“Gaming has been a disastrous endeavor for Microsoft, particularly from an investment perspective,” Roger Ehrenberg writes for Information Arbitrage.
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.
Related articles:
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
Once Guitar Hero is available on the Wii, I will be making my console choice.
I’d be better served taking the money for an XBox and using it to light stoves with.
I also love my 360 and am a total Apple fanboy. I’ve had mine since they came out and have had zero problems with it. Maybe I’ve just been lucky. For me, it’s the one thing that MS has done right; especially when Live is added into the picture. No one has done online console gaming better IMO.
There are many simple solutions for heat and noise. The power brick is actually the hottest part. Keep it separate from the unit. I’m actually more afraid of my Apple TV when it comes to heat. I swear that thing will catch on fire one of these days.
As for noise, never use the console on its side; er, make that ANY console or DVD/CD drive. That just seems like common sense to me.
Hmmmm, I was thinking about getting a space heater for the living room….
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I love how Microsoft’s one initive that was supposed to drive revenue is a business more similar to Apple’s. Apple makes the hardware and software of all it’s devices. Microsoft’s big entry into gaming has forced it to become a hardware maker like Apple.
The irony is in order for Microsoft to grow it has to become Apple, but Apple is innovatiton, but not just in the hardware or software, but in the industry it’s competing in. This is the key to Apple’s success and the reason for Microsoft’s failure.
Microsoft has the market share, but Apple has the money $$$.
I say whatever.
The Xbox and Xbox 360 have some of the best games ever, period.
So while M$ isn’t making money on them, gamers are reaping the benefits in the form of great games.
-L
It’s called “hubris”. With their enormous cash pile, and continuing near monopoly at the Desktop, they believe they need only point to a new sector they’re interested in – PDAs, phones, music players, game consoles, media distribution – and come to believe that they will ultimately *own* that sector. Yes, they’ll stumble with their first or even second offerings, but they’ll intimidate or outlast their competitors and win in the end. Well, that playbook doesn’t win any longer. It’s a new day.
whatever. I love my Mac and I love my 360. I used to be a rabid Mac gamer, but nothing beats playing Burnout and Gears of War with my friends in San Francisco and New York on my HDTV, streaming music from my MacBook.
The only thing M$ does RIGHT is the Xbox!
Love my Macs. Love my 360. However, it is clear that the gaming experience itself is not being criticized, but the prevalence of issues with the hardware.
Yes, I would be pissed if (when?) the heat issues of the 360 screw me. I did place the 360 away from the other electronics and with good ventilation to minimize the risk of any heat-related problems. I haven’t had problems with noise.
Actually, the funny thing about his look at Microsoft’s Home & Entertainment group is that group also include the Macintosh Business Unit. It’s one of the few components of the H&E group that makes decent money. According to a couple of friends who in MacBU, the other groups refer to it as “The ATM” because that’s where the money comes from.
If Microsoft were as smart as they think they are and wanted to survive and prosper for the long haul, they would divest themselves of everything outside of software, and split the remainder of MS into two completely independent companies. One company for making Windows work on any platform, and the other for developing software for any OS and platform.
But they won’t.
Dinosaurs never see the asteroid coming, and buggywhip makers don’t “get” the automobile.
Feel free to reach into the box and grab a handful of my Popcorn™.
My next door neighbor, who appears to be a glutton for punishment, bought an Xbox 360, which lasted 13 months before croaking… one month after the warranty expired… He was quoted $200 to get it repaired by Microsoft. He almost opted for that, but was able to get a trade-in for an all new unit for $20 less (not sure where). I asked him how he felt about that, and he said it didn’t bother him too much… He said that he went through three Xboxes in three years so, this was something he expected. He has never had any other game consoles prior.
By contrast, I bought our kids a PS2 back in late 2000 (still have the receipt), and it gets used quite regularly by them, and it is still perfectly fine. It more or less replaced a Nintendo 64 which I had bought them in late 1997 (still have that receipt too). It too, still works, and is also played quite often.
Just this last fall, they asked for a Wii when it came out, and I agreed, but am still having a hard time finding one selling for list price.
OK! You love your Xbox 360.
If Microsoft ran the gaming devision like a business and did not sell their consoles at a loss then you would not have bought a Xbox 360 because of the sticker shock.
It’s like selling $400 Windows boxes at a loss. Sooner or later everyone who makes them goes bankrupt or raises the price to $600.
This bullshit can’t go on forever.
I smell a shareholder revolt.
Piss the money away in dividends for a change.
And this is related to Mac news how?
