Xbox : What should MS do next? *spawn

[mosen]

Revenue is not informative at all because there is no indication of profit or loss. I could setup a business tomorrow selling $10 bills for $1 and my revenue would be through the roof. I'd also be bankrupt.

Revenue is not profit and is meaningless. They may as measure Xbox performance on the number of salads were consumed in the canteen that quarter.

The question of Xbox's profitability continues to be unanswered by Microsoft. This itself speaks volumes. You shout and celebrate good numbers, conceal others.

You wanted to know the "relevance of gaming to the company". Xbox revenue, at it's current state which is limited to XB1 & 360 hardware and software, is about 70% of Sony's Game & Network Services segment. Sony sold 3.3 million PS4s which is %200+ higher than number of consoles that Microsoft managed to sell (XB1/360 combined) and enjoys from PS4 hardware cost reduction at the same time (according to their report, which should be true for XB1 hardware, but it priced 50$ lower than PS4), yet Xbox managed to make 70% of Sony's revenue from G&NS segment. So, how exactly you expect Microsoft to loss money on Xbox? 43% of Xbox revenue comes from Xbox Live transactions & 1st-party games.

Also Microsoft reports are different than Sony. They don't mention operation income or net profit for each segment (which is different from Sony's approach).

 

[wco81]

Probably not. Given how long the last gen was able to last, I imagine Sony and MS will try to stretch out this gen as far as they can.

Is it even a given that MS will develop another console? Supposedly the people who spearheaded the development of the X1 are gone -- the X360 people way long gone.

So are there advocates within MS to continue to develop consoles?

They're retrenching from the phone market, which is a much larger market than gaming. Maybe they're more high on the services thing, such as Azure or W10 data mining.

 

[Shifty Geezer]

I think Microsoft will be OK as long as their OS lets people access Facebook, Twitter and Instagram. Usage of web services vastly dwarfs games but sure, if your market is slowly eroding (Windows) you want to minimise the erosion as much as possible.

The thinking likely comes from observing consumer behaviour on iOS and Android. The largest spending is on games - people value games and spend a lot. Ergo, games in your platform is a must. A phone that can do everything except game won't have many buyers.

Desirable and competetive products? It's thinks it's as simple as that. Not everything is do with gaming. Apple make products that sell themselves.

If their iOS devices didn't play games, people probably wouldn't buy them.

Obviously games aren't everything, but they are significant enough to be a major consideration in long-term strategy. It absolutely makes sense to have Gaming in on board meetings and the like, talking about how to get cross-device entertainment levraging ecosystem growth. All the other stuff, the Instagraming and Facebookery, is net based and ubiquitous with no room to differentiate. Cross device apps and gaming are the two areas MS can make an impact, regardless how well their gaming division is doing.

 

[Deleted member 11852]

Also Microsoft reports are different than Sony. They don't mention operation income or net profit for each segment (which is different from Sony's approach).

Microsoft certainly do reporting operating incomes (you ought to read their statements) but have chosen to only publish, in their own words, "SELECTED FINANCIAL DATA, QUARTERLY STOCK PRICE INFORMATION". Indeed Microsoft have chosen not to include Xbox's finances explicitly for twelve consecutive annual reports and fifty one consecutive quarterly reports. They's been explicit about Windows finances, Surface finances, income from licensing patents to Android, hell even Zune losses but Xbox? Not a damn thing. It is, to the best of my recollection, the only product/service in Microsoft's company that they chosen to conceal the finances of. Why would they do that?

I'm afraid you can't look at Sony's business then just carry the profit margins across. Bizarrely, if you read Microsoft's 2014 annual report you'll see the following in their overview on their gaming business:

Competition

Our Xbox Platform competes with console platforms from Sony and Nintendo, both of which have a large, established base of customers. The lifecycle for gaming and entertainment consoles averages five to ten years. Nintendo released their latest generation console in November 2012. Sony released their latest generation console in November 2013.​

This reads like an explanation as to why the gaming divisions is not doing as well as they'd like; loyal customers of competing brands. Yeah, the bloody fanboys who won't buy our box. But calling out Nintendo as having as "large established base of customers"? That'd be those tens of millions of Wii U owners I guess.

