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botong on 18 May 2008
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ymeaga1n said:
botong said:

So they ended up making a $4b loss on the Xbox. Now, some people may think that this was acceptable to MS for the sake of getting their foot in the door, but I can't believe it. Can anyone name another company that took such a huge loss to enter an uncertain new market, in any industry? I'd really like to know if something like this happened before - if it has, it could change the picture I've been describing up to this point.


Certainly, that's just the way it is when you enter a new market. For example, Amazon.com was entering a new market (new industry altogether actually) when it choose to do e-commerce. These are Amazon.com various Net Income (Loss) since it came into existance. (obtained from http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsAnnual)

1995 - $(303)1996 - $(6,246)1997 - $(31,020)1998 - $(124,546)1999 - $(719,968)2000 - $(1,411,273)2001 - $(567,277)2002 - $(149,132)2003 - $35,282

That's roughly a $3 billion dollar loss and that was a complete new industry. $4 billion is sustainable loss for MS or else they wouldn't have pumped that much into it. They're in it for the longhaul.

Fair point. Although even so, Amazon's initial losses are still a long way off from MS's losses on the Xbox. From the figures you show above, you can see that Amazon turned a corner in 2001 and started reducing their losses, so they capped their losses at $3bn. Whereas MS made that $4bn loss on the Xbox, plus they've been making big losses on the 360 which they've only managed to stop this year. And whenever they introduce a new console, they'll make big intital losses on that console too. Which is the one of the big differences with the Amazon situation - once Amazon incurred that intial loss, that was it. They're not going to have to do it all over again in a few years' time.

The other big difference with Amazon is that, yes, they took a big gamble - e-commerce might never have taken off, and they wouldn't have made their money back. But if the gamble did work, they'd have the market all to themselves, or at the very least be the market leaders. Whereas MS took that huge loss to break into a highly competitive industry - they were never going to have the same kind of payoff as Amazon, unless they managed to drive Sony or Nintendo out.  And they're nowhere near being even market leaders. So I think my argument stands.