages for retail workers in the UK (the statutory rates you posted earlier sound about right for that) which in turn is obviously much higher than for retail workers in the US (nothing lol)

It might be more than what I said but I still have a hard time believing it's enough to offset them into a negative. Xbox makes a lot of money these days I think people understimate just how much. Don't forget they have Minecraft aswell under that umbrella which has sold another 50M since MS bought it. They could be making more, absolutely, but they still make roughly a billion revenue each month. When you're making that much money a million or 2 loss here and there doesn't really move the needle.

I was originally making the argument (in #post175) that layoffs won't immediately gain you money. That still holds true. Then I allowed myself to be carried away into arguing that it was the cause of bigger a portion of Xbox's failure to turn a profit than I should have. That was a mistake. Doesn't mean it's irrelevant though

 

[Ushay]

This reads like the monthly 'Xbox division is doomed thread'.

Makes one wonder why the Xbox platform is still operating?

 

[SwiftDeath]

Eh this doesn't surprise me if true and the source seems quite reliable.

That being said, Xbox as a brand has value to MS likely above pure financial returns.

MS has a consumer facing brand that is well known, well liked and hits into what is likely considered an important market: Gaming [Still growing albeit differently, most commonly associated with 18-29 demos and/or kids whose data is likely valuable]

I think MS will focus making Xbox as a brand/platform sustainable with minimal losses and take whatever mindshare and data it gets as a win.

Maybe in 10 years or so if the world moves in a different direction they can retire the brand but for now I doubt the losses are anything major to a company like MS and the positive nature of the brand combined with the mindshare already built in would be a hard thing just to toss away.

Xbox isn't Bing or Windows smartphone, people know what you mean when you say Xbox and for many Xbox has become ubiquitous with videogames.

I do think if any of their previous statements about costs in developing XB1 are even close to accurate [$100M+ to develop XB1 controller ; $500 NFL deal] that those will probably either get limited or require cross-pollination with other MS initiatives [I imagine that NFL deal was attached to/part of the Surface deal they had going for instance]

 

[hydrophilic attack]

This reads like the monthly 'Xbox division is doomed thread'.

Makes one wonder why the Xbox platform is still operating?

I feel like we have gotten some pretty good answers to this question ITT. For instance, on this very page we have:

Microsoft typically uses their hardware divisions, which lose money, to support their software divisions, which print money.

Xbox is a valuable brand to have for Microsoft because of data, licensing, and reach into the living room, but it might never be a profitable division. The personnel (R&D), production, and recurring maintenance/support costs are sure to be more than what they turn in profit, but Xbox Live is their most successful home-grown social network, and would have been their most successful network before they purchased LinkedIn. But that said the revenue they make from XBL is less valuable than the data they collect from ~50m active users (or whatever the number is), especially because its data that companies like Google or Amazon don't yet have access to on their own products.

Companies like Microsoft are increasingly becoming data companies, not explicitly product companies. I'd imagine Microsoft sees tangential value in the Xbox Division because they haven't spun it off yet or killed it, which is something that they're usually pretty quick to do for consistently unprofitable divisions (see MS Mobile being sold off in 2016). I still think this could be a possibility and it would be much more in line with what Microsoft does with hardware in general. Basically, using their hardware as a benchmark for other manufacturers to produce their own, ala the PC market, Surface, Surface Book, Windows Phone, enterprise server, etc. I think you kind of see the beginning of this with Microsoft trying to establish a platform on PC that is identical to the Xbox, with a unified network, unified services (Mixer, XBL, etc). I wouldn't be surprised if we had some future where the Xbox exists as a platform, Microsoft continues to make a console/PC for benchmarks, and then other hardware manufacturers do the same, which is what we have in the PC space.

And in the past (and today...) this has usually worked out for them. They're the 3rd most valuable company by market cap in the world, behind Google and Apple of course.

Ecosystem - That's the goal ultimately. To offer a robust selection of services and hardware to get you into the Microsoft ecosystem. A loss in one area doesn't mean the whole is a failure. They want to sell downloadable media, services, software, and hardware. And they want to make the ecosystem easy and convenient which I think is where the xbox comes in. It makes it easy for the user to consume media in the home. Microsoft is moving most of their software to the service model and its easy fro them because most of the world is already customers in the software sales side. I think they envision games moving in the same direction.

