How Does Microsoft Really Make Money
If we look at the operating income and operating margin of each segment, its interesting to notice how while the More Personal Computing line of business is the segment that contributes most to Microsoft revenues.
It also has the smallest operating margins at around 25%. While Productivity and Cloud have respectively operating margins around 35% and 36%.
If we look at each Microsoft product, we can see how the Office products are the ones that most contribute to Amazon revenues, together with cloud services. Windows licensing is also, at this stage, still an important contributor to Microsoft overall revenue.
The companys pretty diversified and it also makes money in Gaming , search advertising , Devices and LinkedIn.
Anchors For Software And Subscription Sales
Sony and Microsoft don’t mind selling their consoles at a loss since they recoup the costs through software and subscription sales. For every $60 game sold, Microsoft and Sony retain about $7 in platform royalties. They also retain about $27 in publishing fees for first-party games.
Sony and Microsoft are also launching more subscription services to squeeze out more revenue per gamer.
Microsoft offers Xbox Live Gold, which costs $60 per year Game Pass, its unlimited gaming option for $10 per month and the new Xbox Game Pass Ultimate, which combines Xbox Live Gold and Game Pass for $15 per month. It also plans to launch its new cloud gaming service, Project xCloud, with the new Xbox next year.
Sony’s PlayStation Plus, its answer to Xbox Live, also costs $60 per year. Its cloud gaming platform, PS Now, costs $100 per year and lets gamers stream over 750 PS2, PS3, and PS4 games to PS4 consoles and Windows PCs. To set up the anchor for those subscription sales, it wouldn’t be surprising if Sony and Microsoft launched their new consoles at $400 — even if the devices cost $500 to make.
The Prices Could Still Be Too High
Sony and Microsoft might be aiming at $400 as a “sweet spot” for console sales, but the arrival of new subscription-based services — like Alphabet‘s cloud gaming platform Google Stadia and Apple Arcade — could throttle demand for dedicated gaming consoles.
Google Stadia. Image source: Google.
will run on a wide range of devices, including phones, PCs, and Chromecasts, while Apple Arcade will run on all current-gen iOS devices. These single subscription services could be more attractive alternatives to Sony and Microsoft’s platforms, which rely on customers buying both dedicated consoles and subscriptions.
Microsoft is aware of that threat. That’s why it might launch two versions of the Scarlett in 2020: a cheaper “Lockhart” version for streamed games, and a pricier “Anaconda” version for high-fidelity gaming on locally installed software.
Sony hasn’t revealed any plans for a cheaper PS5 yet, but it plans to move some of its media and gaming assets to Microsoft’s Azure cloud platform. That move, which was part of a broader cloud partnership between the two companies, could be aimed at countering Google’s aggressive moves into the gaming market.
Meanwhile, sluggish sales of PCs could force computer makers to sell cheaper gaming PCs, which would narrow the gap between high-performance PCs and cheap gaming consoles.
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How Much Money Does Xbox Make A Year
That adds up to $270 million per month and $3.2 billion for a year. The Game Pass also has different tiers and deals that often sell it for much cheaper. And as more people buy Xbox Series X consoles and XCloud comes to more platforms like smart TVs, this number of subscribers is just going to grow. That is the growth that is important.
How Does Xbox Generate Revenue
Microsoft have sold 26 million Xbox One consoles so far, which retailed at $499 upon release. That equates to more than $11 billion in revenue since the console launched in late 2013.
Yet, surprisingly enough, consoles are not a great source of revenue for Microsoft. In total, it costs $471 to make the system, meaning Microsoft made just $28 on initial sales.
Although, the price of an Xbox One has now dropped below $250 through some retailers. As a result, Microsoft takes a significant loss on each console sold.
However, it isnt all doom and gloom. Despite the initial loss, Microsoft covers the hit with their Xbox Live service. Gamers must pay $40 annually in order to gain access to many of the consoles online features. With 48 million active subscribers, that is $1.92 billion in Microsofts pocket each year.
