The razor and blades business model has long been the norm for console makers, which traditionally sell devices at a loss but make money from the software and services available for the hardware.
Nevertheless, the ongoing Epic Games vs Apple trial continues to bring to wider public attention the type of sensitive information companies would rather keep under wraps.
Xbox business development vice president Lori Wright, who is a third-party witness in the case, was asked by Epic lawyer Wes Earnhardt “how much margin does Microsoft earn on the sale on the Xbox consoles?”
“We don’t. We sell the consoles at a loss,” she responded, according to Protocol.
Asked if Microsoft has ever earned a profit on the sale of an Xbox device, she said “no.”
“Hardware being unprofitable certainly played a bigger role in the late 90’s and early 2000’s (oh and PS3 era lol),” Niko Partners senior analyst Daniel Ahmad tweeted in response to Wright’s testimony.
“Both the PS5 and Series X/S are being sold at a loss right now, but will become profitable down the line most likely.
“The PS4 was probably the first Sony console to flip the above concept somewhat,” he suggested.
“While Sony aggressively cut the price of PS2, for example, down to $99, the PS4 maintained a $299 price point for multiple years and was profitable.”
Ahmad also called Nintendo “somewhat of an outlier as “Switch was built to be profitable asap.”
Same Microsoft document has a breakdown of hardware revenue / profit estimates for Sony and Nintendo.— Daniel Ahmad (@ZhugeEX) May 5, 2021
Hardware generating a loss for Sony, but profit for Nintendo.https://t.co/hOqyjeKQcv pic.twitter.com/mPBKABWHRD
For example.— Daniel Ahmad (@ZhugeEX) May 5, 2021
The same document from Microsoft estimates that Sony had a profit of $4.1bn on software and services.
But it had a loss of ~$1.7bn from hardware.
So it's overall profit was $2.3bn
Related Forum: Xbox Forum