Microsoft's true goal

[quest55720]

I figure now MS goal is to hang on till next generation. They have basically given up around the world. They are surrendering NA to Sony by refusing to cut the price. It is a shame MS has given up this time around when they were to so close to at least securing NA. All they needed was a price cut now with GTA4 and they could hold on for dear life. Instead they will let sony steam roll them come this fall with a monster line up of exclusives starting with MGS4 in june.

I love my 360 but I see no reason any sane person would buy one right now with pricing.

 

[borntosoul]

i agree with the thread starter, could you emagine how much money ms would lose if our pc's evolved into a consol and into everyones living room and MS wasnt a part of it.

 

[aaronspink]

Maybe they also need to release daily reports to make you stronger believer?
I'm talking about the whole console business, which is at lost right now and it needs at least couple of years to make for the losses.
And even then it will be much less money there than in any other MSFT business initiative.

Here's a little biz tip for you, you don't make back money by killing a profitable division. Sunk costs are just that, sunk. From a biz perspective you look at how to make money going forward.

Aaron Spink
speaking for myself inc.

 

[Shifty Geezer]

I think people are losing track of the thread a little. Of course it would be stupid to give up on a profitable division. The question is why are MS even in the biz? Why did they invest so heavily, and not pull out years earlier when losses were extreme and profitability was many years away? MS have abandoned other projects before now. They also have far less to gain from being a strong console player as they don't have the more lucrative first party developers. If Wii was MS's baby instead of Nintendo's, they'd be making a load less money from it than Nintendo are without the first-party earnings. MS's income would come solely from license fees and hardware sales.

That's if they were just pursuing the games market. Throw in digital downloads, at very high profit margins, and an appeal far greater than the niche of console games - TV, movie and music's nigh on 100% market appeal versus console's 10% - and it starts to make more sense.

 

[FutureCTO]

That is true. And it is part of my understanding. Because people like you and I can see this it is very easy for me to state with full confidence than Microsoft's Online Services Division is actually where most of Xbox's current losses are being hidden nowadays. Last time I said this it upset a lot of senior members.

Furthermore recent studies show nearly 60% of game sales are used games. If Microsoft and any other parties are able to move to the exclusively downloadable content model, then they get in on 60% of the business they have not been able to profit from. By managing copies no one can sell their copies to anyone else as they are tied to each console. While profitable for Microsoft, many RROD customer's have lost the rights to play games they paid for and downloaded because their unit was replaced and Microsoft help desk wouldnot/couldnot/didnot transfer or reactivate them even after numerous calls and months.

The key to control it total ownership. If games can only be bought online, then microsoft has controll of modded system checks, no optical media can be ripped, the encryption can change with new firmware etc. No user content creation or second hand game sales to slow down the turnover of new sales.

 

[Shifty Geezer]

I doubt an online game model is their end-game. As mentioned in other discussions, online only doesn't appear practical for a long time. What's more appealing is distribution of 100 MB albums and streamed movies, something pretty much every household could have an interest in rather, than 8 GB games, or far bigger games in future.

 

[Fafalada]

If games can only be bought online, then microsoft has controll of modded system checks, no optical media can be ripped, the encryption can change with new firmware etc. No user content creation or second hand game sales to slow down the turnover of new sales.

And No retailer will carry their hw as result.

 

[Shifty Geezer]

It'll be a truly online console - you'll have to buy it online direct from MS!

 

[Squilliam]

And No retailer will carry their hw as result.

Apple still sells ipods in stores don't they? I mean it's practically all digital distribution or thievery now isn't it?

They won't sell it as a loss leader, but they would sell it if it made them money. Because if they didn't someone else will.

 

[AlNom]

It'll be a truly online console - you'll have to buy it online direct from MS!

Can I download it to my PC :|

 

[Shifty Geezer]

Apple still sells ipods in stores don't they?

People still buy disks to rip to iPods etc. The stores still make money selling the software for that hardware.

They won't sell it as a loss leader, but they would sell it if it made them money. Because if they didn't someone else will.

But then the hardware will be more expensive than the other consoles, and have far less support from the retailers. If the industry moved that way in one jump, I can see it sort of working, at least in establishing itself. If only one console becomes online only, I expect they'd get left behind. The other consoles would be pushed and promoted in stores as the machines that make those stores by far and away the most money. Online only, no second hand industry would result in closure for all those gaming stores.

