Robbie Bach, president of Microsoft's Entertainment and Devices Division, has stated that the Xbox will be profitable for the first time in 2008.
“It's a business that will be profitable next year—we'll make money next year and that will be the first time, which is pretty exciting. And then the next two or three years are the place where you need to make tracks, and the next two or three years are where you have to make money,” he told eWeek.
Following financial losses reported for its console division for the quarter ending March 31, 2007, Bach said the turnaround would come from three main sources in the near future, namely games, Xbox Live and peripheral sales.
“There are three ways to make money on an Xbox. Generally it's not on the hardware itself; we'll probably be gross margin neutral on that over the life cycle of the product and try to break even on that.
“The second thing you try to do is you make money on the games themselves, and there are two models there. One is first-party games that Microsoft produces. The other is games that Electronic Arts or an Activision produces, and we get paid a royalty on those games.
“The third place you make money is on Live, and where we actually have a very nice service that's scaling very well, and that is a business model that's subscription, ad-based, and download-based. It kind of has the full gamut of business models associated with it, and I think you're going to continue to see that grow.
“And then the final place you make money is on peripherals, so game controllers, cameras, steering wheels, a whole other set of things.”
Bach also suggested that Sony had fallen behind in the next generation console war because it failed to offer much in comparison to Xbox 360 while attempting to target the same audience.
“I think Nintendo and Microsoft are clearly in the driver's seat on what's happening in this generation. And they're different driver's seats. In a way, … our circle and Sony's circle overlap I would say 90 percent. Nintendo's circle and Microsoft's overlap say 20, 25, 30 percent, something like that.
“But Sony I think has some real challenges. They've got a pricing problem, they have a cost problem, they have a content problem, and they don't have an online service.”
He also noted that Nintendo was doing well primarily because of is focus on the casual games market and that targeting a broader user base would be a serious challenge for the Japanese firm.
“So the challenge for us is how do we drive to more casual users, and how do we bring more casual experiences to Xbox and Windows? And the challenge for them is figuring out, "Hey, how do I broaden beyond a casual demographic?" We'll see how that plays out.”