The Xbox brand is worth zero without Microsoft. This is a brand that hasn't made a dime in 5.5 years. Losses are steady at $1 billion per year. Who would value that kind of brand? Running the XBox is like running the U.S. Agricultural Department.

Don't forget that Microsoft has a three phase plan.

The first phase showed Microsoft could enter the industry. Microsoft focused on North America. The X-Box was sort of to test the water see what the consumers wanted and to give the consumers what they wanted. Microsoft really never expected it to actually blow the competition out of the water rather to see just how viable an entrance would be.

Phase two is to bring Microsoft's X-Box to a gloabl audience with the 360. This phase has seen Microsoft putting alot of effort into the Asian markets. We've seen 360 enter India , Korea , China and Japan. Microsoft has put a ton of pressure on Japanese developers to develope solid titles for Microsoft in Japan. Microsoft's constant buyouts and deas in Japan are seen as a messure to make an impact test the Asian water's and become known more in Asia. Microsoft also is back to profitability with every hardware unit sold this is a major asset they lost billions on the X-Box for the same reason (No hardware profitability) Charging money for the X-Box Live service should also be helping them financially.

Phase three to see if they can stick. Can Microsoft make enough of an impact on the Asian/European markets to create a successful platform. Microsoft will likely go smaller budget for the next X-Box's hardware. Microsoft will likely try to be profitable from day one unlike the first two phases. Microsoft will see if they have created a large enough stronghold to make it worth their while to maintain the X-Box brand. Chances are Microsoft will put a ton of effort into building a final platform and givin it one last try.

LOL at Sharky. Every new leader in the VG industry has taken over in one generation. Magnavox developed Odyssey starting in 1966, and launched in 1972. Atari killed them with PONG overnight, and then led a second generation with 2600. Nintendo's first console recreated and expanded the industry, and they led a second generation. PSone took over and expanded the market, and Sony led a second generation. And all three companies were hugely profitable during their glory years. Microsoft taking over the high-end of the market in two generations while losing billions is pitiful in comparison.

Joelcool, great post. "Microsoft views Sony as hostile to their core market and dominant position in the PC industry." I don't know why people don't talk about MS in these terms more. Everything they do outside of Windows and Office is simply a defensive measure to make sure nothing ever takes over part of the PC market. Right now they're taking on Google, Apple and Sony all at once.

Of course MS is totally failing... Its obvious when Wii and PS2 are the leading consoles around the world that people prefer cheaper, dedicated devices. Sony's plan of using the VG market as a springboard towards the PC market was doomed to failure regardless of if MS entered the industry or not. Sony talked about PS2 as being a PC, and look how that turned out. Even if PS3 wasn't priced out of the market, and sold 100m consoles, it wouldn't have infringed on more of the PC market than PS2 did.

Sounds about right to me. Malstrom touched on similar points.

My only question is how long will the shareholders tolerate Microsoft's "Kill Bill (Sony)" plan?

And also how will this help Microsoft's plans for growth? This would only be a defensive maneuver. Microsoft's straight now but their empire needs some fresh blood or some upstart is gonna one day loosen their grip on this PC monopoly.

John Lucas 

SPECULATIVE 

I'm sure many of you have read that analyst's report on Microsoft and their entertainment division being nothing more than a defense mechanism against Sony's "evil" (in Microsoft's eyes) plans to dominate the living room. Of course, Microsoft wants that pie to themselves, hence the Xbox brand was born.

If that is the case, as in that really is the only ulterior motive that Microsoft has to be in videogames (which I'm not entirely agreeing on), then what would happen if Sony decides to call it quits on the Playstation brand?

I don't think this is likely, but again, if that were the case, then:

Playstation calls it quits, as they flopped this time around, and incurred too many losses.

Microsoft can now gradually exit the console business and refocus on Vista, Media Center and PC gaming/DirectX.

That would leave Nintendo as sole console player.

Who would take up the mantle? Or would Nintendo have hegemony over the console industry?

Hmm...

why hasn't it occurred to anyone that MS is in the game business to diversify?  and that it was bill gate's vision to combine everything onto a home entertainment hub? 

it seems like our memories just don't go back that far, 7, 8 years, or whatever it is.

MS needs XBox and future incarnations more than Sony does.  MS needs the diversification.  Stopping Sony entering the PC business?  Are you suggesting a pre-emptive strike?  At a cost of like $5 billion against 1 company?  That's preposterous.  They're doing this because it just happens that it's in line with their strategy.

There's one thing shareholders and analysts have in common, and that's short-term gains.  The things with MS is that insiders probably control 30, 40% of the company, so there's unlikely to be a shareholder revolt.  That is why they can afford to keep this going as part of the management's "vision".  $1 billions a year only like 10% of Microsoft's profits, so in the name of diversification, it's utterly affordable.  Again, Microsoft NEEDS diversification.  And quite frankly, I believe it will eventually pay off; not necessarily as a successful gaming console, but something that resembles an entertainment hub.

Of course, this is more Gate's than Ballmer's vision.  We will see what direction MS management decides to take the XBox.  as a gaming console, the brand has been an unprecendented failure, but MS can use the expertise and technology gained from this "investment" to turn it into something else that could easily be more successful.

Sony acquired numerous businesses during its heyday.  Microsoft has done comparatively little to diversify.  XBox is essentially their only foray outside software.

It can safely be predicted that all 3 companies are gonna be in the next gen console wars again.

Nintendo was goin' down till DS and Wii came out, MS lost a lot of money on Xbox and now Sony is suffering early on with the PS3, but they will all be in good enough shape for the next round, unless something entirely unexpected happens.

Even if PS3 comes in 3rd in total install base in a worse case scenario, Sony can take it...

 Advertising is gonna fund Home or at least that's the plan.

 If Nintendo quit the console business (seems very unlikely now) then they wouldn't just go away they would be like Sega and switch to software only with their multiple successful franchises.

AMD and Intel were in a MHz war until they reached a sort of threshold. They realized, however, that increasing MHz is not the only way to increase CPU speed. AMD pioneered that concept with their XP line that estimated how fast they were compared to Intel's (1800, 2500, etc). However, the biggest increase in speed in many years for a CPU over the current leader was the Intel Core Duo. Sure, it was cooler and a lot more efficient than AMD's fastest (which was currently faster than Intel), but it was also 30% faster.

So, while the race is not completely MHz, it's still about speed and power. No one is going to buy a new processor if it's not faster.