Microsoft Won't be Profiting from the Xbox One X's $499 Price Point

[Raevenlord]

The lid was taken from Microsoft's Project Scorpio console last weekend. Commercially named the Xbox One X, the new Xbox console will join the "Xbox family of devices" with much higher power envelope than any other console currently in the market, at 6 TFLOPs of computing power. At that rate, Microsoft says (and has demonstrated) that its new console will be able to power premium, true 4K experiences. However, some analysts say that the $499 price point will be too high for consumers, which usually look to purchase consoles in the $249, $349 price band.

That said, the question could be put to Microsoft whether or not the company could have decreased their new console's pricing even further, by taking a cut from the hardware selling profits. When asked whether Microsoft was making any profit at all from the Xbox One X's retail pricing, Phil Spencer answered with a pretty frontal "No". So Microsoft really isn't profiting from the sale of any Xbox One X console, which may look somewhat unbelievable considering its steep price point (relatively; we have to keep in mind this console Can actually power 4K experiences.) However, this is nothing new: in fact, most gaming consoles ever released barely made any amount of money on hardware sales at the moment of their introduction to market. Manufacturers such as Microsoft and Sony instead usually choose to subsidize console purchases by bringing their profit margin to zero (and sometimes even below zero, as in, the consoles cost more to manufacture than their selling point) so as to allow a greater number of customers to purchase the hardware. Software, and more recently DLC, is where the money is to be made in consoles.





Remember that the Xbox One X packs a highly-custom 8-core processor based of AMD's Jaguar microarchitecture at 2.3 GHz, as well as a custom, 6 TFLOPs graphics processor by AMD. This one is based on the company's Polaris architecture, but incorporates custom specifications as per Microsoft requirements, as well as incorporating some features that will only be available with AMD's upcoming Vega architecture. There are 12 GB of both graphics and system-wide GDDR5 memory, a pivotal point of AMD's HSA architecture, a 1TB hard drive, a 4K Blu-ray player, and support for Dolby Atmos.

There is a lot of tech and design prowess in this little box (which is smaller than the Xbox One S, which was itself 40% smaller than the original Xbox One), including a per-console power distribution and power consumption delivery thanks to what is being called the Hovis method, and the usage of vapor-chamber cooling technology to allow the console to occupy such a small footprint.

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[RCoon]

Hardware costs lower as production ramps up. They'll be operating at 0% console hardware profit for maybe the first 12 months, then processes will get streamlined and such and they'll start moving into profit-making territory. Most consoles earn their millions from licensing and profits of games and services though. The Xbox Division of Microsoft probably only makes about <10% of its profits from hardware sales. The rest is their cut from every game, app and subcription service they help serve on their platform. And Xbox Live of course.

 

[NTM2003]

They said it will even look better on a 1080p tv my Xbox one s looks grate but is the Xbox one x be even better

 

[bug]

A multi billion dollar company sells a device that will help then rake in more cash at production cost. I think I'm going to cry. /s

 

[Captain_Tom]

I am actually surprised, I thought for sure they would at least be breaking even (They probably still are).


I still think they should have launched it at $399 with big new exclusives as the XBOX Two. Just take the hit now instead of later.



Selling a "Current-gen Branded" console for $499 is suicide.

 

[Valantar]

Hardware costs lower as production ramps up. They'll be operating at 0% console hardware profit for maybe the first 12 months, then processes will get streamlined and such and they'll start moving into profit-making territory. Most consoles earn their millions from licensing and profits of games and services though. The Xbox Division of Microsoft probably only makes about <10% of its profits from hardware sales. The rest is their cut from every game, app and subcription service they help serve on their platform. And Xbox Live of course.

On the other hand, R&D costs are probably distributed evenly over estimated production volumes for the first 2-3 years - and is by far the biggest single expense per chip, considering the hundreds of millions if not billions of dollars chip development costs. In other words, it'll be a while until production costs drop to the point you're describing.

