I've actually worked at a high enough level in the games industry to know about the non-public dynamics, and that includes working with some of the people involved in this story.

> Hardware has always been a loss leader used to sell games, nothing more. If they can sell the games just as well on their “competitiors platforms” then why bother spending time and exorbitant amounts of money building your own hardware?

By this logic Sony and Nintendo are completely wasting their time making hardware, yet they persist in doing so. Does this make them bad at business?

The hardware might be a loss leader, but the manufacturer controls access to the hardware, so every game developer for the hardware is giving them a portion of the sale price. They were Steam before Steam existed. Sony didn't make most of their money on first party games, but on third party fees. The first party games, along with the loss leaders, were there to bootstrap getting consumers to buy the console.

The reason to abandon hardware is when you aren't going to get many third party sales regardless, because you are getting destroyed: In large part because your first party games and the console experience aren't attracting enough players. Microsoft hasn't whiffed with every game they released in the last 5 years, but their batting average has been very low.

If your games aren't selling, it makes sense to abandon hardware, but it's even more important to downsize your studios that are releasing underperforming games.

That's not true. Hardware gives them the ability to create a monopoly on game publishing/distribution, which is why console games have always been so expensive. The platform holder can charge high fees to developers and demand high prices from consumers. That's nothing unique to the game industry.

Microsoft has said they're trying to focus more on software, but that focus is on gamepass not games themselves. They want that monopolized platform without the burden of having to sell Xboxes (which consumers have rejected time and time again), which obviously would be very lucrative for them. It's why they've been throwing so much money at devs to entice them to put their games on gamepass, and why they spent such a ludicrous amount of money on Activision despite the Xbox business being such a dud. They believe games are destined to become like video streaming industry, and want to be the Netflix for games.

Now I'm talking out of my ass here, but I think there might be some kind of internal metric at Microsoft that rewards execs that chase monopolization. It's either that, or they're really so incompetent over there that nobody has noticed how bad Xbox leadership is at their jobs. The peak of Xbox success was the 360, and I think that was mostly because Sony got the pricing completely wrong for the PS3 at launch (and even then, lifetime sales of PS3 surpassed the 360)

Hardware is not always a loss leader, with Nintendo hardware (generally, Wii U was an exception) being the largest example. Estimates were about $250[1] for production for a $300 unit at launch if I remember right, so maybe $10 profit.

Selling on someone else's hardware means they take your 30% or so storefront fee. For example selling your studio's Elder Scrolls title on Steam or PlayStation nets you $42 instead of $60.

[1]https://xtech-nikkei-com.translate.goog/dm/atcl/column/15/36...

RIP SEGA - can't say that sticking with their arcade minded strategy paid off more than if they had stuck with hardware, but I am skeptical.

>Did you miss that and think they’re just bad at business?

A software shop closing up its software devs to focus more on a few golden geese doesn't inspire confidence for me. But it's not like shareholders actually look that intimately into the industry.

if you only offer software and can't get a 30% cut on all software you sell on a hardware platform, I'd hope you make up for that with more and better games. So this seems backwards to that strategy as a long term move (I know, a relic of the past).