Microsoft doesn't make any profit on sales of Xbox consoles alone, according to a statement made at the ongoing Epic vs. Apple trial. Although many have suspected that the Xbox isn't profitable, it is the first time a Microsoft executive has acknowledged this suspicion.
Xbox Isn't Profitable, but That's OK
At the Epic vs. Apple trial, when head of Xbox business development, Lori Wright, was asked about Microsoft's profit margins on Xbox consoles, the simple response was, "We don't; we sell the consoles at a loss."
The follow-up question delivered further context. An Epic Games lawyer asked, "Does Microsoft ever earn a profit on the sale of an Xbox console?"
The simple answer was, "No."
However, that doesn't mean that the Xbox business isn't profitable. Far from it, in fact.
In January 2021, Microsoft announced record-breaking profits. As part of that, Xbox sales and services posted a 40 percent revenue increase, with Xbox Game Pass subscriptions passing 18 million subscribers and over 100 million active Xbox Live service users.
For Microsoft, getting people ingrained in the ecosystem is a core aspect of the business model and launching an outstanding console, even if it is at a loss, helps further that goal.
Microsoft isn't the only console manufacturer to go with a loss leader. Sony's PlayStation has been a well-known loss leader for many years, for the same reasons as Microsoft. However, Nintendo apparently bucks the trend, and the Nintendo Switch and its various models are profitable.
Epic vs. Apple Dragging Up Data
Epic and Apple's ongoing court case is bringing up many different bits of information regarding the operation of tech platforms. The prime reason for asking questions regarding console profitability relates to Epic's argument that Apple's 30 percent cut of any in-game transactions is monopolistic.
Apple argues its fees are standardized and similar to other platforms, while Epic argues that the same fee cannot apply to consoles and the mobile market for precisely the above reason. Console manufacturers are taking a much larger risk with developing and releasing physical hardware, where Apple simply creams off 30 percent.
The Epic vs. Apple trial is set to continue for several more weeks and is almost certain to uncover more ground-breaking facts regarding some of the biggest names in tech. Regardless of the outcome, the battle between the tech giants controlling the largest platforms is just hotting up, as arguments over shared revenues, shared access to content, and the rights of consumers come to the fore.