The Xbox One and PlayStation 4 are both selling strongly in approximately equal numbers.
At least, that’s what Microsoft wants you to think.
In reality, Microsoft’s latest earnings report showed some interesting trends in Xbox One sales. Here are the important things to note about Microsoft’s Q1 2014 earnings report, which was also new CEO Satya Nadella’s first earnings report as company CEO:
-Microsoft earned $20.5 billion in revenue in Q1 2014 compared to $20.4 billion in revenue in Q1 2013
-While that revenue may seem flat, there were actually some major shifts in how Microsoft earned its $20+ billion this quarter
-Microsoft sold 2 million Xbox consoles this quarter. However, only 1.2 million of those Xbox sales were Xbox Ones, while the rest were Xbox 360s.
-Microsoft has sold approximately 5 million Xbox Ones to date, which is in line with Microsoft’s expectations
So what’s the problem?
Here’s the problem: Microsoft’s quarterly earnings report did not identify which types of sales it was reporting. There are two general types of console sales: sold in and sold through. “Selling in” is the term used when a manufacturer sells parts into a channel, while “selling through” is used to describe the manufacturer selling directly to the end consumer.
In layman’s terms, “selling in” is when Microsoft sells its Xbox One to Wal-Mart, while “selling through” is when Microsoft sells its Xbox One to your neighbor.
Sony recently reported that it had sold through 7 million PS4s. By that data, Sony is winning the console war by approximately 2 million units.
However, if Microsoft hasn’t actually sold through its units and has simply sold in, then that 2 million unit gap will undoubtedly widen. After all, the companies are using two different reporting figures.
Other facts and figures
Here are other important things to recognize in the quarterly earnings report:
-The Surface cost Microsoft $539 million this quarter while earning revenues of $494 million
-The Xbox One increased console revenue by 41%, but it also drove down gross margin, which means Microsoft sold more hardware but made less money from those sales
-Microsoft reported revenue increases in OEM licensing and Office 365 sales
If Microsoft had strong “sold through” sales figures, then it would have undoubtedly included them in this report. Thus, we have to assume that the Xbox One’s statement of 5 million console sales includes a fair number of consoles which are still boxed up in Wal-Marts and Best Buys across the country.
Is Microsoft losing the console wars? Or have the console wars only just begun?