Likewise, this is supplemented by further sales through the services digital marketplace. The Xbox Store allows users to purchase games, music, movies and in-game cash and items. The virtual goods industry is worth $15 billion alone. Microsoft is taking its fair share of that sum.
Despite disappointing console revenue, CFO Amy Hood has insisted that Xbox is a multi-billion dollar business that turns a profit every year.
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How Do I Sell My Xbox
Selling your old XBox couldn’t be easier. Just follow these 4 steps and you will have cash in your back pocket in no time.
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The Economics Behind Video
The previous generation of consoles had three main contenders: Sony Corp. PS3, Microsoft Inc. Xbox 360 and Nintendo Wii. The Nintendo Wii was designed more for recreational gaming than for hardcore gaming, but in past years it has at times outsold the other consoles. The current generation of gaming consoles is the eighth generation of consoles. The seventh generation consoles played out their life cycle and have been in the market long enough to analyze their strategies and business models. Sonys competence lies in its hardware capabilities, given its long history of expertise in the storage industry, whereas Microsofts competence lies in software, given its dominance in computer operating software.
One reason why companies sell the consoles at a loss initially is to lure customers into buying them and then try to make up for the losses through each game sold, as well as online subscriptions. Also, as more and more units are manufactured, the costs eventually decrease due to economies of scale.
Phil Spencer Explains How Developers Get Paid From Xbox Game Pass
With Xbox Game Pass, Microsoft is offering unique deals to developers depending on their situation.
Microsoft’s subscription service Xbox Game Pass offers a tremendous value with more than 100 games in the catalog and first-party titles, including Halo Infinite in 2021, launching into the program at no extra cost. But one of the biggest questions surrounding the platform is how developers make money from it.
Speaking to The Verge, Xbox boss Phil Spencer said Microsoft makes all different types of deals with developers, depending on their unique situations.
“Our deals are, I’ll say, all over the place. That sounds unmanaged, but it’s really based on the developer’s need,” Spencer explained. “One of the things that’s been cool to see is a developer, usually a smaller to mid-sized developer, might be starting a game and say, ‘Hey, we’re willing to put this in Game Pass on our launch day if you guys will give us X dollars now.’ What we can go do is, we’ll create a floor for them in terms of the success of their game. They know they’re going to get this return.”
In some other cases, Microsoft will completely fund the production cost of a game. In this situation, the developer can make money from retail sales, while Microsoft may also allow these games to release on PlayStation, Switch, and PC, with the developers taking in that revenue, too. Microsoft uniquely benefits in these types of situations by having a game launch day-and-date on Xbox Game Pass.
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Github Acquisition: How Will Microsoft Monetize That
In June 2018, Microsoft bought GitHub for $7.5 billion in an all-stock transaction. GitHub is among the most known open source libraries which enable companies of any size to store their codes. While its free-to-use public open-source library is the most known, the company also offers enterprise solutions.
While presumably the company never managed to turn profits, it seems that Microsft high valuation on the company can be seen as a way to enhance Microsoft product line, by enabling the existing Microsoft customer base to purchase GitHub plans.
The bet is that Microsoft current salesforce can be able to integrate GitHubs offering within its sales portfolio, thus make GitHub profitable within Microsoft overall operations.
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Xbox Game Pass Is Not A Big Money
” is not a big profit play,” Aaron Greenberg says of the subscription service.
Xbox Game Pass offers such a good value that many are wondering how Microsoft isn’t losing money hand over fist on it. This is a sentiment that Xbox marketing boss Aaron Greenberg hears often, he said in a recent interview with What’s Good Games.
Greenberg said people don’t need to worry about Microsoft–they’ll be just fine. In terms of the profitability of Xbox Game Pass for Microsoft, Greenberg confirmed it’s “not a big profit play” right now, as Microsoft is just starting the program. Greenberg said the investments Microsoft is making in Xbox Game Pass today might be costly in the short term, but they will ultimately pay dividends down the road if everything goes to plan.
