One of the mysteries that Microsoft has always had is the public presentation of the sales numbers for Xbox consoles. Unlike Nintendo, which has always sold Switch at a profit, and Sony, which recently turned a profit on PS5, Microsoft sells its Xbox Series consoles at a loss.
In a recent interview with the Wall Street Journal, Phil Spencer said that Xbox Series consoles are selling at a loss of $100 to $200. Microsoft sells hardware at a loss on the assumption that it can break even through games, monetization, subscriptions, and accessories. Given the retail MSRP of these consoles, Spencer’s figures indicate that the Xbox Series S could cost up to $399 to produce, and the Xbox Series X could cost $599 – $699 to produce, manufacture, and ship.
“Consoles as a business model, one, as I said, the overall reach of consoles is small relative to where people play. Consoles evolved into a very different business model than phones where consoles are sold at a loss in the market“.
“When someone goes and buys an Xbox at their local retailer, we’re subsidizing that purchase between $100 and $200 in the expectation that we’ll recoup that investment over time through accessory sales and the store.“. By charging third-party developers and publishers a 30% commission, Microsoft is able to generate a return on its hardware losses. In the past, Microsoft has also said it has never sold an Xbox console at a profit.
What’s interesting is that Microsoft still makes billions on the hardware every year. In fiscal year 2022, Microsoft made $3.7 billion from hardware… but that doesn’t equate to profitability.