The fact they are selling less xbox units cant be helping but I think they hope to leverage the PC users into the equation.That would explain a lot of the cross play and play anywhere type things. They don't care where you play, they just want to sell what you're playing thru their ecosystem, or a service you're playing it on.

I also think they feel at some point the hardware will be irrelevant a lot like what pc ur on is irrelevant to them but that's kind of a different argument.

Sony financed their TV and PlayStation divisions that were losing them millions of dollars each year, until they eventually turned things around.

The key here is sales revenue. Companies spend multiple millions of dollars growing their businesses to a point where they're making sales revenues on the level of MS' Xbox brand. When you're bringing in tens of billions of dollars each year in sales revenues, whilst loosing money, the answer isn't to cut your losses and kill the business outright, it's to understand why your cost base is so high and look for ways to improve productivity/efficiency so that you can return to profitability.

Which is what you're seeing with MS now, hence why so few exclusive games developed and published, as well as no more ridiculous announcements for $500 million deals with the NFL. Spencer has had his operating budget slashed dramatically, and so when you hear him saying things like "now that we've finished developing XB1X we can focus on software", it's legitimately because his budgetary constraints have limited software development because of his hardware development, indicating a fixed budget for the overall Xbox business, as opposed to separate software and hardware budgets.

 

[Goalus]

One of the dirty little secrets of Microsoft's Xbox/gaming business is that it has never actually turned a profit. So I was curious to hear Mr. Nadella utter these contorted words last night: ”Our gaming business is now more than $9 billion, and growing profitably." So. $9 billion is revenues, not profits. So growing means that revenues are growing. And growing profitably means ... what? That the business is ”becoming profitable"? Or is it just growing revenues positively? Was this a misstatement? What does that mean? Here's my guess. He means usage and engagement are growing. Because I can state this with certainty: Microsoft's gaming business is not profitable. In fact, it's undergoing a digital transformation of its own.

So on the one hand this insider criticizes Satya Nadella for making a vague statement about Xbox, and then reacts by making a vague statement about it himself.

Xbox never having turned a profit means what exactly?
Since inception?
There has never been a single profitable quarter?

In case of the former, who cares if the outlook is positive? - Self-proclaimed insiders obviously do, because they can write clickbait articles. Why doesn't this "insider" share some information on how the last eight quarters went in terms of profit, instead of making a vague statement?

 

[Kaydan]

If Nintendo is profitable with a fraction of Xbox's user base, you can be sure that Xbox is a profitable division.

I don't see how this is even debatable. I mean they barely have any expenses on the book right now beside a few future titles and the Xbox one x r&d. Their platform is mature, their library is huge, and they have quite a few successful services. How exactly would they manage to bleed money at this point?

 

[jstripes]

If this was true at all, why would the Xbox division still be around?

Also, shareholders would want this division dead and buried if it doesn't make any cash.

I call complete bullshit on this. They are a fortune 500 company with shareholders, they don't have vanity projects.

If Microsoft shuttered the Xbox division it would be the "just shot themselves in the foot" meme times 1,000. Xbox has a large and rabidly loyal fanbase, a whole horde of gamers that personally identify with the Xbox brand, and those are future Microsoft customers in other areas. With Android and iOS having the potential to overthrow Windows in the consumer segment, Xbox is the one consumer device they have to bet on.

 

[NoPiece]

If this was true at all, why would the Xbox division still be around?

Also, shareholders would want this division dead and buried if it doesn't make any cash.

I call complete bullshit on this. They are a fortune 500 company with shareholders, they don't have vanity projects.

Billion dollar companies definitely have vanity projects, though that pretty clearly isn't what Xbox is. Xbox was more like a passion project by a small number of MS folks who got gaming. Then it was successful, got caught up in typical big corporate politics which corrupted the vision and turned it into a TV box. Now it seems like there has been a course correction and the focus is back to gaming.

 

[TheEndOfItAll]

The whole thing is misleading. XBox itself is not profitable, but the residuals they get from it are. That, to me, means XBox is profitable. In that same sense, isn't Sony in the same boat?

 

[Rellik]

If this was true at all, why would the Xbox division still be around?

Also, shareholders would want this division dead and buried if it doesn't make any cash.

