Xbox CEO Gives A Good Explanation For Why A Console Now Costs $800

Moscow, Russia – 2020, November 02: new video game consoles: White Xbox Series S and Black Xbox Series X

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In this, the new era of Xbox transparency, the brand’s new CEO, Asha Sharma, penned an expansive blog post about the challenges facing the company, many of which translate to the larger industry as a whole. While it paints a particularly dire view of Xbox’s business in particular, Sharma’s explanation of what exactly is going on in the hardware side of the industry is the clearest explanation for why consoles like the PS5 and Xbox Series X/S have done double price hikes over the past year or so. Now, even Nintendo is starting to as well.

The problem is just how much prices have increased on hardware components, and we’re not talking about things like 10, 20 or even 50% increases. Rather, we’re talking multiples due to AI systems gobbling up all the tech and raising these prices. Here’s Sharma:

“We are in a hardware component crisis. When I joined as CEO in February, the price we paid for console storage components was over 2x as high as we paid last fall. These costs have since doubled again. And as we plan for the 2027 holiday season, we expect another significant increase, taking us over 5x the prices we paid only two years earlier. Memory costs have followed a broadly similar trajectory.”

She goes on to say that Xbox is even more heavily impacted than other brands due to “the choices we made over the last half-decade,” without elaborating. But clearly the issue is widespread, as not only do we have an $800 2TB Xbox Series X, but also a $900 PS5 Pro.

For Xbox in particular, however, the obvious question is where its hardware business goes from here now that costs for components have increased 500% in two years, when the hardware space was hardly some sort of high-margin business to begin with. That would seem to clash with Sharma’s recent “refocus on hardware” plan, as how exactly is that going to work?

Specifically, the Xbox Series generation appears to be close to flatlining. While Microsoft says that demand is outstripping supply, that’s likely because production has plummeted due to these costs.

Additionally, Xbox has already announced its next hardware unit, the Xbox Helix, which is said to be some sort of PC and console hybrid, possibly able to use multiple storefronts. The idea there is some sort of “value” gaming PC, but while that may have been the original plan, how on earth are we now not talking about a unit that has to be over $1000, if not well over, and who, outside of a niche, is going to play for something like that?

This is only one of Sharma’s five points addressing the enormous challenges ahead for Xbox, and it’s unclear how many ways out there even are, given the context of the state of that ecosystem. But these component costs are rapidly making gaming unaffordable for consumers, and these price increases still may not even be enough for these manufacturers to avoid losses.

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