 

[Scott_Arm]

I actually really do not like the idea of consoles going the way of huge local storage. Hard drives have always been the bane of my existence. They're terribly undependable now. Consoles, to me, were always meant to be simple and rock solid. I'd rather see them go with solid-state memory with lower storage capacity, and use more streaming content and distributed application type stuff. If consoles get to the point where every game is using a 10gig install, or you have to download your games off online stores, I think I'll just stick with the PC.

In terms of the internet world, I think Microsoft saw the internet world really pushing its way into the entertainment business with delivery etc. They were in a pretty good position to do that.

Off topic, but I'd like to see the console makers supply an online backup service for profile and save information. If I had a console hard drive die and I lost all my saves, I'd be pissed.

 

[archangelmorph]

I actually really do not like the idea of consoles going the way of huge local storage. Hard drives have always been the bane of my existence. They're terribly undependable now. Consoles, to me, were always meant to be simple and rock solid. I'd rather see them go with solid-state memory with lower storage capacity, and use more streaming content and distributed application type stuff. If consoles get to the point where every game is using a 10gig install, or you have to download your games off online stores, I think I'll just stick with the PC.

In terms of the internet world, I think Microsoft saw the internet world really pushing its way into the entertainment business with delivery etc. They were in a pretty good position to do that.

Off topic, but I'd like to see the console makers supply an online backup service for profile and save information. If I had a console hard drive die and I lost all my saves, I'd be pissed.

Would be a pretty good business I reckon..

Especially for Xbox360 who'd rather stick with a HDD-less system but would want to download & play games from XBL to & from a memory stick..

 

[betan]

I actually really do not like the idea of consoles going the way of huge local storage. Hard drives have always been the bane of my existence. They're terribly undependable now. Consoles, to me, were always meant to be simple and rock solid. I'd rather see them go with solid-state memory with lower storage capacity, and use more streaming content and distributed application type stuff. If consoles get to the point where every game is using a 10gig install, or you have to download your games off online stores, I think I'll just stick with the PC.

Don't worry, future has no persistent local storage, only temp cache with centralized storage, and pay-per-play model MS will be pushing.
You heard it here first.

Off topic, but I'd like to see the console makers supply an online backup service for profile and save information. If I had a console hard drive die and I lost all my saves, I'd be pissed.

Can't you backup on external harddrive?

 

[manux]

Don't worry, future has no persistent local storage, only temp cache with centralized storage, and pay-per-play model MS will be pushing.
You heard it here first.


Can't you backup on external harddrive?

At least on ps3 one can backup to external mass storage without buying additional equipment. Though restore operation to separate machine will loose all "drm" content. Restore to same machine doesn't loose data.

 

[Scott_Arm]

Don't worry, future has no persistent local storage, only temp cache with centralized storage, and pay-per-play model MS will be pushing.
You heard it here first.


Can't you backup on external harddrive?

I don't think you'll ever see a pay-per-play idea take off as long as there is a competitor that is running under the current model.

To be clear, I still want to be able to go to the store and buy a game. What I don't want is lengthy installs, disk space management and flakey storage. I want to put the disc in and start playing and have smaller and more depandable storage for saves, patches and other add-ons. For media, I'd like on-demand streaming content, including the media center functionality. Other non-essential or productivity apps could be offered in some distributed way so you don't have to depend on local storage, but I'm not a big fan of pay per use.

Really, the 360 and PS3 are very close to what I want. I'd just like to see the hard drives get replaced with some type of solid state memory. The rest is just changes to software and content.


To get back on topic, I think what I want and what Sony and Microsoft plan to do is pretty similar. This gen was really about taking the console and taking advantage of the online functionality to create new revenue streams from content delivery. I think the next gen will push videos, music etc even more.

 

[psorcerer]

The entertainment division of MS includes their entire console business.

The money they've already lost is gone. They can't go back in time, and even if they could I doubt they would nix the idea of investing in consoles, they would just make some different decisions on where to spend. Are you suggesting that now that they are finally putting money in the black, they should quit?

I'm suggesting that this whole console affair (you cannot call it business, because business is about profit) is about something else.
I suppose it's about interfering with something that Sony does, movie business maybe. Making Sony move a lot of money into something and thus making something else more vulnerable.
And It's also about "spend this money somewhere or pay it in taxes". With the huge MSFT profit margins the taxes are equally high.
What is not about: Nintendo, nobody was thinking that they'd pull it off.