I call complete bullshit on this. They are a fortune 500 company with shareholders, they don't have vanity projects.

It's been said a lot that many in Microsoft want the Xbox division sold. Could be bs of course, but it's a rumour that never goes away.

 

[gypsygib]

Well RROD cost them 1.15 billion alone, not to mention the money lost in good will and positive reputation.

Also, MS spent stupid money on 3rd party exclusives and marketing flops. I think they spent like 50 million on GTA DLC timed exclusivity alone, 350 million on Kinect Marketing, and whole bunch of other massive expenditures that probably hurt xbox brand value more than anything else and provided few long term IPs.

When MS was lacking AAA 1st party exclusives, they were paying tens of millions just to delay Sony users from experiencing content xbox users would have had regardless.

MS focused more on financially strangling a weakened Sony than on making Xbox the best place to play the best games and it's feeling the effects till this day.

They thought you could just throw money to win in an industry more based on creative works. Games don't work that way. Unlike other products where brand recognition is more important than the product. In gaming, the creative work itself has to be superior and you need more of them. While MS was trying to tell you Xbox was the best with advertisement and timed-exclusives, Sony was trying to convince you PlayStation was better with exclusive games.

 

[Mael]

Well we definitely knew that Xbox and 360 were never profitable (why do you think shareholders were calling for xbox getting the axe along with Ballmer).
I expected the xbone to be making a profit but I don't doubt that they haven't recouped the losses of the 2 previous gens either.
Thank god they axed Ballmer though, Xbox is in a better position as a whole and the Azure integration is actually the type of stuffs they should have started with.
Hopefully they manage to rein in their bad habits...

As it is, xbox is a great brand to pull people in their ecosystem to get even more revenue.
The console may be a bit redundant and I can see them doing away with it if it fails to be profitable enough but otherwise they have a better vision and more central integration that doesn't feel like whatever the fuck MSFT was doing with Windows 8.

It's been said a lot that many in Microsoft want the Xbox division sold. Could be bs of course, but it's a rumour that never goes away.

I can believe it

 

[DasPenguin]

If this was true at all, why would the Xbox division still be around?

Also, shareholders would want this division dead and buried if it doesn't make any cash.

I call complete bullshit on this. They are a fortune 500 company with shareholders, they don't have vanity projects.

I thought this has been common knowledge since forever, where have you been? Red ring of death, all the R&D for three consoles, two of them that didn't perform well and this gen they were most likely selling at a loss.

 

[Htown]

I would interpret "growing profitably" to mean that revenues are increasing faster than costs, even if they aren't actually in the black.

 

[Papacheeks]

tales from your ass? well at least you're admitting something because you seem like an expert in that department from what I've seen of your posts, admittance is the first step

we really gonna sit here and pretend the xbox division isn't profitable since the xb1's release? lmao what exactly are they losing money on in such large amounts to offset all the money they gain?

Here you go this is from 2015:

Learn Bonds

Don't know the validity of it but some of the numbers they use are legit and sourced.

Also add in The PR/advertising division in Europe that was axed, along with the entertainment sector they created for original Xbox one content roll out. Add in money spent funding exclusivity for certain games, kinect, cancelled projects that were money sinks like scalebound, fable legends. R&D for 2 new consoles, one was the xbox one s the other xbox one X.(which they are losing money on each sold according to this source).

As shinobi, Matt had talked about in couple threads a while back that thing's in that division are not on the up and up. Hence a lot of cancellations, the budget is super tight and that would be because of losing so much money in not growing the Net profit from that Division.

They wouldn't have axed so much in the first couple years if net profit wasn't an issue. They helped generate more revenue but it didn't lead to large gains in net profit. And that would be because of all the leaks they had for this xbox ship.

The whole thing is misleading. XBox itself is not profitable, but the residuals they get from it are. That, to me, means XBox is profitable. In that same sense, isn't Sony in the same boat?

Playstation prints money at this current time, it is the most profitable sector Sony has and actually helped pad out failing sectors for Sony. Like Playstation makes in net profit close to over a billion by itself. PSN made more Revenue in 2015 than all of Nintendo's business.

 

[MaximusPayne]

Guess I shouldn't worry about that X1X preorder then...

