Xbox lost Microsoft $4 billion over 4 years

[Magnum PI]

http://www.theinquirer.net/?article=26497

No, they didn't make it, they read it in Forbes:

http://www.forbes.com/home/technolo...-management-software_cz_vm_0913microsoft.html

reactions ?

 

[Carl B]

I thought it was more (closer to $5 billion), that's my reaction.

If anyone doesn't know about the losses Microsoft has been enduring this gen, they are really out of it.

 

[Acert93]

Holy repost Batman

Year late on the news there. Actually, if it is only 4B that means they have done relatively good this last year This morning was slow on the forum, so I guess everyone wanted to spice things up with some old, yet controversial, posts. Yay forum! </sarcasm>

 

[EndR]

Sure, 4 billion IS a lot of money.. but one question: Could MS have done it cheaper during the circumstances?

What does it cost to establish a whole new console, specially considering the competitors. When MS came in, the PS-brand was stronger than ever and Nintendo "seemed" to be more aggressive. MS didn´t have the time to R&D their own stuff, like they did with 360, they had to buy it off the shelf and so on.

So the question is, could MS (or any other company) it cheaper?

 

[Carl B]

Well, I certainly think they could have done it for less. Leaving the structure of their contracts with Intel and NVidia out of it entirely, making the hard drive optional rather than standard would have certainly cut their losses in a big way. I'm not saying that you, the consumer, might have enjoyed the console as much as you did with the drive included, but then again that wasn't the question asked either.

Another question along the same lines would be: if the hard drive this generation had been optional, what would the hypothetical effect to MS' market penetration have been?

Whatever the case, Sony faced the indomitable Nintendo when they entered the market, and still managed to turn a great profit that same gen (there are of course reasons we could debate there as well) - so I don't think establishing marketshare beach-heads is automatically linked to losses.

But what's done is done. What we will see play out over the next ten, fifteen years is whether the losses endured the last four were worth it or not. So at this point it's the future that matters.

 

[Natoma]

$4 Billion in four years really needs to be put into perspective. MS generates $2 Billion in "excess" capital every month. That loss is nothing to them.

 

[Magnum PI]

So the question is, could MS (or any other company) it cheaper?

I don't know much company that would have been able to loose that much without going out of business.

I don't think a new competitor would have to lose that much to introduce a new console.

I just think that MS tried to move the battle to a ground that is more favorable to them, the economical one: you have the financial power of microsoft, you raise the economical stakes by throwing lots of money. Your competitors try to follow you, but they can't bleed money for long, so they leave the game and the market is yours. (the same tactic US used, with the race to weapons, in order to ruin the USSR). When you have lots of cash and money flowing at an insane rate it must sound so easy, much easier than to play it smart.

The 4 billion-thing may be a non-news be the forbes articles remains interesting.

 

[Carl B]

Excess capital isn't the same as profit. Their profit last year was $12 billion, the year before $9 billion, and the year before that $10 billion. So, certainly a couple of extra billion in there would have been nice. Obviously not crucial.

But remember that the purpose of business is to make money - Microsoft would be foolish, though they have the means no doubt, to simply plough more money into the console space going on into infinity. This gen there's going to be a serious focus on becoming profitable. I think they will achieve it, so no big deal, but if they did end up a loss again - wow.

Market share is only worth so much afterall. More market share = more 'better' is pre-Internet bubble thinking. If you can't monetize on it, better not to be involved at all.

 

[Acert93]

Whatever the case, Sony faced the indomitable Nintendo when they entered the market, and still managed to turn a great profit that same gen (there are of course reasons we could debate there as well) - so I don't think establishing marketshare beach-heads is automatically linked to losses.

Not a very good example

Expensive ROMs, cutting off developers, the fabled (and crappy) "Dream Team" etc... The N64 had a lot of killer games, but it did not have enough support and thus a diverse enough library. You had lulls in releases and it shipped late.

Nintendo would have been indomitable if they had capitolized on their strengths. Their exclusives were killer... but they made things expensive for devs and got "snotty" with who and what could be on their platform. (e.g. Blood in MortalKombat!)

So Nintendo had devs LOOKING for another cash cow. Of course Nintendo sold 34M units and made a TON of money (along with a few devs with good relations) but they were not the monster they should have been. They key was developers, and Nintendo stuck their nose up and said, "We don't need them to make money!" And they were right--but at the cost of market leadership.

