Thread by @ZhugeEX

I was quoted in this @washingtonpost article about Xbox's gaming business.

Microsoft said at the Apple v Epic trial that it has never generated a profit from hardware. While this is true, the company does generate a profit from software and services.

washingtonpost.com/video-games/20…

Console manufacturers have traditionally adopted the razor and blades model.

The initial R&D cost + need for affordable pricing to reach the mass market leads to a loss on hardware.

This investment is recouped through first party and third party software / services sales.

Software and services are high margin, especially when distributed digitally, while the profit margin on hardware is low, or even negative initially

Hardware can be profitable on a per unit basis down the line, but that doesn't always offset the initial investment / other costs

Platform holders take a 30% cut on all third-party content, including add ons, sold through their digital store.

They charge a license fee to third parties that sell console games via retail.

Subscriptions add a stable and recurring revenue stream + is high margin too.

The growth of digital software and services has also helped companies like Sony break the traditional profit/loss cycle that the console industry is known for.

While the PS5 sells at a loss, Sony's game segment reported its highest profit ever this year.

Unlike Sony Corp that is an electronics company, and Microsoft with many lines of business, Nintendo is a dedicated gaming business.

The company focuses on balancing power and price to create consoles that can sell at a profit from day one.

Switch was designed to be profitable