(Business Perspective) Does MS really need Xbox Hardware?

[DonFerrari]

Soundwave said:

Pemalite said:

You do need competition.

The thing about Valve and Steam though is that they are a privately held company.

That means they don't have to appease shareholders and drive profits at any expense.
Gabe Newell can spend money and not turn a profit on a side project and not be held accountable on failing to get a return on an investment or idea.

That definitely means that Valve can maneuver itself in the marketplace a little differently than other business ventures, but it also means they are limited in how much money they can raise to enter new markets.

We also need to remember that Steam has competition... Origin, uPlay, EpicStore, Battle.net Launcher, Windows Store and more are all competing for a piece of the same pie, which has consistently pushed Steam to remain the defacto store, even when developers/publishers tried to omit them.

Even before these other stores popped into existence, Steam was competing with consoles.


As for Microsoft and controllers... Microsoft is trying to exit the peripherals market to a degree, they have wound down their Microsoft keyboards/mice/controllers and are rebranding their premium variants to "Surface" devices.
...Probably wont get an update to sidewinder force it seems.

Their controllers will go in the same direction if they exit the console business.

DonFerrari said:

I do dispute the "MS doesn't care they are third" I can bet they would like and plan to be first, but yes that is beside the point as really if it profits enough it is acceptable at the moment for leadership while they plan on how to take first place.

Every company wants a monopoly.

...But when that is impossible, then as long as they are making a profit, then shareholders (Who these companies answer to) are happy to keep supporting the idea.

When you are managing a company you do need to spin things around from a "marketshare" perspective to a revenue/profit one.

It's why Apple is so successful, they have far far far less marketshare than Android or even Samsung, but they make the most profit.

Being first place isn't always how you win the game.

The iPhone actually is the market leader in the US market, Apple doesn't care to heavily discount as much to get developing markets that require lower pricing, though even for that they've made some aggressive new model options on the bottom end of their product line at a cheaper price. 

Even in Brazil where or our wage iPhone is quite expensive (between 4 to 10 minimum wage depending on the model) it certainly isn't the number 1 in volume, but most likely is the one in profit and for sure the most desired smartphone for a majority of population.

Pemalite said:

DonFerrari said:

I do agree that as long as you have a healthy business not being the leader isn't that problematic. And in Apple case they are market leader in profit even if not in units sold that is still a 1st place.

Exactly my point. They are a leader in profits, even if they don't sell the most units.

Which is the *exact* business model Microsoft is trying to adopt with Xbox. - Volume sales can come later and capitalise on that.

Ok, so we were just thinking from different points.

Azzanation said:

the-pi-guy said:

Marketing rights don't prevent MS from making money off CoD.  It just sways a chunk of the sales towards Sony. Probably not even as significantly as some people think, because PS owners are going to tend to buy CoD on their system in the first place.  

Azzanation said:

360 Lost MS $4b at the end of its life. Only reason they stayed in the industry was because of the subs. Something they don't need to rely on Hardware for anymore.

I would need to see a citation for that number, and what the scope was for that number. They lost a large amount on hardware, they made money off licensing and subs, and their own game publishing. I would need to know what factors that number included.

I doubt their subs would be as sustainable without Xbox hardware.

Sony have the marketing rights, which pushes a huge amount of CoD sales on their platform. Sales = Profits. Sony is making Billions on CoD alone, Xbox isn't. Sony have the Console CoD audience.

360 lost $4billion on hardware, the subs is what kept MS from leaving the market, the exact point of my thread. MS want subs not hardware responsibilities. 

Pemalite said:

You do need competition.

The thing about Valve and Steam though is that they are a privately held company.

That means they don't have to appease shareholders and drive profits at any expense.
Gabe Newell can spend money and not turn a profit on a side project and not be held accountable on failing to get a return on an investment or idea.

That definitely means that Valve can maneuver itself in the marketplace a little differently than other business ventures, but it also means they are limited in how much money they can raise to enter new markets.

We also need to remember that Steam has competition... Origin, uPlay, EpicStore, Battle.net Launcher, Windows Store and more are all competing for a piece of the same pie, which has consistently pushed Steam to remain the defacto store, even when developers/publishers tried to omit them.

Even before these other stores popped into existence, Steam was competing with consoles.


As for Microsoft and controllers... Microsoft is trying to exit the peripherals market to a degree, they have wound down their Microsoft keyboards/mice/controllers and are rebranding their premium variants to "Surface" devices.
...Probably wont get an update to sidewinder force it seems.

Their controllers will go in the same direction if they exit the console business.

Disagree. 

For starters, weather UPlay, Originas, EpicGS, Battle.Net, Windows Store and ill add another GoG didn't exist, it wont change anything to how Steam is still ran today. If anything, competition has created more issues with the PC market place, like when EGS entered the market, creating more headaches for users and poaching games off Steam which frustrated players. Steam doesn't need competition.

DonFerrari said:

I don't need Xbox personally, but you are wrong on X1 or Series burning money from MS. They may not have high profits (MS doesn't show the numbers), but the HW itself hardly is losing more than 1 or 2 games worth of profit, so considering the 10+ average it console sells and the subscriptions the HW itself is advantageous to MS.
Regarding needing MS to keep Sony in check I don't believe in it, PS2 dominated the market with easyness and still had price, quantity and quality while PS4 had a much stronger competitor in X1 and didn't cut prices besides once and in PS5 situation is similar regarding sales and besides the price increases due to inflation/exchange ratio there is no interest from either MS or Sony to cut prices at the moment.

Xbox hardware costs billions to RnD and create. It also means they need customer service stations, manufacture materials, deals and the middle man to sell them. XB1 made money for Xbox but it was due to subscriptions and Software sales. Xbox doesn't sell enough hardware to stay relevant.

You dont need Xbox to exist since you don't invest in it. So hopefully for you, soon Xbox will pull out of the hardware business and you will just have PS for your needs.

Sure R&D is costly and the HW is sold at loss, but right now (which can change if GP goes to major numbers like 100M+ subs) I think they would lose more when losing the royalties than save on the cost of R&D and subside for the HW.

Soundwave said:

I think Netflix is probably the more apt analogy for how MS sees the XBox division ... Netflix lost money for 10+ years but in doing so became the streaming leader.

MS has more than enough money, I mean just think for a second AFTER buying Bethesda, they still have like 70 billion (which is probably more than what the Playstation division is worth and more than Nintendo's market cap) to casually try and buy Activision too. This is like knowing someone that just carries around $10,000 in their wallet.

Microsoft is not your typical company. 

The thing is Amazon and Netflix business model was to not give profit, reinvest and increase the price of the share and make shareholders happy. It worked for over 10 years, but now they are pressuring to show profit.

SKMBlake said:

DonFerrari said:

I don't need Xbox personally, but you are wrong on X1 or Series burning money from MS. They may not have high profits (MS doesn't show the numbers), but the HW itself hardly is losing more than 1 or 2 games worth of profit, so considering the 10+ average it console sells and the subscriptions the HW itself is advantageous to MS.

Daniel Ahmad suggested the mere profits they were making on games and services were probably overshadowed by the loss they make on hardware, during the Epic vs Apple trial.

To clarify the above. $2.2bn is not Microsoft's final profit on gaming. That's just gaming software and services profit.

You have to account for the loss that Microsoft takes on hardware, so the actual profit from Xbox would be much lower (or even negative)

— Daniel Ahmad (@ZhugeEX) May 5, 2021

Thank you for the clarity. Seems like Series is more expensive for MS to produce than PS5 is for Sony. 100 to 200 loss per console with the GP model selling less SW may have a totally different balance point than what Sony sees.