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The thing about this shit is...
Microsoft, like Google, is now a user-data driven company and they have already made loss/profit ratio analysis on this long before they released the price increase. They're absolutely banking on people cancelling but making up the difference and then some from the people who stay.
For a thought experiment let's consider how many subscribers they were reported to have in Feburary: 34 million. Let's assume that everyone is paying for the highest tier to make the math easier. So current income would be 34 million user x $20 a month and thats $680 million a month. New income of 34 million users x $30 a month is $1.02 billion. The difference is $340 million a month. Let's divide that by $30 a month. That gets us about 11,333,333 users. So they can hemorrhage over 11 million users and still break even. To make sure, let's subtract 11 million users. That gives us 23 million users. 23 million users x $30 a month is $690 million a month, a cool $10 million a month above current profits.
For final context, 11 million users is roughly 32% of their entire subscriber count. They can afford to lose a third of the people subscribing and still make money.
The math doesn't bode well for us who vote with our wallets.
One could imagine that conveniently, Microsoft's online support pages and the amount of support staff were designed to only handle hundreds of thousands of cancelations at a time.
And it gets even better. Instead of up to 33% leaving, say 50% of that group convert to Premium instead of Ultimate. That isn’t any lost revenue since the price is going up to what Ultimate used to be. So that cushions their numbers even more.
I'm not a licensed math surgeon, but I think your math is wildly optimistic in favor of Microsoft due to how the subscription totals are actually distributed per price tier.
I don't doubt that they did a lot of math to figure out an acceptable level of churn for this change, I just don't think it's nearly as generous and wide as you're calculating.
There probably is a very real churn limit that they're trying to avoid, and my hunch is that there exists a breaking point that could be hit with an aggressive and sustained boycott / cancellation spree, but again, I'm not a math surgeon so I could be wrong. That's just my gut feeling.
Okay, but wouldn’t a higher price also discourage new people from subscribing in the first place? Or are companies that shortsighted?
Most of them are. Just make profit NOW!!
The same math is there too. They can afford to loose one third of new subscribers to get the same amount of money.
But their new customer acquisition cost wont get higher at the same pace and they get more valuable customers whose payback period will be shorter.
Also i dont think its relevant here, but less customers means less operating costs, so they will most likelly save some money on customer service and behind the scenes things like server upkeeps etc., but i dont think these make real difference here.
Also if for some reason things start to go bad they still have option to create "a budget version" for the people who see the normal subscrition as too expencive.
Now factor in the cost savings from a lower server load and less staff to run the back end, and possibly the smaller licensing\use costs for the games available to play since less people would be accessing those games.
But also less new users and still the usual churn of existing users. It could be a downward spiral.
That's the next CEOs problem.
Yes, but still something they will look at. It means when it becomes unviable with the squeeze already on, those that chose to pay the higher fees lose access to everything as they shut it down. I'm sure they will thank their loyal subscribers, so there is that.
My guess is they realise that xbox users in general is likely on a downward trajectory and now is the time to milk them.