Spoiler

 

[Bitch Pudding]

'Tech journalist' versus MS financial reports. I'm sure I know who is in the corner on this one.

Fortunately I don't live in denial, MS making money doesn't hurt my ego.

So, long story short, you simply are not able to find any numbers which support your argument, hence you move to discrediting the "tech journalist".


Don't get me wrong here, I do not think the journalist's claims are very convincing, but just because MS does not provide any relevant KPIs about the Xbox division.

 

[EdgeXL]

Sorry to muddy the waters even further but ZhugeEX disagrees:

https://twitter.com/ZhugeEX/status/896932335911710721

 

[FyreWulff]

This sounds like bullshit to me.

Even with the red ring problem for the 360, I have a hard time believing that console wasn't profitable.

Red Ring cost them 1.1 billion dollars alone on the 360.

Xbox never actually being profitable is one of the worst kept "secrets" of the industry. They keep shuffling/hiding it's numbers for the purposes of the stock market.

Xbox has made a lot of revenue, but counting spend, Xbox has been in the red since day 1. If the Xbox had been released by any company other than Microsoft, it would not be around today.


Fun fact: The PS3 also lost all of the PS2's profits. Financially for Sony, it's like the PS2 never happened.

http://www.joystiq.com/2008/08/19/the-sony-reciprocal-ps3-losses-surpass-ps2-profits/

 

[michaelius]

Can someone explain to me Microsoft's business strategy with the Xbox?

I know they are moving more to GaaS, but they're also selling less hardware, and over time less hardware means a lower consumer base, which means less people paying for services (read: XBL) which means less revenue which means less profits. Right? Sounds like a means to an end to me.

If Microsoft can't find a way to get more consoles into homes, how is this business model sustainable? It seems to me with this they've already decided the Xbox division will just tread water for as long as it can until it sinks.

Someone please help me with what I'm not seeing here.

I think we need to look at big picture - Microsoft have two failures on their hand Windows 10 mobile and Xbox.
If you check 2013-2014 xbox started as traditional console with Microsoft not caring at all about PC gaming and doing traditional exclusive games and deals.

On the other front Microsoft wanted to force developers to use their store by having one united store for mobiles and desktop windows where they could take cut from any sale. But since windows mobile became trainwreck because by the time they finally released mobile version of windows 10 most the people who used WP8 phone moved to Android/iOS.

Then probably some high level executive had "briliant" idea of salvaging as much as they can from investment in games development to use them to force people to migrate to windows 10 (it was already at the time when it was obvious windows 10 is not reaching 1 bilion users they promised) and actually use store.

It's obvious this wasn't orginally planed because when Tomb Raider and QB released both store and QB were tragically bad mess on PC (QB even lacked basic menu options needed on PC) showing it was last minute decision.

For Xbox as console itself I belive Scorpio is last chance - if it doesn't succed they will continue changing xbox into service - few years from now it will be just a monthly fee for access to game collection that can be accessed from windows store on PC or from dedicated windows store machines (I wouldn't be suprised if next ones after Scorpio will be outsourced to partners).

tl;dr: Xbox itself is moving to service model and microsoft making another console wholy depends on market reception of Scorpio.

 

[border]

For Xbox as console itself I belive Scorpio is last chance - if it doesn't succed they will continue changing xbox into service - few years from now it will be just a monthly fee for access to game collection that can be accessed from windows store on PC or from dedicated windows store machines (I wouldn't be suprised if next ones after Scorpio will be outsourced to partners).

Except the "licensed hardware" console model has failed time and time again. I get that Xbox isn't in the greatest place, but it makes zero sense to abandon the console space. Nobody is going to build consoles for Microsoft and then let them eat all the profits on software and services.

X1X is not some hail-mary that is meant to save the brand. It's pretty obviously positioned as a premium device meant to engage a small cross-section of game and AV enthusiasts. Those people will pay a big price for a high-end experience, but they aren't going to determine the direction of the market as a whole.

 

[NoPiece]

Fun fact: The PS3 also lost all of the PS2's profits. Financially for Sony, it's like the PS2 never happened.

http://www.joystiq.com/2008/08/19/the-sony-reciprocal-ps3-losses-surpass-ps2-profits/

That's what the title of the article you posted said, but that's not what the actual article says. And to be clear, the article was written in 2008. Just a couple years after launch and during the worst period for PS3 with high manufacturing costs.

