Xbox One X Sales Don’t Matter

As we approach the launch of Microsoft’s new console, the Xbox One X, there’s plenty of concern being voiced by commentators. “The Xbox One X probably isn’t for you,” blares one headline. Another says it’s “still a tough sell.” There are plenty of complaints about the $499 cost, the slim lineup of exclusive games, the fact that one of the best potential games (Crackdown 3) is delayed until next year. Microsoft’s released a list of about 100 games that will be enhanced in some way on the Xbox One X, but some critics correctly point out that the differences will be minor in many cases – and not really noticeable unless you have a pretty large 4K UHD TV, which is still a rare thing.

Given all that, and the fact that the Xbox One S plays all the same games and retails for only $249, many are predicting that the Xbox One X won’t be a big seller. True, Microsoft has noted that early Xbox One X pre-orders are the strongest they’ve ever seen, but we are given no numbers to make comparisons here. We do know that the PlayStation 4 Pro represents only about 20% of ongoing PS4 sales, which is actually a surprise to Sony that it’s doing that well. So in all likelihood, the Xbox One X will not be selling very well for Microsoft for some time to come, at least not until 4K TVs get more popular, games start to develop more compelling Xbox One X features, and/or the price of the hardware drops.

But none of that matters to Microsoft, I bet.

Why should Microsoft be OK with their new console not selling well? Because the benefits of the Xbox One X to Microsoft are primarily marketing ones not tied directly to unit sales. The Xbox One X (and the PS4 Pro) are primarily marketing tools, not direct profit centers.

Here’s the logic: Both Microsoft and Sony’s newest consoles are, unlike new consoles in the past, extensions of the existing console line, with full software compatibility between the entry level console and the high-end console. (This compatibility is currently mandated by both publishers, and is unlikely to change any time soon.) For both publishers, margins are slim on the consoles compared to margins on software – the incentive is clearly to maximize software sales. A user who replaces their current Xbox One with an Xbox One X isn’t really helping the bottom line, unless they begin buying more software than they did before the upgrade. So, from a purely monetary point of view, it doesn’t really matter what percentage of overall console sales is made up of the high end consoles. What matters is increasing overall console sales.

Here’s where the marketing benefit of the high end console kicks in. Screen shots will look better taken from the high-end consoles. The feature list of high end consoles is definitely premium, and the halo effect extends to the entire brand when you start talking about the teraflops and the 4K output. Microsoft can now boast having the world’s most powerful console, a clear marketing benefit.

The benefits of high-end consoles to players are mostly in the future. When 4K TVs become the majority of TVs in homes, and 4K streaming movies are the standard, then having a 4K console will become even more important. That will take a couple of years.

It’s also possible that high-end consoles will eventually get some exclusive software, and that at some point there will be a more clear benefit to games played on high-end consoles beyond the somewhat better graphics. The greater CPU and GPU power could also be harnessed to improve AI, or to put many more opponents on screen, for instance, or to make the world more responsive to player actions.

For now, though, don’t spend any time worrying about how well the Xbox One X sells, because however well it sells it is accomplishing its purpose for Microsoft. The Xbox One X puts Microsoft in the technological lead and provides a great list of marketing benefits, and should help expand the installed base of Xbox One consoles that Microsoft can sell highly profitable software into.