The success (or lack thereof) of Xbox 360 has been a hotly debated topic across both the blogosphere and mainstream media, with an amalgam of sober and utterly confused views depending upon one’s vantage point: analyst, investor or gamer.
After taking a step back and looking at some objective numbers (taken from Microsoft’s own financial statements and comparative console sales figures extracted from VGChartz.com and Wikipedia.org), I have concluded that gaming has been a disastrous endeavor for Microsoft, particularly from an investment perspective.
Let’s first consider Microsoft’s Home & Entertainment Division (“H&E”), which includes Xbox 360, Xbox, Xbox Live, Consumer Software and Hardware Products, and IPTV. Making money, i.e., the creation of long-term shareholder value, has got to be the ultimate driver of Microsoft’s gaming (and H&E) strategy, right? Well, after five years and over $21 billion invested, all they’ve got to show for it is $5.4 billion of cumulative operating losses, and Xbox 360 doesn’t appear to be the silver bullet to turn things around.
Microsoft needs to take a long, hard look at its gaming strategy–and, in fact, its entire H&E strategy. At what point, regardless of its virtually endless financial resources, does it say “enough is enough”? Would we have been better served by returning the extra cash to shareholders rather than investing it in a franchise that seems to have questionable prospects for turning around? These are the kinds of questions Microsoft management should be asking. And hopefully, for shareholders’ sakes, they are.
oooh! I get to be the first one:
How foolish. Everyone knows that Forbes Magazine is owned, operated and edited by a bunch of PS3 fanboys.
The rest of the discussion may now proceed on Console Wars Autopilot.
Finally, someone with brains!
I miss the Sidewinder product line. On Ebay, the better examples go for up to 3x their original price.
“I have concluded that gaming has been a disastrous endeavor for Microsoft, particularly from an investment perspective.”
Blablablablablabla.
Tells us something we don’t know.
No protected monopoly… actual competition… no accidental humongous starting base… too late to steal the best ideas…
Of course they did it wrong. They’re Microsoft. Now let’s talk about Sony.
#3. I fondly recall the Sidewinder Dual Strike, notwithstanding the fact that the d-pad routinely snapped off. I may have the last working example in my big box o’ crap.
This is exactly what MS is good at. It just throw in bunch of money — win or loss — and hang in there until it out-last its competitor. MS did that to Palm with the Pocket PC (and very much out-lasted Palm), and it is also doing that to iPod with its Zune. MS doesn’t really have to win, it just have to last.
7. “MS doesn’t really have to win, it just have to last.”
That doesn’t really make any sense. How does throwing billions of dollars down the toilet help Microsoft in anyway? Sure it got rid of Palm, but it certainly didn’t make any profit by getting rid of that competition. Unless not making a profit and losing billions is now some bizarre measure of success they’re teaching in business schools.
Take Windows Mobile. How many Palm OS device is still out there? Even the Treo is moving to Windows Mobile. When Palm ditch Palm OS from Treo completely, there will be no Palm OS device in the market.
Windows Mobile is the successor of Pocket PC. Pocket PC started so many years back when Palm OS is consider the future of mobile computing. Let’s face it, even Windows Mobile mobile is still crashing all the time as it did many years ago, and even Windows Mobile is still slow as hell as it did many years ago, there are more and more devices running Windows Mobile. And eventually, Windows Mobile will start to make profit for Microsoft. Microsoft doesn’t have to make any money for now from XBox, they just have to make sure it lasts long enough for other consoles to die off. Then people would have no choice but to buy XBox.
“Would we have been better served by returning the extra cash to shareholders” I think this is about someone wanting a bigger dividend. Forbes could care less if Microsoft has any R&D they care about shareholder value. The constant focus on the bottom line shareholder value is a big problem in a lot of areas of our economy.
Here is the lie: they include the IPTV boondoggle, on which they have flushed billions down the toilet. Its deceptive to lump that in with the xbox. And anyway, hasn’t everyone figured out that the PS3 is a piece of junk with no decent games? Yeah, they’ve caught up with the demand for the PS3… the demand is zero.
9. “Windows Mobile is the successor of Pocket PC.”
Show me any figures proving that Windows Mobile has earned an overall profit. By “overall profit” I mean after subtracting all the losses suffered attempting to put Palm out of business. You can’t throw money at problem without subtracting it later.
“they just have to make sure it last long enough for other consoles to die off. Then people would have no choice but to buy XBox.”
Oh yeah, that’ll work. I’m sure Nintendo will die any day now considering the Wii is outselling the 360 AND the fact that Nintendo actually makes a profit selling it, instead of posting billion dollar losses. Nintendo is just so idiotic, a console that earns a profit AND people actually want to buy. God, that’s so 1990s!
