I have no idea where you got that one from. The original Xbox never made a profit. Microsoft is deliberately selling the Xbox 360 at a loss to capture marketshare. However, the PS3 and Ninetindo Wii are selling like hotcakes, are latest big things, and have the buzz. The best laid plans ...
I think the first statement is correct or close to it. They may have had a single profitable quarter when Halo 2 was released. I'm not sure because they bury games in a Microsoft Entertainment and Devices Division. Which includes their smartphone stuff (now that it has stopped bleeding money) and their profitable and acclaimed mice, keyboards, and other stuff (all manufactured by other companies, sort of like Dell, but with a nicer design).
The second part I believe is now wrong. I think the XBox 360 is no longer a loss lead, though that might change as there is some speculation that they will be dropping the price to undercut Sony soon. I believe the fact that it is no longer a loss lead is causing a confounding with the "360 is profitable" commentaries here.
Another commenter mentioned how smart it was was the XBox had a hard drive on it. I’d say if it is so smart why did Microsoft remove it in the base model 360? I’ll point out that this happened because the price of hard drives do not get any cheaper! In fact the price of commodity hardware design doesn’t get any cheaper! Huh? Hard drives get bigger, not cheaper. Processors and chips get more powerful, not cheaper.
What went on is that successive iterations of the Playstation and Playstation 2 would allow Sony to combine chips to reduce the price (and make smaller PSOne and slim-cased Playstation 2). This outlet wasn't available to Microsoft because of their design which is why the XBox was a losing money for it's entire run and Sony played games by dropping their price before it ever turned a profit.
Those two things are "of a piece". While commodity hardware was an interesting idea, it was a failure. Which is why the XBox 360 is not built from commodity PC hardware. The hard drives are a necessary evil of the "Live" strategy so they're left in as an option and bundled with the Playstation 3. That's why these 6G consoles are expensive and not dropping in price fast.
Right now all this is moot since the thing to watch is the Sony gamble on a blue laser. Obviously it will get cheaper fast, but the question is how fast and how cheap? The horrible yields on the Cell processor isn't helping things.
Currently, the XBox 360 has sold very consistently at around 1.5 million units a quarter. The XMas quarter last year had supply issues and only sold .9 million units. That's hardly dominating. In fact, I think the Playstation 2 outsold the 360 in each of those quarters even though the device is six years old. Let's put some numbers here. Last year over 100 million Playstation 2’s had been sold, six months ago, they were selling 380k/month. The XBox 360 sold 6 million units since it's introduction over a year ago, six months ago they were selling 300k/month, they had fixed the channel problems that plagued the release.
Consider this: Nintendo sold 600,000 Wiis in the last eight days. Given the scarcity of the Playstation 3 and the popularity and addictiveness of WiiSports and Zelda, they should easily crush that .9 million opening quarter of the 360. And consider this: each unit at a profit with a number of titles putting money directly in Nintendo's pocket.
I'm not claiming that the Wii will beat the 360. I'm just pointing out that according to sales numbers, the 360 is no iPod, is not trending to an iPod, will never be an iPod. The iPod sits on 75% market share. The closest thing to an iPod in the entertainment market is the Playstation 2.
Which is a big distraction from the point. And what is the point? That the XBox is a bad analogy. It is best to consider their Windows CE->Smartphone Microsoft play to see that the Zune is a bad idea. How many years and failed ideas have there been (Windows CE, Windows Mobile, PocketPC, etc. etc.)? How many billions sunk (some years more than the entire capitalization of the PDA market)? How much marketshare? 6% of smartphones, 60% of the dead-end PDA market, and most of the dead ATM teller market (because IBM did a phased pull out, not because Microsoft "won"). And even those markets are being eaten by Linux faster than Windows.
The only thing we can learn from the XBox and Microsoft is that Microsoft pees on their partners (NVidia) at the earliest opportunity. But we already knew that as soon as the Zune didn't support Plays For Sure.
