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How Much Is that Console in the Window?

November 27th, 2013 - 10:29 am

xbox-one

There’s a reason that Xbox costs $499 retail — Microsoft couldn’t possibly charge more. Here’s the breakdown:

Technology market watcher IHS tore into the components of the new gaming machine, and – judging by the Xbox One’s hardware and manufacturing costs – believes Microsoft is taking a hit on hardware sales in hope of revenues from licensed games and Live subscriptions.

This follows a time-honored tradition in the console market of selling games machines at a loss, simply to get as much gear as possible into homes, and then make back the money on royalties from third-party developers. It’s claimed Sony makes “about $18″ on each $400 PlayStation 4, for example.

The IHS estimates that each Xbox One console carries a hardware cost of $457 per unit and an additional manufacturing cost of $14, making the device a $471 machine to produce wholesale. An Xbox One costs $499 in the shops, so that’s a $28 difference. (But then the retailer will want a cut, and there are other overheads to consider, so Microsoft’s mileage may vary.)

When you factor in development costs, licensing fees for Kinect, marketing… I wonder if Microsoft has yet to see its console business return an actual profit.

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All Comments   (6)
All Comments   (6)
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Guys, all video game companies do this. They sell their systems at a loss (at least for the first two generations), because the real money is in game sales and subscriptions. That's how it always has been- and if it wasn't profitable, they wouldn't (collectively) do it.

Each Console developer (Sony, MS, Nintendo) makes money on each game they sell- globally. Think about how much money they made just from GTA V in less than a month.
51 weeks ago
51 weeks ago Link To Comment
Microsoft has been making more income in the "entertainment" division on Android licensing fees than the division has cleared. If this is true, then the Xbox is losing money hand over fist, and has been since the beginning.

If the board of directors had any sense, they'd split the Windows Phone division off as a cash cow, so that the shareholders could actually see some of that profit, instead of letting the Xbox division destroy it.
52 weeks ago
52 weeks ago Link To Comment
If they had any sense, they'd split the company into 4-5 separate units focused on specific products, and let the ones that don't make money die a much deserved death. That is the ONLY way MS will reverse their spiral, and ironically, it's exactly what the government wanted to do back in the 90s.
52 weeks ago
52 weeks ago Link To Comment
I saw some figures a while back that I'll need to see if I can find again. But my recollection is that Microsoft will likely never actually earn back all the R&D in Xbox.
52 weeks ago
52 weeks ago Link To Comment

This is why I love capitalism! All those over-optimistic big businesses, selling dollars for 90 cents just so long as the board doesn't figure it out.
52 weeks ago
52 weeks ago Link To Comment
I know nothing of consoles, so I defer to my son, who has a collection.

He typically picks up Xbox on the cheap - ebay or gamestop after the excitement has subsided. He does this to play this or that game.

But for years his "Go to" console has been playstation. That's the one he uses as a media console as well.
52 weeks ago
52 weeks ago Link To Comment
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