 

[Scott_Arm]

I'm suggesting that this whole console affair (you cannot call it business, because business is about profit) is about something else.
I suppose it's about interfering with something that Sony does, movie business maybe. Making Sony move a lot of money into something and thus making something else more vulnerable.
And It's also about "spend this money somewhere or pay it in taxes". With the huge MSFT profit margins the taxes are equally high.
What is not about: Nintendo, nobody was thinking that they'd pull it off.

Sort of. Someone earlier mentioned that Microsoft wanted to get in this business because Microsoft didn't want Sony having control over all of the standards. I think that's probably right on the money. With everyone talking about convergence and syncing to the mobile world, I think Microsoft knew they had to get into the multimedia delivery business. They needed an mp3 player and a game/multimedia machine. Microsoft is also invested in IPTV. Microsoft wants to be a big part of the standards in all of these areas, because they know that Windows will die if they lose control of all those emerging technologies.


Edit: Nintendo has a different strategy than both Microsoft and Sony. They don't have any other products or interest in the multimedia world. They see themselves as a game company and only have interest in making money in that business. Sony has to sell TVs, Bluray, home theater systems, phones, mp3 players and whatnot. Microsoft has to sell software for mobile phones, computers and other devices that integrate into the multimedia world.

 

[paawl]

And It's also about "spend this money somewhere or pay it in taxes". With the huge MSFT profit margins the taxes are equally high.

Please don't take offense, but it surprises me when people write stuff like this, either about MS's investments in the video game industry, or about their taking a $1B charge for RRoD warranty extensions. There's just no practical way for a corporation (or individual) to spend its way out of paying taxes. Also, the corporate tax in the U.S. is essentially flat, so MS doesn't pay a materially higher rate of taxes than the mom & pop convenience store on the corner. Companies only spend money when they expect to receive more in return.

Back to the topic at hand, I think it's now obvious that Microsoft can never recoup its investment just by selling video game systems and collecting license fees. I recall that they've spent $6B to enter this market. Even if one believes that they'll be consistently profitable from now on, and won't have to invest another penny in developing the next Xbox, they'll need to make nearly $1B a year in profits just to break even over the next 10 years. It's just impossible at this point, even if they made money like Nintendo does.

The only way the Xbox diversion makes any financial sense for Microsoft is if they get some ancillary benefit out of it, and I don't think that costing Sony a lot of money is a big enough benefit. Having a strong presence "in the living room" is a hedge against possible loss of MS's Windows/Office monopoly. I don't think that anyone seriously doubts that this is the one and only motive for MS to get involved in video games.

I don't think it's a conspiracy, it's not illegal or immoral, so I'm mystified as to why some people don't want to admit it. Does it make the games any less fun? Do people somehow feel "dirty" for playing games from a company that has no particular interest in games, other than as a strategy to protect the profits of its other divisions?

 

[mrcorbo]

I'm suggesting that this whole console affair (you cannot call it business, because business is about profit) is about something else.
I suppose it's about interfering with something that Sony does, movie business maybe. Making Sony move a lot of money into something and thus making something else more vulnerable.
And It's also about "spend this money somewhere or pay it in taxes". With the huge MSFT profit margins the taxes are equally high.
What is not about: Nintendo, nobody was thinking that they'd pull it off.

Not quite correct. Business isn't always about profit. It is about getting return on investment. Profit is one return. Another is in the form of acquired assets.

In this case their XBOX business, encompassing console sales, accessories, and royalties from software and XBLM sales is the acquired asset. If you were to take a snapshot of the numbers as they are today you would say the value of the XBOX business is not even close to an adequate return given the massive investment MS have made. But, given the transition to profitability, we are now seeing the XBOX business increasing in value as consoles continue to sell to the market increasing the potential for royalties and marketplace sales. And this asset is increasing in value with no additional investment since the operation is paying for itself and then some.

Every quarter that goes by that the business continues to turn a profit and continues to place consoles into consumers' hands it becomes a less poor investment. The profits directly balance the initial investment and the additional consoles sold represent increased value of the business in the form of it's ability to generate additional and increasing profits.

The problem is, of course, that they are in such a hole right now that it may take an additional generation or even longer (and yet more investment) to climb out. The valid question is: Are they going to stay committed long enough to see it through?