Sega? 32-Rex. Sega-CD. People did not have confidence... and Sega had decent support up front with some great titles (VF, Daytona, etc) but again--dev costs, difficulties with the hardware, a hesitant consumer base, etc...

So Sony had it easy in many respects. They still had to work at it, but developers found them a financially viable alternative and it turned into a mad success. Sony's marketing helped too! Good games + Good marketing + Unwise competition.

MS had to face the Sony monster and a more appealing Nintendo (who just absolutely controls their customers minds!) And MS did it the hard way with off the shelf parts.

The price of admission was NOT cheap. But MS is now the firm #2 in the market. Even more they have a TON of dev support. Xbox1 was, "Wait and see" from devs. Now? Everyone is jumping on board to support it. Well over 160 titles in development before launch... that is impressive. And consumers know they are about gaming on the Xbox now.

So I would expect a big turn around this gen. Smarter system design, consumer acceptance (consumer fan base!), large dev support.

I don't expect MS to lose 4B this gen. Actually, I would be shocked if in 5 years they have not at least broken even on Xbox 360. That is my expectation. 50-55M units and breaking even. Sony 90M. Nintendo? Depends on their games... about a solid 2nd console for those with money or a primary console for children or those wanting something offbeat.

 

[Azrael]

Sony has been finacially in the red for awhile. If Microsoft was willing to spend the dough, they could probably bankrupt Sony this gen.

 

[Carl B]

I agree with you 100% Acert - your post was basically what I was eluding to in my parenthesis comment, except that you wrote it all out.

 

[Carl B]

Sony has been finacially in the red for awhile. If Microsoft was willing to spend the dough, they could probably bankrupt Sony this gen.

Azrael show me something that indicates they're in the red - for 'a while now' especially.

I think you've been caught up in some Internet rumors my friend. I'd check their yearly financial statements before replying.

 

[RancidLunchmeat]

This gen there's going to be a serious focus on becoming profitable. I think they will achieve it, so no big deal, but if they did end up a loss again - wow.

I don't think so. I think they used the Xbox to establish a market name and identity, and they will use the X360 to establish market share. Have there been any reports at all that MS was shocked, worried, surprised, upset about losing $4B over 4 years? The industry seems surprised, and analysts seem upset, but how about MS themselves?

In fact, as far as an emphasis on profitability goes, the evidence points to the contrary. They are reducing licensing fees (or possibility eliminating them altogether for some) for developers to enlarge their library. They've already announced that planned price reductions for the console is part of their strategy for this generation. How is that possible if they are already selling the X360 at launch at a loss? Surely manufacturing cost reductions will not out-pace their already planned price reductions.

I think MS is fine with the $1B per year loss on the Xbox division, and while they'd probably like to lower that loss, I don't think they plan on turning a profit with the divsion even this generation.

Market share is only worth so much afterall. More market share = more 'better' is pre-Internet bubble thinking. If you can't monetize on it, better not to be involved at all.

You're either forgetting, or overlooking the fact that MS doesn't want to make money selling a game console. MS wants to make money by taking over the living room, and by extension, the entire house.

I think the fact that X360 is actually less of a media player, all-purpose device, points to the conclusion that they aren't planning on this generation as being the profitable one. The entire Xbox division is a Trojan Horse. But where are the soldiers in the belly of the beast? They still aren't here yet.

MS used the Xbox to get their foot in the door. They are using the X360 to get their feet in even more doors. It won't be until the next generation that MS kicks the door open and jumps into your living room. That will be the generation that they want to be profitable.

 

[Carl B]

Rancid you've totally lost me. I don't want you running any businesses of mine, that's for sure.

If I am to believe that in fact Microsoft never wants to make a profit on XBox - then please tell me how 'dominating the living room' generates money for them? Because it seems to me you're saying they're willing to subsidize a digital lifestyle for their customers.

And indeed, there have been rumblings within Micrososft reported by the press that they are actively seeking profitability this gen.

 

[Acert93]

And indeed, there have been rumblings within Micrososft reported by the press that they are actively seeking profitability this gen.

Correct.

