Microsoft’s Xbox One doesn’t leave a lot of profit per unit compared to rivals.

It’s not often that I get to say that Microsoft has a lot to learn from Nintendo and not sound like a fanboy.  After some careful study of the inner guts between the consoles, IHS found that the manufacturing cost of the Xbox One comes to around $471.  Being sold for $499 in its lowest bundle form, this doesn’t give Microsoft a lot of wiggle room to earn.

In comparison, that’s $90 more than the manufacturing cost of a PS4, which comes into about $380 per console. This also isn’t a huge profit margin for Sony ether, when you consider that they sell the PS4 for about $399.  Nintendo on the other hand is said to be sinking about $228 into each of their consoles as of early 2013 according to CNN.  Considering that Nintendo has only just now cut the price down to $299, that means that they were cleaning house compared to their two rivals before the prices drop.  Considering that the cost of manufacturing may have also dropped in the intervening time since then, and you can clearly see Nintendo has a strategy to rack in dollars even though they are lacking in sales.*

Don't forget that the Kinect is probably worth its weight in gold, and bundled with the system at no additional cost...
Don’t forget that the Kinect is probably worth its weight in gold, and bundled with the system at no additional cost…

For those who have been following Nintendo behind the scenes for years, this shouldn’t be a huge surprise.  They are just using the same playbook that has been earning them success since the good old Famicom (or NES for those of us in the west) days. It’s based around the philosophy of its lead designer Gunpei Yokoi, father of the d-pad and Game Boy, called “Lateral Thinking with Withered Technology.  Essentially, Yokoi and Nintendo used older but cheap and well known technology engineered outside of its original design to create its hardware products, such as the N64 Rumble Pack being made up of what amounts to a pager vibrator.  The Wii Remote is the same thing, filled not with cutting edge technology, but parts from existing accelerometer based devices that have been around for the better part of a decade, and it is still the most precise of the motion control options out there.

Its competitors have always gone the opposite way, using the bleeding edge to try to churn out the best graphics to gain on the big N.  It’s never truly worked, as Nintendo has outlasted all of its rivals, and in going too far Microsoft may have overplayed their hand.  While it’s true that the Xbox One has met its initial sales metrics, selling over a million units in the opening days of its launch, all of the bad press preceding its launch and lack of a strong exclusive lineup might put Microsoft in a very bad position, especially considering that they aren’t recouping a lot of their investment in these early days.  Sony is in a similar position, but they are going into this with a much better PR outlook and less money invested in each console.

This is the real battlefield in the console war.  It would be a surprise to many gamers that Nintendo, not Sony won the war between the Gamecube and Playstation 2.  The Playstation 2 outsold the Gamecube in almost every market by quite a large margin, but their profit per unit was incredibly low. In fact they were losing money on each unit sold until about the halfway mark of the system’s lifespan, while Nintendo made money from day one all the way up until the retired the system after the Wii launched.

Despite popular belief, this bad boy won its generation's console war.  Every Gamecube made Nintendo money, unlike the original Xbox and PS2 which sucked Microsoft and Sony's money down away for a very long time.
Despite popular belief, this bad boy won its generation’s console war. Every Gamecube made Nintendo money, unlike the original Xbox and PS2 which sucked Microsoft and Sony’s money away for a very long time.

Will Nintendo be able to repeat history with the Wii U, or will Microsoft and Sony come back and recoup their massive losses off their initial investment?  Only time will tell.

*This does not mean, however that they are making a clear profit on each system sold.  The Wii U marks one of the first times Nintendo hasn’t made day one profit off of hardware sales, mostly due to the expense of manufacturing the Wii U gamepad.

Zachary Freeman

Zachary Freeman is a business analyst, freelance journalist, and life long gamer. When he's not saving virtual worlds, he sometimes makes time writing about politics and history as well.

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