 

[Deleted member 11852]

The thinking likely comes from observing consumer behaviour on iOS and Android. The largest spending is on games - people value games and spend a lot. Ergo, games in your platform is a must.

I really hope Microsoft and Apple are not prioritising their desktop OS strategy based on what mobile users are doing. It takes only a cursory glance at the lists of the top games in the App and Play stores to see that for the most part, the types of games that explode in popularity on mobile are very different to those on consoles or the desktop. I don't think games like Flappy Bird, Desert Golf, Clash of Clans and many other freemium games, are going to do well on home consoles. While there is some crossover, it doesn't seem to be large and I'd be surprised (and a little worried) if Microsoft and Apple were letting mobile dictate desktop OS direction.

A phone that can do everything except game won't have many buyers.

If you had two phones and one supported only games and the other supported only social media, I know which would sell more. And this is kind of my point concerning the relevance of gaming to Windows as a desktop operating system. GTA V did crazy well and sold a few million, but how does that compare to the number of people using their desktop to look up things on Wikipedia or post to Facebook?

The focus for developing desktop operating systems, which are designed to facilitate users doing things, should not be predicated on economics linked to certain types of apps (e.g. games) but the volume of what type of things users are doing as a market. Of course if Microsoft had information saying 90% of consumers are using their Windows machine for games, that would be different but the numbers don't appear to support that.

Obviously games aren't everything, but they are significant enough to be a major consideration in long-term strategy.

I 100% agree if you can do it profitably which brings us back around to the question of, how profitable is gaming to Microsoft? Doing something perceived to be important at low/no-profit (or a loss) is not a good business strategy unless you can attach some intrinsic quantifiable value to it (which you can't).

If their iOS devices didn't play games, people probably wouldn't buy them.

I like the probably But I do agree that now games are critical for mobile platforms but many of them are simply ephemeral time killers. The games I play are mobile generally are played to kill some time whereas the games I play at home are very different. Again, looking at the types of games on the App and Play stores now and over the past few months, there's a lot of time killers in there rather than games with deep gameplay - but that's another discussion!

 

[Shifty Geezer]

If you had two phones and one supported only games and the other supported only social media, I know which would sell more. And this is kind of my point concerning the relevance of gaming to Windows as a desktop operating system.

Windows as an OS is kinda safe, save for where PC utility is moving to mobiles. MS needs to compete with Android and iOS so people buying a tablet to surf and Facebook and look up stuff instead of a PC choose to get a Windows tablet. In terms of core functionality, all these tablets are the same. There's no room to differentiate. That's where gaming gives MS a USP, and a significant one.

The focus for developing desktop operating systems, which are designed to facilitate users doing things, should not be predicated on economics linked to certain types of apps (e.g. games) but the volume of what type of things users are doing as a market. Of course if Microsoft had information saying 90% of consumers are using their Windows machine for games, that would be different but the numbers don't appear to support that.

Sure, but is there any reason to think MS aren't doing that? As I say, that base is covered. Any machine with an internet browser can do all the mainsteam stuff these days. PC's are only needed for productivity, for which they haven't much equal at the moment. Gaming gives a unique other avenue to grow Windows presence and stave off the usurpers. MS doesn't want a situation where Google has its own OS and people buy that as the home PC thanks to its Android device synergy.

I think the real market for MS is the Windows console, replacing XB with a Windows PC and having people buy several of these around the house to run the same content, using streaming from mobile devices also. In terms of entertainment, every other device plays movies and music so MS have no advantage. Gaming is something they can stand apart from. Yes, you can buy an AppleTV box or Google box and watch Netflix and play Flappy Birds, but buy a Windows box instead and you can also play Halo and Quantum Break and Fable etc. Or at least a lot of the console indie titles. And as gaming is one of the major activities for devices, and as MS will be set apart in having by far the best gaming on their ecosystem (versus iOS and Android and their disparate desktop parallels), is absolutely something they should pursue hard. Not to the detriment of the core Windows functionality, but in addition to as MS's last chance to really have a stand-out platform.

