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Ballmer Justifies 360's Costs
Next Generation follows up on news last week of the enormous financial burden the 360's launch has placed on Microsoft. CEO Steve Ballmer sent around an email discussing the company's bright outlook with the new console. From the article: "While Xbox 360 hardware itself is the most prominent area of videogame-related investment, Ballmer indicated that further development of Xbox Live is also integral to the success of the platform and its respective division, saying, "We must execute our Live strategy with speed and precision." Relatedly, Live's downtime yesterday has resulted in an underwhelming feature addition: messaging.
"The software giant also plans on releasing the gaming-focused Vista operating system to the public in January 2007."
Since when is MS Vista focused on gamers?
You are reading a copy of my copyrighted post.
Microsoft has always said that the console race is a marathon, not a sprint. However, this initial costly sprint remains important during a period when the company boasts the only next generation system on the market.
A marathon where you're bleeding money for most of the race. Sure hope another company doesn't zip past you on a bicycle or something.
Sendou Wave Kick!!
Well.. MS Vista doesn't really contain any benefits for gamers, in any way.
However, MS Vista does contain DirectX 10-- and as far as has been announced so far, DirectX 10 will only be available for MS Vista. Before long, DirectX 10 is going to be required to play any new video games. So if you want to keep playing video games and get all the features and whatnot, you are going to have to upgrade to Vista. So you just have to learn to think like Microsoft. The way you probably think, "focused on gamers" means "designed to appeal to gamers and make gamers want to buy it". The way Microsoft thinks, "focused on gamers" means "we will be forcing gamers to buy it".
In other words, Vista is "focused at gamers" the same way a sniper rifle might be "focused at" someone unexpectedly running across the White House lawn.
In this console generation's cycle. Why do I say that? Because it's widely and publicly known within the industry that the iTMS' profit margins are razor thin. The store drives sales of the hardware, which is where Apple is making their money. Now tell me, in the next three to five years does anyone see Microsoft making content delivery on Xbox Live at the level of success that the iTMS has had? Can they negotiate with ABC in order to get Lost delivered to 360s? Pixar movies? It goes the other way around. In order for Microsoft to reap the rewards of Live they need people to buy a 360 in order to just use Live. Charging $2.50 for a horse skin is not going to do that.
Likewise, I find it interesting that to this date MS refuse to state how many Live subscribers and users they have. They always issue press releases with non specific, skewed numbers to celebrate success. And Halo 2 continues to be the top game on Live. Not a 360 title.
It minimises their risk. Instead of putting all their eggs in one basket, they spread them around, and since they are Microsoft, they'll usually have at least some degree of success in every market they're in. Income from multiple sources is a sign of a healthy business.
The Xbox was a mighty success considering it was their first attempt at that market. They beat Nintendo easily and they were pretty much on-par with Sony. I'm talking in terms of units/games sales, not how good games were, by the way.
At least MS recognizes they can't live on keyboards and mice alone and the future of computing for the masses will not be driven by PCs, but by game consoles, TVs, iPods, cars, and many other non-PC based that integrate into everyday life.
It's all about the user experience, not the keyboard.
But it still remains to be seen how well MS competes in a world dominated by primarily device-driven devices - particularly since this seems almost the exact opposite of their business model and strengths.
When you're sat on a $40 billion slush fund, I didn't think you had to justify making a loss. I mean, the money's there to be spent taking the company into new markets, right?
So what M$ and Ballmer did was exactly right. Heck, I bet Sony'd love a $40 billion slush fund right now, then they could offset PS3 losses against it. In fact, any company would love to do this - all to often you hear about a single product bombing and taking a whole company with it...
Didn't the Xbox experience similar losses?
The Xbox lost $4 billion over its lifespan (and counting - some of those new losses are still attributable to the original).
What MS seems to have forgotten is their original predictions (and you can still do a Google search and find these quotes) were for an "investment" of around $2 billion, followed by sustained profitability by the 3rd year of the Xbox's life.