 

[ZoneDymo]

ermm yeah no shit.
Console makers have not been making money of the consoles for forever now, its the games that bring in the cash...
Hell I think MS made a loss on every Xbox they ever made.
Only Nintendo was making profit on sold consoles up untill the WiiU.

 

[rtwjunkie]

Hardware costs lower as production ramps up. They'll be operating at 0% console hardware profit for maybe the first 12 months, then processes will get streamlined and such and they'll start moving into profit-making territory. Most consoles earn their millions from licensing and profits of games and services though. The Xbox Division of Microsoft probably only makes about <10% of its profits from hardware sales. The rest is their cut from every game, app and subcription service they help serve on their platform. And Xbox Live of course.

You got it exactly right. Corporation, including MS, don't make stuff to not profit. Early on, no profit. Later, profit from software and hardware as R&D is paid for.

It is extremely disingenuous for MS to try and look altruistic, when anyone with half a brain knows they are not a Non-profit NGO. They are going MAKE sure they get paid, somehow.

 

[Valantar]

You got it exactly right. Corporation, including MS, don't make stuff to not profit. Early on, no profit. Later, profit from software and hardware as R&D is paid for.

It is extremely disingenuous for MS to try and look altruistic, when anyone with half a brain knows they are not a Non-profit NGO. They are going MAKE sure they get paid, somehow.

Well, of course. They're already profiting off the royalties developers pay them to sell games on their platform, and that's not going anywhere. Still, this comes as a response to the criticism of the One X for costing $499. If that price is where MS breaks even in their calculations of amortizing R&D costs over X million consoles sold, imagine how much higher X would have to be if they suddenly dropped the retail price by 1/5. While MS is absolutely in the console business to make money, it's pretty much an accepted industry fact that hardware is a means to an end, and making money off it is a best-case scenario. I'd say they're balancing the price against the sales prospects over the next 3-4 years (as there'll probably be a far more powerful version launching then). Wouldn't matching the price of the PS4 Pro then necessitate another year or more of sales to make up the difference?

 

[The Von Matrices]

On the other hand, R&D costs are probably distributed evenly over estimated production volumes for the first 2-3 years - and is by far the biggest single expense per chip, considering the hundreds of millions if not billions of dollars chip development costs. In other words, it'll be a while until production costs drop to the point you're describing.

Is R&D included when assessing whether each console is sold at a profit or a loss? I would hope not because R&D is a sunk cost; all that matters is the marginal cost of producing an additional console.

 

[Valantar]

Is R&D included when assessing whether each console is sold at a profit or a loss? I would hope not because R&D is a sunk cost; all that matters is the marginal cost of producing an additional console.

I would expect hardware R&D to be amortized, at least in part, across hardware sales. Anything else would mean that they're actually selling the One X at a huge net loss, after all.

 

[Readlight]

How its posible to trust that they wont lower anti-aliasing, shadows and 3d objects in games to get high framerate!

 

[NdMk2o1o]

How its posible to trust that they wont lower anti-aliasing, shadows and 3d objects in games to get high framerate!

Lower AA, shadows and objects.... ummm that's what consoles do already lol hence lower quality compared to a half decent gaming PC.

As to not making a profit on the XboneX or whatever the hell it's called, this isn't news and all consoles have this patch during the initial release but production costs will decrease and they will make a f**kton from exclusives and games/subscriptions/ peripherals and even the console very soon, so my heart isn't bleeding for MS and their £500 console

 

[cdawall]

They have announced this with every single console for the past 10-20 years

 

[Naito]

I'm not sure why there is so much whining over the price. It's only $500 and you get a box that you can plug in and run games up to 4K/60fps and plays 4K Bluray. That's a ridiculous amount of grunt and functionality for little money. A gaming computer with the same capability would probably set you back at least thrice as much. Or is it just everyone looking to buy a console is a tight arse?

I'm personally surprised it is that cheap. I was expecting $600-650 at least.

 

[bug]

I'm not sure why there is so much whining over the price. It's only $500 and you get a box that you can plug in and run games up to 4K/60fps and plays 4K Bluray. That's a ridiculous amount of grunt and functionality for little money. A gaming computer with the same capability would probably set you back at least thrice as much. Or is it just everyone looking to buy a console is a tight arse?

