Xbox One X’s $500 Price Tag Includes No Profit Margin
Phil Spencer confirms that the $500 price tag of the Xbox One X includes no profit margin. What he wouldn’t confirm is if the console will be sold at a loss.
Whenever a new games console is designed and manufactured it requires a huge amount of upfront costs. Those costs are then (hopefully) clawed back by selling tens of millions of consoles to consumers. But the balancing act is offering a games console at an affordable price while still managing to generate a profit. Microsoft did not achieve that with the Xbox One X.
At $500, the Xbox One X is arguably at the limit of what consumers would be willing to pay for a new games console in 2017. And unsurprisngly, it seems that producing the most powerful console in the world cost Microsoft a lot of money. So much money, in fact, that the $500 price tag includes no profit margin.
Phil Spencer, Head of Xbox, confirmed this when asked by Business Insider if Microsoft would make any money on sales of the machine. Spencer simply answered “No.” When pressed further as to whether they were in fact making a loss per console he was non-specific, “I don’t want to get into all the numbers, but in aggregate you should think about the hardware part of the console business is not the money-making part of the business. The money-making part is in selling games.”
It is therefore possible each Xbox One X hardware sale generates a loss, but at best it is breaking even. That’s not great news for Microsoft as it puts even more pressure on game and peripheral sales and makes the Xbox One X a bigger gamble for the company. Hopefully the price of manufacturing the console falls quickly so that a profit margin appears soon.
Selling a newly-released games console at a loss is not uncommon. The PlayStation 3 in particular had a big loss attached to every launch machine sold. According to market research firm iSuppli, the $599 launch PS3 actually cost $840.35 to build. Hopefully we get some figures soon after launch as to how much the Xbox One X costs to manufacture. I suspect Microsoft is going to be making a loss on each sale rather than breaking even.
Source: xbox one – Google News