The Xbox One had to fight an uphill battle against Sony's PS4 after the latter offered higher performance at the outset of the console war, and though a lot in the competition has shifted, as new versions like the PS4 Pro and Xbox One S have joined the fray. Even then, Microsoft is still trailing in this race, but a recent release from Microsoft shows Xbox hardware sales on the decline.
The details of the decline include an 11% reduction in hardware revenue and decreased sales of Xbox consoles. The lower hardware revenue was partially attributed to lower prices offered on Xbox consoles since the hardware is no longer new. Despite this decline, Microsoft actually showed a 3 percent increase in gaming revenue, or a $44 million increase, thanks to increased earnings from software and services, and particularly Xbox Live transactions.
This decrease doesn't spell doom and gloom for Microsoft's Xbox division by any means. Since Microsoft officially announced the upcoming hardware upgrade that is the Xbox One X with a $499 price tag and launch date of November 7, 2017, gamers in the market for an Xbox console have plenty of reason to hold off. The Xbox One X will offer substantial performance improvements on the Xbox One and Xbox One S, so those who want higher quality graphics will want to wait, and those who want even better prices on the Xbox One and Xbox One S will likely want to wait as well.
All that waiting can help explain the decrease in hardware sales for Microsoft's Xbox division. The decreased sales might also affect software and service sales down the line, as fewer consoles in the wild means fewer customers for games and services. The Xbox One X will likely come with a new bump in those same software and services, though. However, even with the release of the Xbox One X, Microsoft still may not see a bump in hardware revenue, as the Xbox One X isn't expected to make a profit.
As has been generally true of the console market, it's not so much about the hardware as it is the software. For gamers, the Xbox One X will offer some performance improvements, but the games are what will really sell the console. And for Microsoft, the console may cost the company money, but games and services are where it can turn a profit.