They also were aiming for Xbox 360 profitability from day one (again, Google "xbox 360 profit"). So for them to now say "oh, we expected this, and it's all for the good of the future" is at best revisionist on their part, and at worst outright denial.
The fact of the matter is they are billions of dollars behind where they initially predicted they'd be. They're more than $2 billion further in the hole than they ever wanted to be and they're three years behind on their profit forecasts, with no guarantee that it will ever turn around. Assuming a relatively modest prediction of a $500 million profit per year, they're now close to $4 billion (and counting) behind their initial predictions, and really $5 billion in the hole all told. That's assuming they would have been close to $1 billion up at this point, rather than $4 billion in the red.
$4-$5 billion isn't chump change even for MS.
All MS has done is a major land grab. They've proven that you can grab market share provided you just pump a huge wad of cash into the industry. I don't think that's news to anyone. But that's only the first step in building a business and I'm sure that, whatever their public statements, internally they realize that this is not all going according to plan at this point. They may have bitten off more than they can chew - if they *never* turn a profit (and remember, they need to turn $4 billion worth of profits from now on to have even broken even overall), then what exactly was the point?
(You can say they denied Sony market dominance, or whatever, but to what end? Should MS be sticking its nose into every single random and unrelated market just to keep another player from being dominant? Are they going to get into cleaning products next and go head to head with Proctor & Gamble? Are they going to take on Wal-Mart with a bunch of MS-branded superstores? I mean, there does come a point at which it just gets stupid.)
MS has the cash to keep up this charade as long as they want. I don't think anybody expects a quick exit. But at some point, there will come a day of reckoning, when MS finally has to look at what's working and what's not company-wide, and if the entertainment division is still losing money hand over fist on that day, then heads will roll and shops will be closed up.
Except thats totally wrong. They got blown out of the water by Sony, and lost to Nintendo in 2 out of 3 markets (only winning in the US). In total, they ended up about on par with nintendo, while losing 3 billion over the lifetime of the product. Thats not a success, if I owned MS stock I'd be wanting the people in charge fired.
I still have more fans than freaks. WTF is wrong with you people?
Hardly surprising, there are what - 22 million Xbox units out there compared with maybe 4 million 360s? What surprises me is how many 360 titles ARE in the overall top 10.
Likewise, I find it interesting that to this date MS refuse to state how many Live subscribers and users they have
Some facts from Microsoft:
So there you have it. 4 million consoles (let's be generous, the figures are a little old), and "more than half" are connected to Live. So 2+ million on the 360 alone. I seem to remember the Live attach rate for Xbox 1 being around 10%, so figure another couple of million there. Plus there's been 10 million downloads (5 per user on average) and 4 million game downloads (2 per user). The download-to-sale ratio for XBLA is also very high (can't find the quote right now) - something like 30%. For me the success of XBLA is huge, and not as significant for MS as for the indy game developers who now have a very large paying audience.
I see a lot of positives here.
---- Den ene knappen er powerknapp, den andre er Bender voice knapp "Bite My Shiny Metal Ass"
Likewise, I find it interesting that to this date MS refuse to state how many Live subscribers and users they have.
... the most popular game on a console that has an install base of over 20 million is played more often than the most popular game on a console with an install base of 3.2 million.
If you're looking for specific numbers accurate down to single digits, you aren't going to find it -- no company is that specific; specific information gives too much away to compeditors. They occasionally release figures when they hit milestones, and release general information about the service in their quarterly reports.
They always issue press releases with non specific, skewed numbers to celebrate success.
It's statistics. What, you expect them to intentionally select a set of numbers that make them look bad? Would you even consider a set of numbers that look good to be anything but skewed?
And Halo 2 continues to be the top game on Live. Not a 360 title.
Duh. Halo 2 sold more copies on it's first day of release than the number of Xbox 360's sold to date. Imagine that
The final nail in the coffin for Microsoft's dreams of taxing online access is the free and much better services that are coming out from Sony and Nintendo this year.
How do you know they are much better if they haven't even come out yet?