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Microsoft has small profit margin on Xbox One hardware

| November 26, 2013

Microsoft has small profit margin on Xbox One hardware News Xbox  Xbox One

The Xbox One costs $499 at retail.   It’s a pricey machine, but it doesn’t look like Microsoft is raking in cash hand-over-fist on the new hardware.  According to AllThingsD, the Xbox One costs $471 to make, leaving Microsoft only a small margin to profit on.

A recent teardown of the console suggests that the Kinect is big part of this high price, costing the company around $75 on every system.  The console’s AMD GPU-CPU combo also comes in at a hefty $110 per console.  This $471 price puts the Xbox One well ahead of Sony’s cost to make the PlayStation 4.  But both companies are banking on selling software and services on their new hardware if they’re to make any profits.

While these manufacturing costs will likely come down over time, it doesn’t appear that Microsoft will be profiting on your Xbox One purchase any time soon.   The Xbox One could use a slim version (given that it’s one of the biggest consoles released in recent memory), but it won’t be for some time.

We likely won’t see a smaller, less expensive for some time.  After the 2005 release of the Xbox 360, it wasn’t until 2010 that we saw the first official re-design of the console.  Until then, Microsoft will be banking on Xbox Live and software sales to buoy the Xbox division, at least in regards to the Xbox One.

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  • HeadRone

    So I’m confused. So if the Microsoft is selling the X1 to retailers (GameStop, walmart, etc.) for $500 then the retailers aren’t making any money. And if the retailers are making money then that means Microsoft is selling to them at a price less than $500. So someone isn’t making a profit if the console costs $471 to manufacture. I’m aware that it states that both companies are banking on the sales of services and software, but it still seems strange.

    • GK15

      I believe it’s a similar model to PC’s and TV’s. Retailers make most of their money on warranties and other products.

      • No, retailers do take their cut regardless. It’s not as high as a mark-up as you would think. So it’s likely that Microsoft is around break even or taking a loss on each console. These companies selling consoles at a loss is not anything new. Actually, this generation the losses are the smaller than ever. Sony was losing something like $200 on every PlayStation sold when they launched the PS3.

        • TFBob


    • TFBob

      They assume to know manufacturing costs. But, as you point out, their math is faulty.

  • Allen

    I wouldn’t expect many price drops of the x1 through the entire generation. Have you seen what they are still charging for the 360?

    • dylan

      Yeah still cheaper than ps3 of like sku. Though I agree on xbox one I doubt itll drop below 350 before the end of the gen with one redesign

      • Allen

        I don’t think so.

        12gb PS3 for $199 or 500gb PS3 for $269 with GTA V.

        Then you can only play single player games and watch DVD/play CD’s without xbox live so another $60.

        Then if you don’t want controllers to eat AA batteries another $20 battery pack.

        • HeadRone

          I still wish that X1 came standard with rechargeable controllers instead of having to buy a battery pack after market.

    • Blarg

      I think Sony & MS themselves will only drop the price if the sales really struggle. I can maybe see some retailers dropping prices for both systems at some stage in the first year, maybe during the post-launch games drought to shift some excess stock (if there is any).

    • jaskdavis

      Ill take the New 360 for $179 please lol

      • Allen

        The 4gb!?

        Come on man…

        • jaskdavis

          I wouldn’t, just proving a point. You can get a PS4 12gb for $200 or a NEW style 360 4gb for $180 and buy a $20 32gb flash drive for my 360… ;)

          • Allen

            But then also xbox live if you didn’t already have it and the battery pack.

            Also 12gb PS3 is not the way to go. 500gb $269 with a $60 game is. Even if you just sell the game (or return it to a local walmart for a in store gift card that way you get $60 for it). Then it’s a 500gb for only $210

            At least with a 32gb flash drive you could play GTA V.

          • jaskdavis

            Lol true! Dude BF4 took up almost 40gb on X1!

          • Allen

            Yeah I am seriously not looking forward to these massive installs. Even 1 TB I’ll be running out of room pretty fast. It’s a problem that’s for sure. I miss the days of on board cartridge storage or the only thing downloaded is a game install.

            We’ve gone from 8mb memory cards that can hold a bunch of game save data to 40gb game installs for 1 game.

  • Blarg

    Both companies have heavily invested into their systems, so this is to be expected. The most revenue is always gonna come from selling the games and online services.

  • jaskdavis

    So PS4 cost $381 and X1 cost $471… Yeah I don’t expect a price drop very soon :/