Hard to tell if it was a good business choice without more financial details from Microsoft but based on this thread:
Time to profitability per device
We can probably say Microsoft is
losing $100 on the Series S and
losing $200 on the Series X (Spencer doesn't seem to have explicitly said that, but it would make sense).
Then
if we assume (I'm not sure)
Game Pass itself is profitable for Microsoft (it's all intertwined so it's probably hard to isolate it and say it is profitable by itself but whatever) then the question becomes
how long does it take to turn around that initial per device loss and make that device/user a profit generator?
Then I think we get into considerations like the purchasing behavior of Series X owners vs Series S owners.
For example (these are generalized hypotheticals):
Typical Series S owner
Subscribe to Game Pass but won't buy any games outright.
Typical Series X owner
- subscribes to Game Pass
- buys an Elite controller (probably pretty high margin)
- buys other standalone titles (which nets Microsoft some publisher royalty income)
On balance, I could see it being that Microsoft will make the $200 back on Series X owners faster than the $100 back on Series S owners simply because they will buy more stuff.
Reducing BOM to make the device profitable outright
The other way to look at it would be to say if you have a console only losing $100 at the point of purchase, it's probably going to be easier to revise, re-design and lower cost of production for Series S to make it profitable (even if only slightly) quicker than it will be for the Series X (which may be losing $200).
Foot in the door
Plus, the notion of "getting your foot in the door" is really important in business. Stuff like getting people to physically sign up for accounts, enter their credit card information. Companies spend billions every year researching ways to get consumers to do that.
Ditching physical media
Finally, it's obvious that Microsoft wants to move toward a streaming-based service for Game Pass, so getting consumers used to the idea of buying a console without any physical media (disc etc) is sort of a first step in that direction. Once you get rid of physical games, you immediately lose some (not all) of the appeal (namely, for me, ability to trade/sell used), which helps to push people toward a monthly subscription service. Once you're paying for a monthly subscription service, you're probably more willing to try streaming especially if they improve the input lag and .... you're already paying for it anyway.
It's definitely only a matter of time before the issue of input lag is solved, and when that happens, I guess Xbox will be in the best position to take advantage of it. Heck, maybe they're waiting to release Keystone streaming-only Xbox thing.