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“We always laugh . Please don’t worry about us,” Greenberg said about people expressing concerns that Microsoft is losing money on Xbox Game Pass. “Microsoft is going to be alright. We’re gonna make it–I think we’re gonna be OK.”
With Xbox Game Pass, Microsoft is focusing on over-delivering on value, even if it comes at the cost of profits in the short term.
Xbox boss Phil Spencer has said time and again that he’s proud to have the support of Microsoft CEO Satya Nadella and CFO Amy Hood, who control the cheque books at the company.
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What Is The Microsoft Pay Mix
Microsoft has a pay based on three main aspects:
- base salary
- and equity
To create a proper compensation, Microsoft looks at a group of peers that comprise:
Peer group: Alphabet Amazon Apple Cisco Systems Facebook Hewlett-Packard IBM Intel Oracle Qualcomm AT& T Chevron Coca-Cola Comcast ExxonMobil General Electric Johnson & Johnson Merck PepsiCo Pfizer Procter & Gamble Verizon Wal-Mart Walt Disney
Based on that Microsoft compensation comprise 73.2% of base salary, followed by 19.2% of cash incentives, and 7.6% of equity.
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Companies Usually Take Losses On Gaming Consoles
That loss-leading strategy for gaming consoles isn’t new. At its launch in 2013, Microsoft’s Xbox One had a production bill of $471 for manufacturing and materials according to IHS, compared to its launch price of $499.
Sony’s PS4, which launched at $399, cost $381 to make. After factoring in marketing, shipping, and other operating costs, Microsoft and Sony likely lost money on each console sold. Both companies also subsequently lowered the prices of their consoles several times.
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Microsoft Says It Has Never Made A Profit From The Sale Of An Xbox Console
Company claims it always sells devices at a loss as part of Epic vs Apple trial
Tom Ivan
Microsoft has never made a profit from the sale of an Xbox console, the company claimed in court on Wednesday.
The razor and blades business model has long been the norm for console makers, which traditionally sell devices at a loss but make money from the software and services available for the hardware.
Nevertheless, the ongoing Epic Games vs Apple trial continues to bring to wider public attention the type of sensitive information companies would rather keep under wraps.
Xbox business development vice president Lori Wright, who is a third-party witness in the case, was asked by Epic lawyer Wes Earnhardt how much margin does Microsoft earn on the sale on the Xbox consoles?
We dont. We sell the consoles at a loss, she responded, according to Protocol.
Asked if Microsoft has ever earned a profit on the sale of an Xbox device, she said no.
Hardware being unprofitable certainly played a bigger role in the late 90s and early 2000s , Niko Partners senior analyst Daniel Ahmad tweeted in response to Wrights testimony.
Both the PS5 and Series X/S are being sold at a loss right now, but will become profitable down the line most likely.
The PS4 was probably the first Sony console to flip the above concept somewhat, he suggested.
While Sony aggressively cut the price of PS2, for example, down to $99, the PS4 maintained a $299 price point for multiple years and was profitable.
Formal Announcement And Release
The Xbox was officially unveiled to the public by Gates and guest professional wrestler Dwayne “The Rock” Johnson at CES 2001 in Las Vegas on January 3, 2001. Microsoft announced Xbox’s release dates and prices at E3 2001 in May. Most Xbox launch titles were unveiled at E3, most notably Halo and Dead or Alive 3.
The unit’s release in November 2001 was partially hampered by the impact of the on travel, as Microsoft could not travel to the Guadalajara facility to help test units. They were able to arrange to ship the units locally instead of testing at Microsoft facilities to have them ready for launch.
The system was officially launched at midnight on November 15, 2001, three days before the subsequent launch of the Nintendo GameCube. A special event was held on the prior night as part of the grand opening of the flagship store of Toys ‘R’ Us at Times Square in New York City, in which 1,000 systems were shipped to the store to kick off sales. Bill Gates was present at the event, personally selling the very first Xbox console and greeting people in line and playing games with them at the numerous display units present.
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