I'm personally surprised it is that cheap. I was expecting $600-650.

Little money? I doubt $500 is considered "little money" even in first-world countries.

Imho, they should (and eventually will) give the hardware for free, since you don't own it anyway after you pay for it.

 

[Naito]

Little money? I doubt $500 is considered "little money" even in first-world countries.

In relative terms it is. The GTX 1080 released at what, $500-600? And that's a card that won't even gaurantee you a solid 4K at 60fps. Add on that the need to buy a CPU, motherboard, RAM, etc, it'll cost you plenty more. Granted that a PC is more versatile, but if you only cared for media consumption and gaming, $500 is nothing for that kind of performance.

I just know the general consumer won't see it like that...

Edit: And you do own the hardware - you could run over it with a tractor, if you wanted. You just can't reverse engineer it.

 

[Captain_Tom]

I'm not sure why there is so much whining over the price. It's only $500 and you get a box that you can plug in and run games up to 4K/60fps and plays 4K Bluray. That's a ridiculous amount of grunt and functionality for little money.

I'm sorry but that just isn't true. I can build a PC RIGHT NOW that is as strong as the XBOX One X (Dumbest name on Earth) for $550 that matches the XBX! No it won't have Blu Ray, but people buy consoles to game buddy.


They are selling a "Current Gen" console for $500 4 years into a generation. It is complete suicide.

 

[cdawall]

Little money? I doubt $500 is considered "little money" even in first-world countries.

Imho, they should (and eventually will) give the hardware for free, since you don't own it anyway after you pay for it.

I have over 10K worth of computer equipment sitting in a hot dirty garage running freaking mining junk. $500 is not a huge price tag, for a lot of people. For some it is, oh well.

 

[Naito]

I'm sorry but that just isn't true. I can build a PC RIGHT NOW that is as strong as the XBOX One X (Dumbest name on Earth) for $550 that matches the XBX!

I highly doubt that you could build a PC, using brand new parts, that will compete with the Xbox One X for that price. Custom Polaris chips with hardware implementation of DX12 features. 12GB GDDR5 RAM. Add on top of that the extremely low-level tricks game developers can use to squeeze every ounce of performance out of the hardware.

No it won't have Blu Ray, but people buy consoles to game buddy.

A majority still probably use them for gaming, but I do see them more and more for media consumption. Mine is used primarily for YouTube, Plex, Netflix, Stan, Groove Music, FTA TV, etc. It is also my primary DVD/Blu-ray player. Scrolling through my friends list I can often see them using it for the same things.

They are selling a "Current Gen" console for $500 4 years into a generation. It is complete suicide.

It's the same ecosystem. Sony did it with the PS4 Pro. Same OS, same game support, pretty much the same features all round with more added. If you can't afford the top-end or you did have a need for 4K content, a $250 console will suffice and you won't be missing out on much at all.

It's an impressive piece of kit for that money. There is no two-ways about it.

And before any jumps on me with an immature taunt implying I'm some sort of console fanboy - I build my own computers and game primarily on them, but this doesn't make me blind to decent hardware outside of the segment.

 

[Caring1]

Microsoft could appear to be altruistic and give away the consoles, literally flooding the market and taking the major share.
They would then profit from sales of games, licensing and online memberships.

 

[Camm]

The big thing missing with the Xbox X IMO is a corresponding bump to the S "main" console to at least PS4 specs.

 

[iO]

Price is pretty good if you consider that you'll get at least GTX 1070 performance.

 

[cdawall]

Price is pretty good if you consider that you'll get at least GTX 1070 performance.

Rx580 performance. From the Polaris chip in it.

 

[iO]

If you think about it, it’s kind of equivalent to a GTX 1070 maybe and the Xbox One X actually has 12GB of GDDR5 memory. It’s kind of like having a pretty high-end PC minus a lot of overhead due to the operating system on PC. So I would say it’s equivalent to a 16GB 1070 PC, and that’s a pretty good deal for $499