I just hope they do not become stupid in a rush to profitability. Breaking even in 2007, as stated, is too soon IMO. Market base produces profitability. MS would be better served with a goal of making money in years 3,4,and 5 than aiming at year 2 for this gen break even point.

Of course so far their moves have been fairly reasonable. The accessories are expensive, but I think most people will get sticker shocked after the fact on that. The only bummer is the HDD is not 40GB for the price. But overall if cost is their concern I think they are on the right path.

Less not tieing up developers as exclusives. Letting Bizarre get tied up with Sega was dumb. MS needs to tie up Bizarre and other teams like that. They cannot be cheap in that regards. They need their own killer line up all exclusive. They cannot live on Halo alone--which they are not, but they need to keep their value up with quality exclusives. Right now it seems they are going the "PC port" way. Yeah, D3, FarCry, HL2, Pirates!, etc are all nice ports, but you cannot lose out on PGR type games.

 

[RancidLunchmeat]

If I am to believe that in fact Microsoft never wants to make a profit on XBox - then please tell me how 'dominating the living room' generates money for them? Because it seems to me you're saying they're willing to subsidize a digital lifestyle for their customers.

Yet, that's not what I said. I said MS had no plans to ever make money on a gaming console.

And indeed, there have been rumblings within Micrososft reported by the press that they re actively seeking profitability this gen.

There have been reports that they'd like to do better, (Ie: Lose less) this division than last, which lead to some of the manufacturing decisions in the X360.

And yet, their strategy points away from being worried about profitability this generation. As I've said, how do you explain the already decided and announced price reductions? How do you explain the decreased or eliminated licensing fees?

Both of those tactics point strictly to an emphasis on increasing market share at the expense of profitability.

If profitability were their priority, those things wouldn't done. They certainly wouldn't be pre-planned before the console even launches!

In fact, Acert's message gives all the reasons why MS wouldn't have to do either of those things this generation and would still expect to gain market share over last generation.

However, while Acert and yourself see those reasons as "proof" of why MS is focusing on profitability, I see those reasons combined with lower/non-existence licensing fees and planned price-reductions as evidence that MS is focusing a great deal more on market share this generation than on profitability.

How do you think MS is going to achieve this profitability? Console manufacturers make their profits through licensing of software and to a lesser extent selling their console. MS has essentially already announced they are giving away both of those profit centers to either the developers themselves or to the consumer through price cuts.

Does MS believe they can do all that and still be profitable just due to their insanely priced peripherals?

 

[Carl B]

The licensing fee reduction (and a link was never provided, unfortunately) I believe was linked towards an effort by Microsoft to gain traction with Japanese devs. I don't believe they were targeted towards the Western devs that form MS' base at the moment. That simply indicates to me you are willing to earn $0 vs earning $0 in order to bring your market share in a certain market from 0% to something other than 0%.

Indeed yes, accessory prices can make up for a massive chunk of console losses. Faceplates? That's got to be $3 worth of expense at most. If they were willing to toss everything and the kitchen sink at market penetration simply for the sake of market penetration, they would have made the HD standard again, included an HD-DVD drive, be charging $10 less across the board for every single one of their peripherals, and make Live free to boot.

 

[Alpha_Spartan]

http://www.theinquirer.net/?article=26497

No, they didn't make it, they read it in Forbes:

http://www.forbes.com/home/technolo...-management-software_cz_vm_0913microsoft.html

reactions ?

Those articles are BS. I mean, it's negative news about Microsoft so it has to be fake. Plus it's the Inquirer, yes, so it has to be fake. </Xbox_junkie_imitating_Playstation_junkie>

 

[Lysander]

Sony is in red no doubt. The head ceo (some aussie) said (on CNN) that he would fire more people (than 10000) but he can not `cause of japan culture or something.

 

[Magnum PI]

Someone suggested that, given the context of Sony domination, and if Sony makes no mistake à la Nintendo, you may have to loose billions to enter the market. So this only a few rich companies can enter.

So, if this context evolves, if Microsoft becomes the new leader, will it be possible to a newcomer to enter the market at all ?

If Microsoft happens to earn somewhat of a monopoly, what will prevent them from milking the customers and the publishers ? (after all, they'll want to recoup their initial investment and make much more money, they didn't bet as much as 4 billions if they are not willing to make much more than you bet).