You got to hand it to Microsoft

[NJ5]

Lord N said:

 

Conservative strategy? Please.

Microsoft's business model isn't anywhere near as flawless as you're trying to make it out to be. Microsoft has done plently of reckless spending. Forgotten all the money they've thrown at developers which cuts into the royalties that they receive, especially in the Japanese market(Blue Dragon, TOV, Eternal Sonata, etc) only to get a negative return? MS went with a loss leader business model for this generation and it hasn't paid off. With that kind of business model, MS would need mass exclusive third-party support, and in order to achieve that, they'd need the market share of the PS2, which is something they aren't to acquire any time soon. Since their console doesn't have enough appeal to warrant that kind of exclusive support, they've had to resort to paying for it en masse, which is why they can't post a consistent profit despite rather volumnous software sales.

Had this happened a year ago, then MS would be facing similar misfortunes as Sony considering that their console would have been more expensive and the Wii would have looked even more appealing at $250.

If you look at the big picture, this is the holiday season, and 360 sales after the holidays will fall back to 50-70K/wk in NA and EU and 6K/wk in Japan. Despite MS's recent gains, it's still a distant, unprofitable second, which is exactly where it was last generation. That being said, the real beneficiary of Sony's blunders and misfortunes has been Nintendo as it's entirely switched places with Sony from last generation.

MS should be focusing more on turning a consistent profit, because by concentrating all of their efforts on securing useless market share from the PS3 and pretending that the Wii doesn't exist, they're really just celebrating mediocrity.

Microsoft's profit margin: Usually around 30%

Sony's profit margin: Usually a bit above 1%

See why Microsoft can afford to easily drop billions into a product without blinking? Microsoft has:

- very robust profit margins
- a huge cash reserve (I recall in the tens of billions)
- no debt (means less risk and no interest rates dragging profits down).

Sony has:

- very fragile profit margins (which are biting Sony in the ass right now and will bite more and more as the recession and weak dollar/euro continue)
- a moderate cash reserve ($12 billion last I checked)
- tons of debt (around $10 billion last I checked)

To me, that says Microsoft is the conservative one, no matter how many billions their entertainment division lost in the past. They can afford that luxury because they have sound financials.

PS: You can find these numbers at MS's and Sony's investor relations page if you wish to.