I see parallels with where Sony were in 2005. Sony could have had the all-in-one machine for entertainment and used that to establish themselves where Apple are now. They utterly fumbled, and they'll never have another shot. Windows 10 is MS's last chance to wrest back the mobile market, and they need to play with the hand they've got, which is reasonably strong in the suit of Games.

 

[zed]

Microsoft's FY15 Q4 report is pretty informative:

1. Xbox Platform revenue increased $86 million or 10%, driven by higher volumes of consoles sold, offset in part by lower prices of Xbox Ones sold. We sold 1.4 million consoles in the fourth quarter compared to 1.1 million consoles during the prior year.
The overall revenue of "Xbox HW" in FY15 Q4 = $946 million

They may be informative but someone should think first
The revenue is 946 million and they sold 1.4 million !!!
So what does that average out to per console (a smidgen of that figure maybe assessories though)

 

[BRiT]

They may be informative but someone should think first
The revenue is 946 million and they sold 1.4 million !!!
So what does that average out to per console (a smidgen of that figure maybe assessories though)

Revenue of $675.71 per console sold. Which is amazing numbers considering the sales price sometimes hitting as low as $300 a console.

 

[Deleted member 11852]

Windows as an OS is kinda safe, save for where PC utility is moving to mobiles. MS needs to compete with Android and iOS so people buying a tablet to surf and Facebook and look up stuff instead of a PC choose to get a Windows tablet. In terms of core functionality, all these tablets are the same. There's no room to differentiate. That's where gaming gives MS a USP, and a significant one.

I guess it depends what you mean by safe. Desktop PCs that aren't well maintained don't age well and for the last three years (2012-2014) Windows accounts for under 15% of all OS devices shipped that year (just above iOS but way behind Android). PC Windows sales are down year on year. I think Windows' decline will be very sudden in a few years time as people just mothball the PC or it fails and they just don't replace it because they rarely use it.

Do you remember 6-7 years ago where a desktop computer was pretty essential and a smartphone very much a desirable item? For a huge number of people this position has swapped around and while there will always be a lot of things which are preferable to do on a PC, they'll be a lot of people who are content with 'good enough'.

Microsoft know this. Giving away Windows 10 to most Windows 7 and Windows 8 users is going to hurt revenue but I think Microsoft see it as a gamble to keep Windows relevant. I truly believe desktop operating systems are going the way of desktop computers where they account for small amount of PC sales which are mostly laptops. Mobile devices will only increase in power and functionality and slowly erode a few more things people need that Windows machine for.

Sure, but is there any reason to think MS aren't doing that?

No, just countering the position made that games are significantly relevant to Windows. There are a lot of games for Windows and some even sell decent numbers but then you look at the billion plus machines running Windows and it puts it into perspective.

iroboto linked to a Polygon article where Phil Spencer talks up the importance of gaming to Microsoft. Like what else is the Head of Xbox going to say to a gaming website? Most of us here are gamers which makes us less than objective about our chosen hobby which I why I prefer to put bias aside and look at the numbers. It's the same with anything, people passionate about something will generally inflate its importance, consciously or subconsciously.

The economics of gaming as an industry is absolutely huge but very few are really making any significant money from it, mostly it's lot of money spread out over a lot of different interested parties eking out a existence.

I think the real market for MS is the Windows console, replacing XB with a Windows PC and having people buy several of these around the house to run the same content, using streaming from mobile devices also.

I'm very much in the market for a Windows console. Not an Xbox but a PC that can be operated with nothing but a controller - something I can install something like Steam's big picture mode and just leave it but which also carried the Origin and UPlay exclusives.

But is this worth Microsoft's effort? I guess it depends on how profitable games are to them!