11. “Here is the lie: they include the IPTV boondoggle, on which they have flushed billions down the toilet. Its deceptive to lump that in with the xbox.”
No, the Xbox is a financial failure. The first Xbox itself lost 4 billion. The extra 1.4 billion comes from the 360, Which is losing less money because MS has been able to keep the price high due to the even more costly PS3.
The fact that the Xbox and 360 are losing massive amounts of money is common knowledge to everyone but MS fanboys.
I think Microsoft tends just to through money at something hoping it will fix the problem. I think they will do the same for Vista. I see them ending support for XP early to force everyone to switch.
Buy your Dell now while you still can get XP!!
It seems in gaming the miss was that Sony and Microsoft thought that money was not an issue for gammer’s. I guess they were wrong.
Wii certainly has more bang for the buck, and is better at supporting older games.
All we need are the 360 and the Wii to battle in the future, the PS3 can die.
10. “I think this is about someone wanting a bigger dividend.”
Gee, do you realize that stockholders are the true owners of a company?! And why should the owners of a company not want billions thrown away with no hope for future profit? I think MS is in trouble. The stock holders are no going to put up with this sort of crap much longer. There will be a revolt and MS will no longer be able to “solve” problems by throwing billions of dollars down the toilet. It’ll have to compete by making better products that people will want to buy on their own merits. What crazy idea!
“Forbes could care less if Microsoft has any R&D they care about shareholder value.”
Exactly what R&D did Microsoft get out of the Xbox?! The original Xbox consisted of PC parts thrown together in a over-sized case. While the 360 is more console like, it’s hardly revolutionary and is in no way profitable.
R&D only makes sense if it leads to new technology which later leads to profit. Neither of which happened with the Xbox or 360.
#1, Forbes is a magazine with a noted Apple Fanboie bias. Other stupid things they have said have included, that even thought Vista sole more copies in its first month than the entire life of OSX, that Microsoft was in danger of losing the operating system wars to Apple…
And as recently as two days ago they were fawning supporters of George Bush as in this article :
http://www.forbes.com/feeds/ap/2007/04/22/ap3638689.html
Also, the XBox Elite is already sold out for the foreseeable future, and it hasn’t even been released yet (And Microsoft makes money on each XBox 360 sold in spite of that incorrect Business week article, they sell 20 gigabyte hard drives for a $100 for example).
But hey, Anti-microsoft hyperbole sure is a lot of fun to read!
16. “Forbes is a magazine with a noted Apple Fanboie bias. “
So are you saying that Forbes is wrong? That Microsoft has not lost billions on the Xbox?
“And Microsoft makes money on each XBox 360 sold in spite of that incorrect Business week article”
And where’s your proof of that?
“they sell 20 gigabyte hard drives for a $100 for example”
Well, they certainly make money on peripherals. They also make money on Live! But you have to subtract the loses from the profits. And when you do that, Microsoft has lost over 5 billion.
“But hey, Anti-microsoft hyperbole sure is a lot of fun to read!”
You don’t win arguments by accusing someone who disagrees with you as being biased, you have to prove your assertions. That’s something you’ve failed to do.
R&D only makes sense if it leads to new technology which later leads to profit.
Heavn’t you notice that for Microsoft, it’s no longer about profit, it about market share? As long as they have enought market share, they will ventually make money. Not every company have the resource to use such strategy — Microsoft is probably the only company that have the resource to do so.
“Show me any figures proving that Windows Mobile has earned an overall profit.”
I can’t, I’m sure you can certainly see for youself that Windows Mobile has taken a much larger market share that any other mobile platform. And I stand by my point that “For Micorsoft, it’s not about simply making profit, it’s about gaining market share”.
The only thing MS is failing to do in regards to the Xbox issue is capitalize on the demand for games.
They are supposed to give away the razor to sell the blades. They trouble is, they don’t make enough of the blades.
Microsoft has CASH RESERVES of what – $65 billion? This doesn’t include profit or cash flow. They have more money in the bank than they know what to do with.
Admitedly – I haven’t read the article – but Microsoft has spin-off benefits of the game division. How many gamers are buying Mac’s? It used to be that gaming required dual boots and other configuration – but now everyone is gaming purely in Windows.
Futhermore – the UI designs from the Xbox are clearly the best in MS. I see similarities between the “Blades” UI to “Ribbons” in Office 2007 and Vista…
Many companies have losing market segments that drive innovation in others. And while they selling less 360’s than Wii’s – they beating the pants off the PS3…
I personally see the gaming segment a long-term net gain for Microsoft. I’m not so sure about the Zune and IPTV – but I see them making money on the Xbox division long term
did anyone mention that the video downloads have been surprisingly ‘extremely’ successful ?