Sony has lost more money on the PlayStation 3 hardware [in the first two years] than it made on the PlayStation 2 during its five most popular years [PS2 was sold for 13 years].

 

[AmyS]

For Xbox as console itself I belive Scorpio is last chance - if it doesn't succed they will continue changing xbox into service - few years from now it will be just a monthly fee for access to game collection that can be accessed from windows store on PC or from dedicated windows store machines (I wouldn't be suprised if next ones after Scorpio will be outsourced to partners).

tl;dr: Xbox itself is moving to service model and microsoft making another console wholy depends on market reception of Scorpio.

I don't believe that Scorpio / Xbox One X is Microsoft's last chance. It's a heavily upgraded, premium version of their current gen console Xbox One. Phil Spencer said that Scorpio would not be the last console from Microsoft.

There was a tweet in July, about the Xbox already being designed and that it has a codename.

https://twitter.com/JezCorden/status/884917264310575105

http://gamingbolt.com/xbox-one-x-su...be-an-iterative-refresh-of-xbox-one-x-insider
http://www.neogaf.com/forum/showthread.php?t=1405182
http://www.express.co.uk/entertainment/gaming/828780/Xbox-One-X-2-Microsoft-next-gen-PS4-Pro
https://www.reddit.com/r/xboxone/comments/6myxdy/next_xbox_already_being_designed_has_code_name/

I wouldn't doubt a new Xbox coming in say Fall 2020, and that Microsoft's future in the console market in terms of hardware may hinge on that next console. but not Scorpio / Xbox One X.

 

[Justified]

I don't believe that Scorpio / Xbox One X is Microsoft's last chance. It's a heavily upgraded, premium version of their current gen console Xbox One. Phil Spencer said that Scorpio would not be the last console from Microsoft.

There was a tweet in July, about the Xbox already being designed and that it has a codename.

https://twitter.com/JezCorden/status/884917264310575105
http://www.neogaf.com/forum/showthread.php?t=1405182
http://www.express.co.uk/entertainment/gaming/828780/Xbox-One-X-2-Microsoft-next-gen-PS4-Pro
https://www.reddit.com/r/xboxone/comments/6myxdy/next_xbox_already_being_designed_has_code_name/

I wouldn't doubt a new Xbox coming in 2020 or 2021, and that Microsoft's future in the console market in terms of hardware may hinge on that next console. but not Scorpio / Xbox One X.

"Being design" could be drafting design documents and/or brainstorming though.

Im not saying if a new Xbox is will/wont come though, just saying being design means nothing in the sense that its %100 a new one will be made

 

[Deputy Moonman]

When you look at the big picture, which I'm sure they are, the xbox is doing just fine. MS knew their first entry was going to be at a loss. The 360 was a fantastic console marred by a massive flaw - the RRoD. The xbox one was a bit of bad luck (Sony gambling on ddr5 and it actually paying off), a reminder that consumers don't like bad policies, and a final reminder that the kinect makes a console too expensive. Even still, MS is still positioned well with the number of active users. Really, all they need to do is make their next system more reasonably priced and equal in power to whatever Sony puts out, and I think a lot of people, on this forum especially, will be surprised at the number of people who come back from the PS4. MS didn't give much choice this gen for those wanting a powerful console at a more reasonable price. Which is why it would be a waste and MS would be absolutely dumb to stop now.

 

[Uno Venova]

Sorry to muddy the waters even further but ZhugeEX disagrees:

https://twitter.com/ZhugeEX/status/896932335911710721

So since he says during the 360 days only, it’s not profitable now?

 

[border]

As silly as it was, at least the "Microsoft is going to sell off Xbox to another company" rumors from a couple years ago at least made logical sense.

The idea that Microsoft is going to just kill off a billion-dollar brand name is absurd though.

 

[Vlade]

Microsoft entered the market with the intent of spending money to make market share and develop the capability to produce consumer electronics globally. I don't think its reasonable to think the xbox itself will ever have a lifetime profit. It still might have value in that it spins up Microsoft's ability to manufacture, get data, form agreements, etc - which is then used for profit elsewhere in Microsoft. This would have worked better if throughout this period of time if Microsoft wasn't in the dark ages of corporate engineering, using a merit system that literally pits employees and divisions against each other for cash prizes. Employees and divisions had cash incentives to make other employees and divisions look worse. We have only recently been seeing what ms can really do with all these benefits.