 

[mosen]

Microsoft certainly do reporting operating incomes (you ought to read their statements) but have chosen to only publish, in their own words, "SELECTED FINANCIAL DATA, QUARTERLY STOCK PRICE INFORMATION". Indeed Microsoft have chosen not to include Xbox's finances explicitly for twelve consecutive annual reports and fifty one consecutive quarterly reports. They's been explicit about Windows finances, Surface finances, income from licensing patents to Android, hell even Zune losses but Xbox? Not a damn thing. It is, to the best of my recollection, the only product/service in Microsoft's company that they chosen to conceal the finances of. Why would they do that?

I'm afraid you can't look at Sony's business then just carry the profit margins across. Bizarrely, if you read Microsoft's 2014 annual report you'll see the following in their overview on their gaming business:

Competition

Our Xbox Platform competes with console platforms from Sony and Nintendo, both of which have a large, established base of customers. The lifecycle for gaming and entertainment consoles averages five to ten years. Nintendo released their latest generation console in November 2012. Sony released their latest generation console in November 2013.​

This reads like an explanation as to why the gaming divisions is not doing as well as they'd like; loyal customers of competing brands. Yeah, the bloody fanboys who won't buy our box. But calling out Nintendo as having as "large established base of customers"? That'd be those tens of millions of Wii U owners I guess.

You should prove me wrong with quoting detailed finances report about other parts of Microsoft instead of quoting unrelated statements. For example, what's the operating income of Surface in FY15 Q4? Even if you do that, yet I can't follow your mentality.

They may be informative but someone should think first
The revenue is 946 million and they sold 1.4 million !!!
So what does that average out to per console (a smidgen of that figure maybe assessories though)

Assessories should be a BIG part of that figure, or maybe my math isn't as good as you.

 

[Deleted member 11852]

Revenue of $675.71 per console sold. Which is amazing numbers considering the sales price sometimes hitting as low as $300 a console.

Woah, hold up there - read the actual report

Despite what mosen posted the $946bn was not Xbox hardware but combined revenue of the "Xbox platform" which includes hardware, accessories, services (Live), game sales, movies and music across both Xbox 360 and Xbox One.

This is what the report says:

Xbox Platform revenue increased $86 million or 10% [so $964Bn - DSoup], driven by higher volumes of consoles sold, offset in part by lower prices of Xbox Ones sold. We sold 1.4 million consoles in the fourth quarter compared to 1.1 million consoles during the prior year.​

 

[mosen]

Woah, hold up there - read the actual report

Despite what mosen posted the $946bn was not Xbox hardware but combined revenue of the "Xbox platform" which includes hardware, accessories, services (Live), game sales, movies and music across both Xbox 360 and Xbox One.

This is what the report says:

Xbox Platform revenue increased $86 million or 10% [so $964Bn - DSoup], driven by higher volumes of consoles sold, offset in part by lower prices of Xbox Ones sold. We sold 1.4 million consoles in the fourth quarter compared to 1.1 million consoles during the prior year.​

Read the report, That quote (which is under Computing and Gaming Hardware segment) is only for Xbox hardware and (very likely) assessories.

Xbox Live, Music & Movies and games are under D&C Other segment.

Edit: From your link each segment contains this parts:

Computing and Gaming Hardware: Xbox gaming and entertainment consoles and accessories, second-party and third-party video game royalties, and Xbox Live subscriptions.

D&C Other: Xbox Live transactions; Studios, comprising first-party video games; Mojang.

 

[Deleted member 11852]

You should prove me wrong with quoting detailed finances report about other parts of Microsoft instead of quoting unrelated statements. For example, what's the operating income of Surface in FY15 Q4? Even if you do that, yet I can't follow your mentality.

They didn't publish it but from the costs in the related SEC filing it was estimated (quite widely by several sites) to be a little over $200m gross profit for Suface - that's from a little over a $1Bn in revenue and 20% is pretty good margin for hardware.

