(Business Perspective) Does MS really need Xbox Hardware?

[DonFerrari]

Machiavellian said:

Azzanation said:

Are you referring to the hardware needed for their server farms?

If so, building hardware for XCloud and selling hardware at a loss to customers are completely different. MS wont have limitations on building powerful hardware for their Cloud streaming services, if they dont have to worry about selling that hardware to the average consumer at a loss. 

They can come out tomorrow and tell Devs, XCloud has 90TF GPUs, help yourself. That can entice major devs in cutting loose on console limitations and just go bang with whatever game they want to make.

Also if the hardware is losing $1 per console sold and they sell 50m consoles, thats money down the drain. Phil said the Series consoles are losing $200 per unit. Thats a $10b loss at 50m sold. The more they produce the higher the bill gets.

They can avoid that bill by simply moving away from it. They have the infrastructure to do it, its just timing. Like Digital and VR, it will take time to grow and it will grow as tech improves overtime.

Yes you are right, there is a huge difference between only making hardware for MS server farms which is comprised for XCloud with Series X and making it to sell to customers.  The same R/D you mentioned still has to happen, no matter if you building it for the server farm or you are building it for customers.  There is a big difference you seem to be missing.  When MS sells to the customers they recoup that cost with game sells and services.  MS cannot recoup that cost if that same hardware is running in a server farm.  This in big business would be considered a loss for each piece of hardware added to the server farm.  So how many subs would it take to overcome that lose.  This would mean MS would be reliant for all their revenue from XCloud which as we have stated is no where close to being a viable solution over local hardware.  So now MS would lose all the revenue as we stated again from their services running on local hardware.  You lose all your sales from games being sold and played on your local hardware, you lose license fees for every game that is sold on your local hardware.  

It really appears you do not fully grasp the business model.  GP cannot survive on XCloud alone, it would not work.  MS would bleed money and the games division would be operating in the red for years if not longer.  How many subs would it take to not only over come all the lost revenue we have talked about before but also lose revenue in all the studios making games.  Those are also cost you have to consider as well because its not cheap making AAA games and if MS is purchasing more studios and publishers to make GP a service that has first party content every quarter then how much of a cost is that to the gaming division.

So if MS is losing 200 per console, how much are they losing per server farm without selling to consumers.  How do MS continue to sell their services on top of hardware and fund game development and the cost of upgrading that hardware cycle.  Nothing that you have stated comes close to making that a reality.  50 million subs is not going to cut it, it would take something north of 150 million which MS is no where close to accomplishing. 

Also you have to consider let's say that Series S (losing 200 and I believe no R&D accounted on this) cost MS 500USD to make (it is odd since PS5 loses 100 on the digital and break even on disc), and it costs 500 when they plan on selling about 50M of those. Now imagine if they were only making 10M of those for Cloud, they certainly would cost a lot more (just look at PC Hardware for consumer level to have an idea of the gap, which of course will be smaller for MS but certainly will cost a lot more than when customer subside with volume not only the R&D but economy of scale).