Microsoft Loses $2 Billion Per Year On Xbox, Analyst Says

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Ryan Hughes:

[...]They stumbled onto gold when they bought Bungie, but the similar purchase of Rare did next to nothing for them[...]

Did you ever hear that story about how when Microsoft purchased Rare, some Microsoft execs assumed they owned the rights to Donkey Kong?

BloodSquirrel:

Nice appeal to authority, but I've got a much, much better one: Microsoft's actual, official numbers which show the division being profitable.

Sherlund is making a claim for which he should be providing evidence, but he isn't. That's pretty much the beginning and end of any logical argument to be made here.

Microsofts actual, official numbers show small profits for a division that was unprofitable for a long time and operates on a sum total of over 3 billion loss it has accumulated over the years and are unable to push out with its current "profit".
And thats WITHOUT counting out the android royalties.

Sleekit:
i used to be like you and a big fan of "logic"...not so much now...

it took 2 breakdowns due to the world "not acting like its supposed to" to cure me of that.

but hey whatever...knock yourself out trying to apply "logic" to the world (even tho doing so is a recognised logical fallacy in and of itself ie "the just world fallacy")...i see there is little point in trying to impress upon you any alternative outlook...for now...

The world acted logically and "the way it was supposed to". Its just that you lacked knowledge of all details to make logical conclusions and had to guess parts of it (liek you guessed that he earns millions of dollars). The world is run by Logic, its just that humans are too imperfect to see all the factors.

FizzyIzze:

Ryan Hughes:

[...]They stumbled onto gold when they bought Bungie, but the similar purchase of Rare did next to nothing for them[...]

Did you ever hear that story about how when Microsoft purchased Rare, some Microsoft execs assumed they owned the rights to Donkey Kong?

I do remember that indeed. The director who said that may have been mistaken, but, one thing that I think is true is MS' hubris with the whole purchase. Rare had already lost David Doak, one of the main team from Goldeneye, who went onto make Time Splitters. Rare was also bleeding talent left and right as people moved onto other projects. When the purchase was announced, even more left. So, MS spent all that money for the rights to a few titles and only a handful of qualified, talented people. Nintendo knew that the talent was leaving, and decided to sell their stake in Rare, I assure you that Nintendo would have never sold the company if they thought it would make another Goldeneye or Banjo Kazooie.

Interesting. I guess this explains all the rumblings I keep hearing about shareholders and such wanting to sell off the Xbox brand. Then again, even if Xbox is turning a profit, I hear it's not as profitable as shareholders want. So, it's not just a question of turning a profit, but turning a good profit.

That's a question my own company is dealing with. We don't expect much growth in the coming year due to economic issues, so we're basically looking to maintain a profit by other means. Like reducing our freight claims which are a major pain due to the shippers constantly screwing up our shipments and getting material there damaged.

james.sponge:
So basically this only confirms that Microsoft (along with Sony if we take into account news from the past few months) are in bad financial shape. Wonder what would be the end of the coming generation of consoles? A contest between valve and nintendo is inevitable? ;)

Oh no microsoft is not in bad financial state, while Sony is in TERRIBLE financial state. Sony's PS division could drown the entire company, while the XB division is another one of MS' many unprofitable divisions which doesn't even flinch MS b/c they are swimming in Money!

Though there are voices that say they want to cut out the XB division w/in MS, I wouldn't pay too much attention to them, the XB division is currently the only way MS can reach consumers in the living room, something important to a company seeking to diversify and jumping off the sinking ship that is PC software.

I've always thought that the only company operating under a business model that looks and sound really profitable to me is Nintendo. Hate it all you want but the big N cashes in on the hardware, the games and the licensing on consoles and handhelds. M$ and $ony just seem to be on a battle of attrition to see how long it takes for them to keep pushing for harder to make and more expensive hardware every generation until they are the only ones left on the market.

theuprising:

james.sponge:
So basically this only confirms that Microsoft (along with Sony if we take into account news from the past few months) are in bad financial shape. Wonder what would be the end of the coming generation of consoles? A contest between valve and nintendo is inevitable? ;)

Oh no microsoft is not in bad financial state, while Sony is in TERRIBLE financial state. Sony's PS division could drown the entire company, while the XB division is another one of MS' many unprofitable divisions which doesn't even flinch MS b/c they are swimming in Money!

Though there are voices that say they want to cut out the XB division w/in MS, I wouldn't pay too much attention to them, the XB division is currently the only way MS can reach consumers in the living room, something important to a company seeking to diversify and jumping off the sinking ship that is PC software.

Makes sense, I imagine most of their income comes from selling OS licenses to companies. Still MS just seems to sink money in unprofitable ventures like phones, tablets and now consoles as well.

james.sponge:

theuprising:

james.sponge:
So basically this only confirms that Microsoft (along with Sony if we take into account news from the past few months) are in bad financial shape. Wonder what would be the end of the coming generation of consoles? A contest between valve and nintendo is inevitable? ;)

Oh no microsoft is not in bad financial state, while Sony is in TERRIBLE financial state. Sony's PS division could drown the entire company, while the XB division is another one of MS' many unprofitable divisions which doesn't even flinch MS b/c they are swimming in Money!