Sometimes you have to do a little work yourself, e.g. they didn't even mention the $964Bn in revenue, you are expected to work out that it's 964 billon based on the 86m increase at 10%. Ditto you're expected to look at SEC filings to work out other figures. That still doesn't help you work out what the hell is going on with Xbox though because there simply aren't the figures available. And to re-iterate, Xbox is the only product where Microsoft have never (in twelve years of operation) chosen not to publish sufficient figures to determine profitability.

 

[Deleted member 11852]

Read the report, That quote (which is under Computing and Gaming Hardware segment) is only for Xbox hardware and (very likely) assessories.

You're half-right (and I'm half-wrong). D&C Other does seem to cover Live and first party games. The rest is speculation given ambiguity about what is reported (at all) or where.

And you wonder why I have problems with the way Microsoft report their finances?

edit: it does not help that in their 2014 annual report they use "Xbox Platform" to refer to the whole ecosystem: The Xbox Platform is designed to provide a unique variety of entertainment choices through the use of our devices, peripherals, content, and online services. I had assumed there would be consistency - foolish me.

 

[east of eastside]

next: Intel powered phones running full Windows and Continuum feature.

Surface phone powered by Atom X3 replacing premium Lumia
SoFIA replacing cheap Qualcomm phones

"Confirmed" by Daniel Rubino Windows Central.

 

[mosen]

You're half-right (and I'm half-wrong). D&C Other does seem to cover Live and first party games. The rest is speculation given ambiguity about what is reported (at all) or where.

And you wonder why I have problems with the way Microsoft report their finances?

edit: it does not help that in their 2014 annual report they use "Xbox Platform" to refer to the whole ecosystem: The Xbox Platform is designed to provide a unique variety of entertainment choices through the use of our devices, peripherals, content, and online services. I had assumed there would be consistency - foolish me.

Thanks to your link now we know exactly what we are looking at:

Computing and Gaming Hardware: Xbox gaming and entertainment consoles and accessories, second-party and third-party video game royalties, and Xbox Live subscriptions ( revenue increased $86 million or 10%).

D&C Other: Xbox Live transactions (revenue increased $205 million or 58%); Studios, comprising first-party video games; Mojang (revenue increased $63 million or 62%).

Do the math yourself. Also you can find this sentence in the report: Total Xbox revenue grew 27% based on strong growth in consoles, Xbox Live transactions and first party games.

Now I have no problem with this report, except total net income for Xbox which I'm sure is positive (by looking at this numbers).

 

[Deleted member 11852]

Do the math yourself. Also you can find this sentence in the report: Total Xbox revenue grew 27% based on strong growth in consoles, Xbox Live transactions and first party games.

What math? Profit / Loss = revenue - costs. Microsoft don't publish costs for Xbox operations, only revenue which doesn't include running costs (buildings, salaries, insurance, bonuses, electricity, water, rent, taxes etc), advertising, marketing (like E3, Gamescom, TGS), securing exclusives, network operations costs and a thousand other costs incurred from running a business.

To do "the math" you need more than one number and Microsoft don't publish more than revenue for Xbox. Ever.

 

[Shifty Geezer]

Despite what mosen posted the $946bn...

 

[Deleted member 11852]

S'late and it was the GBBF today! Numbers hard!

 

[Jay]

next: Intel powered phones running full Windows and Continuum feature.

Surface phone powered by Atom X3 replacing premium Lumia
SoFIA replacing cheap Qualcomm phones

"Confirmed" by Daniel Rubino Windows Central.

Have you got a link for this, as I don't believe he confirmed anything of the sort.
I know he has heard of possibility of Intel phone (possibly next year at the earliest), he has speculated maybe it will be surface branding as the surface head is now the head of hardware devices I believe.
Don't think I've heard him say "replacing cheap Qualcomm phones" as what is currently known/believed of the Lumia 950xl it is anything but cheap.
He's also mused what will run on an Intel phone, full win 10 os, w32 apps or not.
It would obviously have continuum, the same way the 950/xl will also have it.