“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
I’ve used a X-Box, it pales in comparison to my PS3 in every aspect
Resistance – Fall OF Man is clearly the best console game shooter I have ever seen.
Of course I can Folding@home for #1971 auto-magically in 10-30 minutes if the machine is inactive. (secret: upgrade the PS3 OS and press the triangle before selecting F@H in the PS3 menu)
My PS3 is cranking out about 900 points per day, which is 9x faster than my iMac G5 and 3x faster than the X-Box 360.
Plus I can play PS2 titles, BlueRay DVD’s, reg DVD’s, web, email, store music, video and so on.
All gaming consoles lose money-they are all sold for less than they cost.
Companies such as Sony, Nintendo and MS make the money back in licensing and game sales.
I do not like windows. I did not like Vista when I beta tested it nor do I like it now that it has been released.
I do like my xbox, the microsoft router I had and the mice they sell.
Microsoft does some hardware well-the xbox 360 overheating issues are IBM’s fault.
They rebranded the G5 as cell processors without fixing any of the issues with them.
Steve Jobs was right to switch to Intel.
Microsoft’s so called “marketing strategy” has always been that of the 600 pound gorilla – weight conquers all. Now that there are much more nimble, smarter competitors, MS is totally lost. Their corporate culture would have to be completely reinvented for them to compete, and that almost never happens.
Yeah ever since the original X-Box had that RED LIGHT of doom, I knew it wasn’t going to go well. The systems just STOP working, they don’t attempt to continue to play scratched games they MAKE the scratches then just STOP playing with an error screen. Well the other systems just keep on trying to read the discs like troopers. I am not saying I hate X-Box or 360. I have the former one, but I just don’t understand why some people worship them.
Seems to be doing just fine:
http://news.punchjump.com/article.php?id=4063
This is funny. Sony’s PS3 is performing so horribly that they pay people to write articles laced with misinformation.
The Xbox 360 is doing fine. Get over it.
The reason those of us who own 360s are piping up that we love them is due to the commentary at the end of the article by Paul Thurrott. So while the original article may be about MS’ business strategy, the addition of that extra snipe made it about the quality of the platform.
I find these kinds of MS slaps unnecessary. They only add fuel to the fire of people who see Mac owners as crazy people. While I’m a big Apple fan, I still like all good products, no matter who makes them.
MS scared the pants of Sony when they released the XBox, only by running at a loss of course. They did achive their strategy. They made it into the console market enough to be taken seriously.
I thought both MS and Sony were both mad to place their bets on the Cell Processors that were obviously running to hot but their core gamer segment just looks at the specs not the heat. They do have good specs.
Now as it stands MS is riding on becoming dominant, and Sony wants the PS3 to win the HD DVD – Blu Ray war for them. Both are losing money. Only the Wii is profitable and selling the most anyway.
But in the end, I think that with MS’s bad reputation even if the 5.4b being racked up to PR they haven’t lost.
I see M$ is doing with hardware what they have always done with software.
The top selling game console in the US for March wasn’t the Xbox 360, PS3, or even the Wii. Actually the PS2 was first overall in sales.
“The top selling game console in the US for March wasn’t the Xbox 360, PS3, or even the Wii. Actually the PS2 was first overall in sales.”
I should hope it sold more. It only costs 129 dollars.
I mean I’m sure the Ford Motor Company sells more Ford Focuses than they do Lincoln Navigators.
Does that mean people like the Focus better? HELL NO!!
It sells more because it is cheaper.
Is Economics 101 getting through to you?