Though there are voices that say they want to cut out the XB division w/in MS, I wouldn't pay too much attention to them, the XB division is currently the only way MS can reach consumers in the living room, something important to a company seeking to diversify and jumping off the sinking ship that is PC software.

Makes sense, I imagine most of their income comes from selling OS licenses to companies. Still MS just seems to sink money in unprofitable ventures like phones, tablets and now consoles as well.

Like others have stated in this thread, the 360 was profitable for MS over its life cycle, this guy is bunk and accounting for all the money MS is using marketing and creating the XB1 into his figures. The 360 just wasn't VERY profitable for MS compared to their licencing revenue, hence the complaints from the business world and why this new console is designed to break even day 1 rather than sell at a loss like they usually do.

theuprising:

james.sponge:

theuprising:
Oh no microsoft is not in bad financial state, while Sony is in TERRIBLE financial state. Sony's PS division could drown the entire company, while the XB division is another one of MS' many unprofitable divisions which doesn't even flinch MS b/c they are swimming in Money!

Though there are voices that say they want to cut out the XB division w/in MS, I wouldn't pay too much attention to them, the XB division is currently the only way MS can reach consumers in the living room, something important to a company seeking to diversify and jumping off the sinking ship that is PC software.

Makes sense, I imagine most of their income comes from selling OS licenses to companies. Still MS just seems to sink money in unprofitable ventures like phones, tablets and now consoles as well.

Like others have stated in this thread, the 360 was profitable for MS over its life cycle, this guy is bunk and accounting for all the money MS is using marketing and creating the XB1 into his figures. The 360 just wasn't VERY profitable for MS compared to their licencing revenue, hence the complaints from the business world and why this new console is designed to break even day 1 rather than sell at a loss like they usually do.

Maybe have turned a profit, but it took years. Even then, it still haven't covered the costs microsoft sank into it.

the original xbox lost an upwards of 4 billion. Alone.

A single console making a profit on its R&D doesn't mean its making enough to cover everything else microsoft sank into it.

Up until the 360, it ran at a loss. In 2011, the net profit was -$6 billion when you factor in all the costs microsoft put in trying to set up this brand.

Now factor in the 8 billion cost to make the xbox one and that translates to 8+6= 14 billion dollars lost in the grand scheme of things.

The 360 may be profitable, but it hasn't even begun to dig out the hole microsoft dug trying to get that profit in the first place. You are mistaking short term income for total net profit.

In terms of net profit, the xbox is a horrible drain on the company.

Microsoft knows the xbox makes no actual money. They are trying hard to try to stop the cost by trying to break even on a console, with its 500$ price point. No company gets that desperate unless something is very wrong and the project might be axed after this.

The only analogy that would work is buying a 14 billion dollar money printer that only prints out a single 1 dollar bill every year.

I have to say this analyst's numbers don't sync up with what I've heard elsewhere. It's hard- not impossible, but hard- to believe that a company like Microsoft would stick to a losing game for three generations.

I must be misunderstanding something fundamental here but if a product is LOSING MONEY then why do they keep selling it?

Excuse my naivety but that seems kind of, well, fucking stupid. I'd get it if it was for some promise of future gain but it's BILLIONS. How are they hoping to make that up?

Callate:
I have to say this analyst's numbers don't sync up with what I've heard elsewhere. It's hard- not impossible, but hard- to believe that a company like Microsoft would stick to a losing game for three generations.

Use_Imagination_here:
I must be misunderstanding something fundamental here but if a product is LOSING MONEY then why do they keep selling it?

Excuse my naivety but that seems kind of, well, fucking stupid. I'd get it if it was for some promise of future gain but it's BILLIONS. How are they hoping to make that up?

Well the original plan was that xbox would be the next big thing at microsoft that would dwarf the enterprise division.

That didn't happen. The xbox was a bust.

Then apple came along, then they made the xbox 360 into a "safe bunker" away from apple. A place they couldn't touch.

Steve jobs died, and the money so far has been nothing.

Now the only reason anyone says to keep xbox is to try to survive in a "post PC" world and to stay relevant in consumer's eyes.

The problem with this strategy is that if it makes no money, there is no future. You can't restructure your entire company on a dying brand and say "its not PC so its ok." People say apple might take over the living room with a console, but the fact is apple won't even touch gaming with a ten foot pole because if Sony and Microsoft lost billions on consoles, they sure as hell won't even bother. Not to mention Steve Jobs thought gaming was a fad that would die, and hated it ever since the pippin.

So the living room is safe from apple, because there is no money in it to justify the huge costs of entry. The only reason the xbox is kept going is because Ballmer and friends didn't want to admit they were wrong and that their over reaction cost microsoft billions.

