Microsoft has always sold Xbox consoles at a loss

Microsoft does not earn any profit on sales of Xbox consoles alone, according to a Microsoft executive during the Epic Games v. Apple trial on Wednesday.

When asked about what profit margins Microsoft earns from its Xbox consoles by an Epic lawyer, Microsoft's Vice President of Xbox business development Lori Wright responded that "We don't; we sell the consoles at a loss."

However, that does not necessarily mean that the company does not make any money from its console business. A Microsoft spokesperson explained that the console gaming business is traditionally operates on a hardware subsidy model in a statement to The Verge just hours after Wright’s testimony yesterday.

The spokesperson explained that the gaming industry is profitable and rapidly growing. Hence, Microsoft sells the consoles at a loss to attract new customers and generates profits through game sales and online service subscriptions.

While it is a known fact that gaming consoles are usually launched at a loss and eventually become profitable, it is still surprising that Microsoft has never achieved hardware profitability for its Xbox and relies on a combination of software, service, and accessory sales.

Moreover, Microsoft is also the odd one out in following this business model, whereas Sony's PS4 is expected to eventually became profitable and the Switch was also launched by Nintendo to be profitable quickly.