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XBox + UltimateTV for $500
Daetrin writes "Red Herring reports in this article that Microsoft is planing on combining the XBox with their UltimateTV Recorder with a projected final cost of about $500. The article also talks in some detail about the massive (though partially expected) losses that the XBox is costing Microsoft. There's also another article on Yahoo that sums up what Red Herring said."
The XBox really really is amazing. Here we have a product that defies the laws of economics. At this point its just a matter of how much money Gates and Ballmer can stand to lose. Its an ego thing. Every other company on the face of the planet would drop a money losing project like the XBox as fast as possible. The world is filled with companies that are not named Microsoft which have stock holders and corporate boards that actually have influence over the decisions of executive management. Not so with Microsoft.
We all know that XBox is finished in Japan. If Microsoft is lucky they will manage to sell their original shipment of 250,000 Japanese XBoxes before the end of this year.
http://www.the-magicbox.com
The XBox is in the process of dying in Europe. Just look at the European software charts. The XBox has just one exclusive game in the top 20:
http://www.elspa.com
And now one of MS game developer partners has pressured MS into allowing it to publish title for the Nintendo GameBoy:
http://biz.yahoo.com/rf/020625/tech_thq_microso
Is there anyone out there who will force Gates and Ballmer to come to their senses? Or would dropping the XBox at this point be such a face losing position for Microsoft that they have no choice but to keep throwing money at it?
And in fact they sort of need to spend money. It might sound nice to have so much cash lying around, but for a big corporation it can be a nightmare. In the current money market, that $40 Bil will not stay $40 Bil for long. And since they follow the "recycle the profits" model (MS stock does not pay dividends), it's only going to get worse. Better to throw the money at a Blue Sky project and tell the stockholders they're generating long-term growth. Which might even be true.
But damnit, it's time to drop all the Reagan-era cliches and face facts. That much economic clout in the hands of one company is bad for the whole software industry. Including Microsoft. This is not a free market. Pretending otherwise is like saying Al Capone was just another illicit beer vendor.
There is some chance that Microsoft could salvage XBox if they are able to sign up a significant number of people on their upcoming subscription-based gaming network. However, Microsoft loses too much money on the hardware to ever make a profit on the software at current prices. Current royalties per game are generally below $10. So Microsoft has to sell a whopping fifteen games over the life of the console before it starts to see any profit. What's worse, is that Microsoft has already squeezed all of the price out of the XBox, and they are still selling at a huge loss. Nintendo is actually making money on their console, and Sony is breaking even, and both of these companies are going to be able to save money down the line by integrating the chips in their consoles.
In other words, Sony and Nintendo both have the power to go to war with Microsoft on price and still make money, and they will be able to make Microsoft bleed for years. A year from now Sony and Nintendo will really be able to punish Microsoft. The price of making an XBox is only going to drop $100 over the next five years.
Now, if Microsoft can get a significant number of current XBox owners to sign up for their gaming network, then they are in the clear. Plenty of companies have used subsidized hardware to sell internet service. Over time the subscription model would generate enough money to cover the initial cost of the hardware. The dodgy bit is that Microsoft is essentially betting billions of dollars on the success of their gaming network. As things stand now an Xbox gamer that purchases an XBox and ten games, but does not sign up for the online gaming network, causes Microsoft to lose money. In fact, the numbers are so bad for Microsoft that I can't quite figure out why they don't require a subscription. They can't possibly believe that they are going to make up their hardware subsidy with game royalties at the current price structure.
In the end I think that Microsoft is going to end up taking a bath on the XBox. Sure, they can afford to lose money on the XBox, but I could also afford to give my house away and live in a box. Being able to afford something doesn't make it good business.