Note: Story updated since original post to correct reference to timing of profits.
Microsoft has spent billions on its Xbox business over the years, and seen its share of red ink, but the company says it’s very focused on profitability for its upcoming Xbox One.
Speaking at the Citi Global Technology Conference, Xbox chief marketing officer Yusef Mehdi said he expects to “break even or be low margin at worse,” with the Xbox One hardware over time, and then make money on additional games, Xbox Live and other capabilities.
“The strategy will be the same as in the past,” he said. “As we can cost-reduce our box as we’ve done with the Xbox 360, we’ll do that [with the Xbox One] to continue to price-reduce and get even more competitive with our offering,” Mehdi said.
He made it clear that the focus for the Xbox One, which is priced at $499 for launch, is “very much on profitability.”
“If you look at the Xbox 360, that platform has lasted seven to eight years and will go on for another three years,” he explained. “It’s incredibly profitable now in the tail. Some of these things take time in the launch year in which you invest and then they play out a bit over time.”
Mehdi said that his team always has priced its products “super competitive” in terms of being close to break even or low margin in order to have broader distribution. For the Xbox One, he said, Microsoft made a couple “big bets.”
“We wanted something to really differentiate that lets you play games as if you’re playing movies and we wanted to break the barrier of being able to voice control your television,” Mehdi explained. “So to do that, we added a lot of capability. For $499, we think the value we provide for that is a very good deal. We feel that we’ve done the right balance. And if you look either the pre-orders that we’ve been sold out for weeks, or do price-adjusted inflation on the 360, it’s actually pretty comparable.”