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Xbox One On Sale: What’s Microsoft’s Real Plan?

Xbox One On Sale -MSFT- Microsoft’s Real PlanMicrosoft Corporation (NASDAQ:MSFT) MSFT +2.47% released the Xbox One in the United States on Monday. The games console is sure to see good uptake, considering the success of its predecessor, and it’s bound to be a big name in the Microsoft stable. We know that Microsoft isn’t trying to make money off of the console, however, so what is the company doing with the Xbox One?

There is some debate about the profitability of the Xbox division. Microsoft gaming revenue is lumped in with other businesses making it impossible to see the results from a single one.  Few analysts think that the Xbox division is particularly profitable, however, and some suggest that gaming is actually losing money for Microsoft Corporation (NASDAQ:MSFT) MSFT +2.47%.

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Xbox One monetization

Monetization is a key word for mobile and internet gaming. Many of these games are available for free and developers have to find an indirect way to make money off of them. Console games have been immune from this trend, though that doesn’t mean they don’t borrow a trick or two.

It’s surprising to have to ask how Microsoft Corporation (NASDAQ:MSFT) is planning to monetize the Xbox One. The company is one of the biggest in gaming, and its console does not seem to be facing much trouble at launch. Monetization is important for Microsoft, however.

The Xbox One will not make enough money directly to convince investors that it’s a useful tool. Margins on the division that houses the Xbox are much lower than those for the rest of the company, and that traditionally means investing money in it is a bad idea. There are alternative interpretations of the use of the Xbox One, however.

Xbox One is building Microsoft ecosystem

The Xbox One is the centre of the Microsoft Corporation (NASDAQ:MSFT) ecosystem. It is designed to increase sales of everything from smartphones to music. The ecosystem idea may work, but investors are getting nervous. They want to see a Microsoft Corporation (NASDAQ:MSFT) with a focus on high-margin enterprise.

Microsoft Corporation (NASDAQ:MSFT) is acting like two businesses right now. The first is using enterprise services as the center of its ecosystem. It wants to sell smartphones and tablets to consumers on the back of that ecosystem. That’s the Microsoft that emerged in the 1980s and has performed well since.

The second Microsoft is leveraging the Xbox One as the center of its ecosystem. It’s looking to sell more tablets and smartphones on the back of that decision as well.  This is the Microsoft Corporation (NASDAQ:MSFT) that has been around for the last few years. Its business model has never worked.

Microsoft is trying to continue to build a two-sided ecosystem with the Xbox One. The problem is that the Xbox One will never make enough money to satisfy investors, and that is going to become more and more contentious as time goes on.

The Xbox One has already cost the company a giant amount of money, and it will continue to do so for the next year. With a new CEO on their way into Microsoft Corporation (NASDAQ:MSFT) MSFT +2.47%, the position of the Xbox One may become untenable. Fans of the console should pay attention.

About Paul Shea

Paul Shea is a freelance writer who concentrates his efforts on finance, economics and investing. He writes about value stocks, ETFs, hedge funds and macroeconomics. His work has appeared on Google Finance and Google News and has been cited by Barron's, Zerohedge and Businessweek. When he's not writing, Paul enjoys technology, reading, and the outdoors.
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