“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
5.4 billion and counting….. ouch. That’s gotta hurt even MS.
My son-in-law experienced a total failure on his xbox 360 right after installing a patch to Guitar Hero. Microsoft is in the process of sending him an empty box for shipment of the 360 back to Redmond. Though it is out of warranty and the repairs will cost 200 bucks there is no real alternative for him.
He bought me one for Christmas, however I’m not into guitar heroes so mine is safe for now. But, what other patch is waiting in the wings to destroy my 360?
Seen thw PS3 vs. WII shootout?
AMEN …Finally someone is getting is picture
I love my Xbox, as do all my friends who also own Mac’s. IMO it’s the only thing MS has done properly.
Halo sold the original xBox, Likewise for Halo 2. Halo 3 is going to spur demand for this model. I hate to admit it, but I’m tempted myself. Though the Wii has been such a huge hit in my house – even Grandma joins in on the fun. Nothing has brought the whole family together like this since parlor game night.
“Would we have been better served by returning the extra cash to shareholders . . . “
Sound familiar?
Keep it up Ballmer, you sure know how to burn thru the cash there pal….
MS may have done X-Box correctly, but not enough people agree to make it profitable for the company. Those are the simple facts. Long-term, the X-Box is anything but a sure thing.
Here here!
“The Xbox 360 runs so hot and is so loud that it’s almost completely unsuitable for use in living rooms”
Remember how Apple couldn’t get a g5 into a laptop? And what chip is the xBox using?
To add on to this guys points, Microsoft says that it’s in these businesses (especially with Zune) for the long haul, but at the rate they are going, the whole business will be changed and their business model will be worthless.
Whether they have any decent games for the Xbox or not isn’t the question, the fact is that they’ve now lost at least $5.4 BILLION over the last 5+ years due to the Xbox. Even Microsoft can’t afford to torch that kind of cash forever.
It might not be so bad if this wasn’t their only money loser, but the fact is, you can add MSN, Zune, Media Center PC, Tablet PC, etc, etc, to that list. Windows and Office are literally the only profitable products coming out of there anymore.
@ Tommy Boy
That was funny as heck.
But to address the subject at hand, I really wonder who Microsoft thinks it is fooling? I like how they love to play games with their numbers to try to disguise and masquerade its mess. It should focus on its core technologies, scrap the failing ones, and try to create more value from its core. I guess that’s too much like right. Being the “me too” company technology just won’t cut it.
Nintendo sold more Wii consoles in its first week than MS sold 360s all year. Halp!
I actually like my japanese xbox 360, no other system carries games such as Idolmaster and Blue Dragon. As much as i don’t like Microsoft, I do like the number of quality exclusive titles they are currently offering. Plus the white color case goes well with my macs.
Zune’s new business model: Buy a Zune, get a coupon for a free car!
They need not produce anything other than Office…..for Mac.
I used to play Marathon on my Mac. I bought a Xbox for Halo 1. I got a Xbox 360 for Halo 2 and 3. I love my Xbox. I love my mac and I hate MS. They did a good job with the 360. Game machines in general have gotten so huge on specs to control the living room that it has to loose money to actually sell any same for the PS3. I have not fallen into the Wii because I already have a game system and I do not play enough to have 2. The Wii does good because it is cheap and the games do not have to have a huge machine to run on. That is fine but I love Halo’s emense graphics as well as Gears of War. I want to play these big games. I would have shucked out $200 more for the system to get to play Halo 2. It may have taken me longer to get it but I still would have bought it. Xbox and PS3 are having money problems because they want to compete with the Wii on price but still keep the big items in the machine.
Microsoft does focus on it’s core technologies – marketing and lawyering
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This is just one example of where those extortionate profits from the extortionate prices for Windows and Office end up, down the drain.
Hmmmm, maybe the answer is simple after all.
Microsoft has always had a “we are best for the world and it always works better (for us) if we control everything.” attitude.
MS could not do gaming so they bought it. Then they tried to connect it to Windows, along with plays for sure and Zune and the home media computer. Its what Apple is doing now, its just that Microsoft started working at the back end of the horse trying to get food to go thru instead of the front end. So its push the food in the ass, up the intestings, up the stomach, etc.
Apple spend a little more time thinking about it and just fed the horse food at the front end. Everything else, …. wait for it …. “just works!!” .
If Microsoft were not so hard headed (read Bill Gates and Steve B.) and they looked at helping the consumer instead of trying to just make money, they would have rebuilt MS many years ago and Apple would have died on the vine.
Now its MS that is withering. Big fruit just takes longer to rot.
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Failure-in-a-Box? More like . . .
“Hey, it’s my D-CK in a BOX!”
Perhaps positive profit beats marketshare.
Sony and Microsoft have completely misjudged the market and will suffer greatly for it. They let Nintendo steal away the massive base of casual gamers. All that remains is the much smaller hard-core base, and you have to wonder if that base is big enough to sustain two consoles.
Remember, last time around, all the average gamers were buying PS2s. This time, they’re all buying Wiis.
BUNGIE_RULES,
I don’t think the article is about whether or not xBox is a good gaming machine.
Just a little correction/addition to Thurrott’s story:
Microsoft Netherlands HAS last week admitted that Xbox 360 can physically damage discs.
Something with little protective cushions being absent in the drives …
Already over a thousand customers in the Netherlands alone have filed complaints.
Sounds like a fun class action …