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Summary:

As a gamer, Roger Ehrenberg is a fan of the Xbox 360; unfortunately for Peter Moore, however, his day job is President of a Wall Street analysis firm. And the investor’s perspective is decidedly at odds with the gamer’s. To wit, as he writes on his […]

As a gamer, Roger Ehrenberg is a fan of the Xbox 360; unfortunately for Peter Moore, however, his day job is President of a Wall Street analysis firm. And the investor’s perspective is decidedly at odds with the gamer’s. To wit, as he writes on his blog:

“Gaming has been a disastrous endeavor for Microsoft, particularly from an investment perspective…” [Emph. mine]

His argument for a statement of such face-punching boldness is threefold: basically, 1) after blowing $21 billion over five years on their Home & Entertainment division, all Microsoft really has for its efforts is $5.4 billion in total operating losses, 2) the Xbox line has simply failed to take off in Japan, heart of the console industry, and 3) despite their stated intentions, the 360 has failed to diversify its audience much beyond hardcore gamers who own HDTVs.

It’s a solid analysis– read it all here. But is it correct? Short term, maybe. To take Microsoft’s side (and if I won’t, who will?), I can suggest three big picture rejoinders:

1 – Microsoft has finally bested Sony in the console wars.

After the first Xbox failed to capture the market away from the PS2, the 360 dominates over PS3, and looks poised to continue doing so.

2 – The Wii and the 360 aren’t directly competing.

While it’s true the Wii has succeeded magnificently, it did so by being an extremely cheap, non-HDTV console that has far less of the 360’s non-game features.

3 – The 360’s a full entertainment platform.

Where the Wii has revolutionary game functionality and Web browsing, the 360’s success as a next gen console will boost its appeal for downloading high-definition TV and films, and being a music/podcast hub for the Zune—content that the Wii can’t (so far) provide. (And hey: first console-based keyboard out the [next gen] gate.)

So—disastrous in terms of money spent versus profits (not) earned? Sure. A failure 3-5 years from now, when HDTVs are much cheaper and broadband is better and faster? I suspect not.

Hat tip: Infendo.

  1. Wagner,

    So—disastrous in terms of money spent versus profits (not) earned? Sure. A failure 3-5 years from now, when HDTVs are much cheaper and broadband is better and faster? I suspect not.

    You’re forgetting that in 3-5 years, MS will need to release a new Xbox console! The cycle will have to repeat and the money loss will continue all over again. Your theory would stand correct if MS could get 7-10 years of life out of Xbox 360. Game tech and game consoles are just aging fast for the blades and razor model to work its magic. Just when MS starts breaking even and starts getting some revenue from having a large install base, it will be time to replace old Xbox360.

    /mike

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  2. you are ridiculous Thursday, April 19, 2007

    xbox will fail… and fail again, American Company will never capture the Japanese gaming audience, it’s right next to being one of Japan’s greatest cultural offerings, and is something They have a personal and somewhat different taste for…. it just won’t happen, and therefor… expect japanese publishers to stick with nintendo/sony mostly… good luck monopolysoft, oh and do you think if i made ink + machines that print comic books I’d stand a chance at besting MARVEL – DC – Image as a comic company? yea… no… sorry.

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  3. MySchizoBuddy Thursday, April 19, 2007

    Sure in 3-5 years there won’t be any new Competitor in the Home Entertainment market. The market will remain stagnant, which will make it easy for MS to finally get somewhere with the Home entertainment Business.

    Now that Apple has entered into this market. It means absolutely nothing. Apple, shucks they are just losers. what do they know. SlingMedia are just babies. and Tivo never worked anyway. MS will take over this market segment for sure.

    Future of MS in this market segment is absolutely bright.

    Time to wake up.

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  4. I would disagree that the 360 is a “complete entertainment platform” – for example, no TV tuning (OTA, let alone cable/satellite), and even with the forthcoming 120GB “Elite” edition Xbox360, scarcely enough room to store all the media (music, pictures, videos) that the modern household is generating.

    The Xbox360 is being cast as the client piece in a 3-tier MS home strategy which includes Windows Home Server in the basement, and a Vista Media Center in the equipment rack. Pretty luxurious …

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  5. I agree. With the tremendous movie studio and developer support for the 360, even the Sony exclusives are coming to the 360. Something tells me if a console is such a failure then developers/studios would stop supporting it. With such a great Live service along with XNA and Arcade, which allows smaller developers to publish their games on a large platform, I don’t see the Xbox going anywhere.

    Although I give a lot of respect to Nintendo being able to find an untapped demographic and being able to create hype over what is really a Gamecube with a motion sensitive controller. I mean Wii’s are still selling out like crazy! Don’t get me wrong, I own and like the Wii but once you buy one and Zelda you look at the shelves you realize there are absolutely no games for it OR online multiplayer.

    During Zelda or Trauma Center (a DS Port) I am constantly wanting to text/voice message my friends, download game demo’s, movies, game content, game trailers, etc., in the background and/or listen to my custom soundtracks as I play! For me, the 360 is the console of choice. I see the Wii and PS3 having huge problems down the road not the 360.

    I mean even Wii owners have to agree, being able to download game demoes and movies so you don’t have to go or spend money at the local movie store is awesome! With the capacity for up to 2.0GB SD memory for the Wii I am surprised they don’t also support custom soundtracks.

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  6. Jim, the Wii is absolutely competitive against the PS3 and the XBox. Different price points are not the same as different market segments.

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  7. I think MS has done well to enter the market but they are in some trouble. In comparison to PS3 360 seems under powered, how long will it be until MS has to spend again to keep on a graphical par with PS3?

    Having said if I were MS i’d be far more worried by the open social platform Sony are building with PS3. With PS3 i can watch my own movies/photos without having to worry about servers or streaming, i can surf the web, soon i’ll be able to create my own social community in LittleBigPlanet.

    Now if Sony could monetise the open web structure they really would be in the lead. Anyone for a Google/Sony partnership?

    http://rosler28.wordpress.com/2007/01/08/google-and-sony-match-made-in-heaven/

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  8. Your theory would stand correct if MS could get
    7-10 years of life out of Xbox 360.

    The PS2 came out in 2000, and it’s still selling extremely well– better than the PS3, even.

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  9. Wagner; Microsoft have shown they don’t apply the same model as Sony when releasing a new unit.

    Sony cost reduced the PS2, then redesigned it into a slim unit and continue cost reducing that and selling it alongside the PS3. Sony did the same with the PS1 -> PS2 transition.

    Microsoft’s model so far has been “We have a new console, take the old one out the back and bury it”, which means they don’t get the long profit from a cost reduced commoditized platform acting as a low cost entry point.

    The lack of this high profit transitional phase points to Microsoft never breaking even with the XBox line if they keep it up.

    As for other points raised, the problem with the 360 is that it isn’t designed for the living room. It’s a noisy beast with a power supply brick that’s bigger than a Wii (and I think noisier)… That takes some doing.

    And as a platform for playing back HD media, well, to date the PS3 is the hands down winner. Bluray does get past the need to wait for broadband to be “fast enough” with a machine which is capable of not just playing media that’s been put online, but also anything you can put on a USB drive, compact flash card, SD card and so on, as long as it’s in a playable format (H264/AAC).

    Oh, and as for the keyboard thing, I think Sony won out there by making it compatible with any USB keyboard. The PS3 even has a nice wireless keyboard/trackpad combo from Logitech in the shops now.

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  10. “first console-based keyboard out the gate.”?

    I hope you don’t mean first ever. I had a Sega Keyboard for my Sega Dreamcast and browsed the web using DreamKey. It even supports Flash. This was about 7 years ago!

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