Microsoft says that its next-gen Xbox console will require partnerships in order to release, hinting at a reference and OEM hardware scheme similar to the PC graphics cards market.
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Things are bad for gaming right now, and particularly so at Xbox. Consoles are so expensive to make that Microsoft can’t afford to make them–Xbox’s new CEO Asha Sharma says that storage costs will be up more than 7x since the time she arrived by holiday 2027. This puts a unique squeeze on Microsoft because it fully subsidizes its Xbox hardware, meaning it makes no actual money on each console sold. So if Microsoft were to start making consoles again, the losses generated by each unit would be up 5x to 7x over previous years.
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What can Microsoft do? In a recent memo published on the Xbox Wire, current games division CEO Asha Sharma lays out the sobering reality of Project Helix: Microsoft needs help to make the console. The costs are just too high, and signs show that they will continue rising into next year.
“We are in a hardware component crisis,” Sharma said in the memo.
“We are currently unable to make as many consoles as players want to buy, and we need a new business model and partnerships for hardware as we remain committed to Helix.”
This could mean that Microsoft will use OEM partners like ASUS to help make Project Helix, similar to ideas from The Verge’s Tom Warren.
In the past, Sharma has repeatedly mentioned that Microsoft will create “reference experiences,” indicating that the next Xbox could follow a format similar to graphics cards of today: AMD and NVIDIA release reference video cards at base prices, and then OEMs release their own cards at variable pricing.
Valve also tried this strategy more than a decade ago in 2015 with the first iteration of its Steam Machine platform. Groups like Alienware/Dell, CyberPowerPC, and Zotac all made their own OEM variants.
It didn’t work. The Steam Machines simply cost too much money compared to the consoles at the time, and users could typically make a comparable custom PC for less money.
Both of those things are no longer true today, and the message here is that Microsoft doesn’t have a choice in the matter. The next Xbox console needs outside assistance, despite the fact that Microsoft is a company with a $2.95 trillion market cap. Yet remember that Microsoft’s board also greenlit the most expensive tech acquisition of all time, netting the Xbox division a $70 billion asset in the process.
Elsewhere in the memo, Sharma continues highlighting the dismal hardware situation:
“Memory costs have followed a broadly similar trajectory. While the entire industry is facing a components crisis, we believe we have been impacted more greatly than many of our peers due to the choices we made over the last half decade.
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.”
Microsoft has yet to confirm or announce specifics regarding any special OEM consoles and the plans are still being formulated as the games industry shakes from the component shortage.
