Ehrenberg writes, ” Making money, e.g., 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. I think it is also interesting to note that Microsoft’s actual disclosure shows only Revenues and Operating Losses; I backed into and show EXPENSES below for explanatory purposes. Why might it be that Microsoft has strayed from the classic Revenues – Expenses = Profits (Losses) disclosure? Perhaps because they don’t want investors to focus on the fact that over $21 billion – the market cap of a sizable independent company – has been invested in a business that has performed so poorly, with unclear prospects for improvement.”
“In short, I am at a loss. Correct that: Microsoft is at a loss. $5.4 billion and counting,” Ehrenberg writes.
Microsoft is “just not in sync with the Consumer Era of Computing thesis I’ve written about, something that Apple and others have done quite well. A hard-core high-end gaming console or a console for everyone? The Zune as the answer to the iPod? I don’t know who was in those focus groups but clearly that was a mis-read from a market perspective. Are these miscues a function of unwieldy size or simply flawed strategy? I don’t know, but something is clearly amiss. And these weaknesses are apparent all across the firm,” Ehrenberg writes.
Ehrenberg writes, “Bottom line, 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.”
Much more, including Microsoft dismal Xbox numbers in the important market of Japan, in the full article here.
Paul Thurrott, yes, that Paul Thurrott, writes for WinInfo, “And there are other problems with the Xbox 360, of course. Reliability of the console is so abysmal that Microsoft has had to update its warranty at least twice in order to appease customers. The Xbox 360 runs so hot and is so loud that it’s almost completely unsuitable for use in living rooms, and these issues no doubt contribute to the device’s horrid reliability. Furthermore, Xbox 360s are physically mangling game discs in a variety of situations, a condition to which Microsoft has yet to officially admit, 18 months after the release of the console. (As for the Zune, one could write a business text book about the mistakes Microsoft has made bringing this device to market.)”
“Microsoft needs to figure out a way to make money in this market and do so while introducing a more reliable and quieter version of the Xbox 360. If these goals are incompatible, and they may very well be, then it’s game over,” Thurrott writes.
Full article here.
NPD: Nintendo Wii tops Xbox, outsells Sony PS3 almost 2-to-1, now top-selling console – March 21, 2007
Former GM of Microsoft’s Xbox Live Arcade: Apple TV to become video game console – February 08, 2007
In one week, Nintendo Wii outsells year’s worth of Microsoft Xbox 360 units in Japan – December 12, 2006
Microsoft sued over defective Xbox 360 consoles, suit alleges units prone to freeze ups, overheating – December 05, 2005
Microsoft CEO Ballmer confident Xbox 360 will sell in Japan, touts HD DVD over Blu-ray – November 16, 2005