All Microsoft hardware efforts appear to have culminated in the Surface, the one device to rule them all.

As to whether or not it was all worth it, I guess so? the surface is great and profitable. Is the Xbox brand still necessary or valuable? I don't see that answer. xbox seems to have thought that becoming a smart tv was the way to go... they seem rudderless to me right now. To be honest tho, I've stopped being interested, so maybe I'm missing their raison d'être.

 

[hamauzu kaito]

Don't believe the brand never turned a profit. Hardware yes, entire brand no. Besides in sure they spin this some beneficial way for them around tax time.

The main accomplishment of Xbox was Microsoft brand revitalization. They had some stumbles but not their brand is associated with a lot of positivity to a generation that otherwise wouldn't have cared about them are all.

 

[Offline]

I don't think Microsoft ever has or ever will understand gaming, Phil recently said they just ''signed'' new exclusives and won't reveal them until 2-3 years down the line, they make it sound like something tedious as if they're annoyed and someone is making them sign a paper, they aren't ''creating'' or ''developing'' new games, they're signing papers and think throwing money at someone or something will help them solve a problem that's annoying them being a burden. It's weird to me that they still want to be in this business

 

[AmFreak]

- What? They cut the cost of kinect out the box, what does that have to do with them losing money? If anything they were probably making even more money from that and it was $399, the kinect was $150 so that essentially gave them an extra $50.

Yes, because Kinect cost them $150, because that was the retail price /s
At launch it was estimated to cost them $70 ...
And the price was down to $350 one year after it launched.

- Again irrelevant, those consoles didn't come with kinect to the whole half price (which is a ridiculous statement anyway) is nonsense.

Hint: That's why i wrote "-Kinect".

Yes the price dropped a lot but so did the cost of manufacturing said bundles making this not really relevant to wether they're losing money on it or not

What?
If they sold under price it's relevant.

- Where? Lol

Germany (and with that very likely all of Europe), but how funny lol

- How does this make them lose money? It doesn't, they just don't get money from Japan and the stock and whatnot will reflect that. They never had Japan in the first place.

1. If they don't get money, they loose money (outside of a border case of 0 that is not realistic). Yes, it's not neck breaking, but it's a stark contrast to last gen.

- Agree but that's not a lot and it's spread out so it will only be a couple mill loss each month of development at best, considering their revenue is around a billion each month, a million or 2 is pennies and really not gonna move the needle (FL was roughly ~1.5M a month and that was an expensive game)

1. They aren't making around a billion from Xbox each month.
2. Their revenue can't counter these looses, only profit can.
3. The real problem here is the missing profit. Doesn't matter for the end result if your loose from hardware is higher or your profit from software is lower.

- Which exclusives? By the time lower marketshare was known the only deal that's really been done is ROTR and I DR4 and we don't know how much that cost but I doubt it's a whole lot in the grand scheme of things - hell we don't even know if money exchanged hands, or if they just gave up part of their 30% cut.

Time/dlc/marketing exclusives?
They will have to give up more for something exclusive than Sony.

- How do you know it cost them money to kill off kinect? It's not like those kinect bundles were lying about, they eventually got sold. Does it cost money to slow down production of an item? If so, any idea how much?

Because you have to build up production capacity, you have to make contracts with suppliers over a certain amount of parts over a certain amount of time.
Then you suddenly "kill" your product ...

your whole argument for them losing money is basically "the cost of the items went down"

Yes, because that's like the whole reason a console manufacturer is loosing money.
Why do you think MS lost billions with the first Xbox, why Sony with the PS3?

while ignoring so did the manfucaturing costs meaning it's possible (and likely) they evened themselves out, actually made more per item or didn't take as big of a hit as you seem to think. Dropping from $499 to $399 with kinect removal wasn't really a price drop in the normal sense.

They didn't make more per item, how naive are you to think that Kinect did cost them even close to what it is sold for at retail?
Do you think a controller cost them $60 to make, or an elite $150?
Or the 360 wlan adapter $100?