Analyst: Xbox Business a 'Disastrous Endeavor' for Microsoft

[jman8]

HappySqurriel said:

jman8 said:
The lost-leader strategy can still work as long as the systems are on the market longer than before, which is what Sony and Microsoft are shooting for. I've said it a number of times, the 360 and PS3 are gonna be around for another 7-10 years. Sony has pretty much confirmed this all those times they've been claiming the PS3 is "futureproof." So if the 360 is around for a total of 8 years, and is selling at the same rate as the XBOX1, the 360 would sell 50 million units. Along with Live and all the other fees, microtransactions, and overpriced accessories, MS could conceivably make a profit this time around by the end of the 360's life.

But how often has a trailing console been able to survive 7 to 10 years?

Just because a company says that they see a long life in a console doesn't mean it will have a long life (Nintendo said they thought the Gamecube was going to be a good system for 8 years). There is a reason why consoles are a cyclic/generational market; after 5 or 6 years you can produce a system for $200 which is 10 times as powerful as a system which was $2000, consumers begin looking for new games (and new types of games), and interest in the market as a whole begins to decline. Part of the drive in the market is that there is always something new, if you're unwilling to produce the new product someone else will and they will become the dominant player.

In general you are right, the longer life (which dominant consoles get) is one of the ways to recover from the loss leader strategy; but this goes back to the only way the strategy works is if you're the dominant console.

I would argue that 2nd or third place consoles don't survive because the makers choose not to support them in favor of producing a new system with new technology that is miles ahead of yesterdays tech. In 4-5 years, is technology going to make that leap we have seen in the past? Arguably, the leap from the PS2 to the PS3 was minimal compared to previous transitions. For the general consumer, they don't see a huge difference between last gen and next gen. On top of that, how cost prohibitive is it going to be to develop for a new generation of exponentially more powerful systems in 4-5 years. Also, I'd argue that people are pretty much sick of having to upgrade their systems so often. I think that's a big reason the PS2 is still selling so well. This last point is a bit harder to prove so I'm willing to throw it out. But the biggest reason these systems are gonna be around for as long as I think whether they're number 1 or not is because of the huge investment made by both MS and Sony. They might as well fight it out for as long as possible because it is possible to at least break even or minimize your losses by hangin around. I guess it's possible we see new MS or Sony systems that are sort of like the Wii in that they're updates of previous systems. Problem is that in Sony's case, they're whole strategy for the PS3 is based on the longterm 10 year plan at the cost of the shortterm. I don't see them giving up on the PS3 so easily.