I’m a long-time Apple devotee, but I love my Xbox360, too. It’s just fun.
It’s funny… all anti-M$ guys love this kind on articles. The real fact, it’s that all the “gamers” who want see die the xbox 360, are not real gamers… are just patetic fanboys.
If MS quits now, the damage to the video game industry could be disastrous…
If any of you would get Steve Jobs dick out of your mouths long enough to see whats going on in the world you would note that the article only looks at the performance in japan which is nothing compared to North American and Europe. Fucking sheep.
unbiased article on same information
http://www.windowsitpro.com/Article/ArticleID/95806/Windows_95806.html
The article isn’t about how good the XBox is so of course it’s fun because it’s a $600 system being sold at a loss to MS. They are losing money and have been for years on the xbox. As a business they suck, no one else can do this. MS can do it because of their monoploy of windows and Office. Bend Over.
winner= gamer.
Why is MacDaily posting articles like this?
Anyone who deems the Xbox360 a failure either at it’s launch or now is just being stupid. It is a well known fact that no video game console in the past has turned a profit for it’s maker in it’s first year. It’s the nature of the industry. And while 360 sales in Japan have been dismal, compared to the US and European Markets the Japanese market is nearly insignificant. Beyond the sales numbers, Microsoft has managed to have excellent 3rd party support not only from American developers but also from very important Japanese Developers. The fact remains that currently the 360 has a much larger installed base than either the PS3 or the Wii. And as far as the ‘Next-gen’ goes, Microsoft (as much as it hurts to hear it) is in the driver’s seat. The 360 currently has the most robust software line-up, and is going to have a very strong 2007, with it’s only rival in this area being the PS3 with it’s equally strong 2007 software line-up. The 360 has the absolute best Online service available for any of the consoles, with once again the only competetion in this area being the PS3 and it’s PSN (and Home coming later this year). If there is one console to currently be worried about, it’s the Wii. It’s time for some people to look at Nintendo’s past attempts (aka the N64 and Gamecube) and future plans (quick and dirty ports, important 1st party titles getting pushed back, lack of 3rd party online support, etc.).
MacDaily do yourself a favor and let the video game sites report on stuff like this ok?
Hey Bizarro Ballmer
It cost them $320 to build the $400 system. Get your facts straight you mac sheep.
@YOUR ALL SHEEP
So someone from Windows IT Pro writes an incomplete article on an MS product and you call us sheep? How does it make us sheep exactly? I’d love to know. I’d really like to know what this article has to do with Steve Jobs genitalia?
@ all
BTW, I’m a life time Mac user and I have an Xbox. I agree with earlier post that stated it is the only thing MS has come close to getting right. Of course a lot of that success it owed to Bungie and it’s Halo products but I digress.
Microsoft will soon not be able to afford it’s usual strategy… Throw enough money at it, and eventually, we will dominate. We’ll take a huge loss now for some potential future profit.
Today’s Apple does not seem enter into any venture unless it sees immediate revenue AND profit. Perhaps Microsoft should copy Apple’s business practices, not it’s OS or iPod.
It may in fact be a non-favorite from an investment standpoint, but the facts also include the fact that it seems to fill a nitch that no other console does, ironically in the area of quality of gameplay and general graphics quality (obviously depending on the game at hand). These are the two areas that MS’s console have always seemed to be ahead of the pack, and if no one else is offering these fundamental qualities then it stands to reason that someone can, and in this case does.
I don’t own an Xbox, but my daughter and I have some GameCubing buddies who also own and use the Xbox (360), and they think that, inspite of it’s flaws, its providing some unique gameplay compared to the other consoles, again, particularly in the area of visual quality. I’ve seen some high end graphics on the PlayStation and it looks very good, but some games look better on Xbox, what are you going to do?
Some people want fun, others want real, somehow no one seems to want real fun
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Maybe Apple will eventually come out with an Xbox breaker, but they’ve got other things to do right now.
@YOUR ALL SHEEP:
First of all, it’s “You’re” not “Your”. Learn to write.
Second, as an investor I couldn’t care less how many 14-year-olds drool over the XBOX 360. The fact is that Microsoft is losing their butts on this device and others. I could have tremendous market share in the auto industry if I sold Corvettes for $15K. There’s an old joke that goes, “We lose $1 on every unit we sell, but we make it up in volume.”
Third, as far as I can see Steve Jobs is an arrogant ass, but he’s pretty good at running a business. Apple’s growth rate is 2 to 3 times that of the industry in general because Apple offers innovative solutions at a reasonable price, and concentrates on improving the user experience, rather than ways to treat its customers like thieves.