So basically, Ballmer was the only reason it was kept going. It was his pet project to be "hip and cool" that ended up going nowhere. Like all of his plans.

The xbox One has a 500$ cost because its not on a loss leader method. It was a cheapo console, with no actual subsidies to the consumer like the PS4's 400$ price, to try to prove xbox can make money. The xbox one is a last ditch effort to try to prove to the board that it isn't dead and that it can bring profit.

If the PS4 wins this generation, and early reports says it will, the xbox will be axed soon.

caballitomalo:
I've always thought that the only company operating under a business model that looks and sound really profitable to me is Nintendo. Hate it all you want but the big N cashes in on the hardware, the games and the licensing on consoles and handhelds. M$ and $ony just seem to be on a battle of attrition to see how long it takes for them to keep pushing for harder to make and more expensive hardware every generation until they are the only ones left on the market.

Well for Sony they made huge profits with the PS1 and the PS2 just fine, it's just that the blunders they made with the PS3, combined with other things, kinda made it go away. Although they've made profits on the PS3 now, but the Vita isn't helping as much.

While I am not a big XBox fan, I would like to point out that analysts are like knee-jerk parents. They see things that don't make sense to them, and come up with some extravagant, complicated reason which may end up as bullshit.

If anything, Microsoft loses money on every other generation of Windows.

fix-the-spade:

Oh right, because investors line up down the street to buy a business losing $2billion per year.

I don't know, there's got to be a few rich guys with more money than sense. Maybe Donald Trump?

Ultratwinkie:

Callate:
I have to say this analyst's numbers don't sync up with what I've heard elsewhere. It's hard- not impossible, but hard- to believe that a company like Microsoft would stick to a losing game for three generations.

Use_Imagination_here:
I must be misunderstanding something fundamental here but if a product is LOSING MONEY then why do they keep selling it?

Excuse my naivety but that seems kind of, well, fucking stupid. I'd get it if it was for some promise of future gain but it's BILLIONS. How are they hoping to make that up?

Well the original plan was that xbox would be the next big thing at microsoft that would dwarf the enterprise division.

That didn't happen. The xbox was a bust.

Then apple came along, then they made the xbox 360 into a "safe bunker" away from apple. A place they couldn't touch.

Steve jobs died, and the money so far has been nothing.

Now the only reason anyone says to keep xbox is to try to survive in a "post PC" world and to stay relevant in consumer's eyes.

The problem with this strategy is that if it makes no money, there is no future. You can't restructure your entire company on a dying brand and say "its not PC so its ok." People say apple might take over the living room with a console, but the fact is apple won't even touch gaming with a ten foot pole because if Sony and Microsoft lost billions on consoles, they sure as hell won't even bother. Not to mention Steve Jobs thought gaming was a fad that would die, and hated it ever since the pippin.

So the living room is safe from apple, because there is no money in it to justify the huge costs of entry. The only reason the xbox is kept going is because Ballmer and friends didn't want to admit they were wrong and that their over reaction cost microsoft billions.

So basically, Ballmer was the only reason it was kept going. It was his pet project to be "hip and cool" that ended up going nowhere. Like all of his plans.

The xbox One has a 500$ cost because its not on a loss leader method. It was a cheapo console, with no actual subsidies to the consumer like the PS4's 400$ price, to try to prove xbox can make money. The xbox one is a last ditch effort to try to prove to the board that it isn't dead and that it can bring profit.

If the PS4 wins this generation, and early reports says it will, the xbox will be axed soon.

You know, it would be nice to see some sources man, otherwise I assume it's just speculation and take what you say with a grain of salt. That said, if Microsoft gets out of the picture and starts making PC games again, I'd be happy.

Evil Smurf:
That said, if Microsoft gets out of the picture and starts making PC games again, I'd be happy.

Let's hope it's not that GFWL shit.

Dragonbums:

Evil Smurf:
That said, if Microsoft gets out of the picture and starts making PC games again, I'd be happy.

Let's hope it's not that GFWL shit.

They've shut it down :D I'm so happy now, I can play my batman games :D

Evil Smurf:

Dragonbums:

Evil Smurf:
That said, if Microsoft gets out of the picture and starts making PC games again, I'd be happy.

Let's hope it's not that GFWL shit.

They've shut it down :D I'm so happy now, I can play my batman games :D

Does that include games like Viva Pinata? Because it's not like I couldn't play the game, but if it didn't connect to GFWL I couldn't access my save file.

Dragonbums:

Evil Smurf:

Dragonbums:

Let's hope it's not that GFWL shit.

They've shut it down :D I'm so happy now, I can play my batman games :D

Does that include games like Viva Pinata? Because it's not like I couldn't play the game, but if it didn't connect to GFWL I couldn't access my save file.

As Butch from Pulp Fiction said: "Zed's dead baby, Zed's dead." It's gone, on everything :D

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