Despite the high price, Microsoft isn't turning a profit on the new Xbox
LOS ANGELES - At $500, the new Xbox One X game console is expensive. It's expensive compared to other game consoles, and it's expensive when you're not comparing it to anything.
Unbelievably, at $500, Microsoft isn't making any money on each box sold.
"No," Xbox leader Phil Spencer told me in an interview this week, after I asked him if Microsoft makes any money selling the Xbox One X at $500.
"So, you're taking a loss?" I said. "I didn't answer it that way," he responded, intentionally not offering more detail.
Here's what we know about why the Xbox One X is so expensive:
- It is capable of powering 4K games, which requires bleeding edge technology (read: expensive technology).
- It's small, and small means custom.
That's pretty much it.
There's no expensive peripheral included to bring up the price, nor does it come with a bunch of games. It's expensive because it's powerful (in fairness, it is far more powerful than any other Xbox One).
Like so many consoles before it, the Xbox One X is a means of selling other stuff that makes money. Like what? Stuff like games, peripherals, and services (Xbox Live Gold! Game Pass!).
Here's how Spencer put it:
"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."
Over time, as the cost of making the console goes down, Microsoft's profit margin on each console sold will rise. Another change that will come with time: The normalization of 4K. Right now, in mid-2017, not many people own 4K televisions. But what about this time next year? In five years?
Though the price tag for the Xbox One X is high today, it will assuredly come down over time as well. For now, though? If you want the most bleeding edge Xbox One experience possible, there's a console for you - it's just gonna cost ya.
Get the latest Microsoft stock price here.
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