Of COURSE its a bad start. They barely beat the most uncool also-ran in the business. They've created a large internal development studio without nearly the value of their competitors. Their supposedly great online gaming presence isn't close to being on the level of a single PC game: World of Warcraft. Their third party support hasn't helped their bottom line at all. That bottom line? Negative Six Billion Dollars.

Look at the history of the industry. New players come out of nowhere and simply explode. Repeatedly. Pong. Atari 2600. NES. Game Boy. PlayStation1 and 2. These are market expanders. They are the standards we judge things by. We don't laud companies for blowing through billions of dollars and doing nothing but gaining goodwill and favor with the "hardcore" segment of the audience. Not when there were 5 massive, market-expanding, industry-shifting systems in just the first 25 years of the market's history.

I don't care if you like XBox and 360. They've gotten a lot of good games. But don't pretend like this analyst is talking out of his ass and that this 3 generation strategy is really working out. It isn't.

 The last argument is exactly the problem with the emphasis on short term return from shareholders.  Of course MS can invest those money ($21 bln) and increase profit (though most prefer dividends, plus, never assume stock market return).  Yeah, there's dissent.  That analyst is precisely one of them.  

Voting by selling MS stock and buying Apple???  Selling MS, yes, but that doesn't amount to buying APPLE.  Those two are completely separate decisions (I guess some funds would rebalance and add to their APPLE holdings... but that's different).  I don't know of an example where a shareholder used such a threat and carried it out--illuminate me.

An opinion: if MS isn't gonna buy back shares or issue dividends with its mountain of cash anyway, I'd rather them do something with it, like the XBox, even if it does mean losing money (not forever, of course).  In fact the same goes with most companies.  For instance, I dislike the Nintendo's growing cash pile.  It's what, $7, 8 bln now?  They are just collecting interest on that.  Earlier this year, many were unhappy that Nintendo didn't use that cash to buy a block of stock from the Japanese gov't (1.2% of stocks, amount to probably about $400 mln).  Nintendo's stance is basically "we only make video games, we need the cash to absorb shocks", which, is almost the exact opposite of MS's stance "we need to diversify to absorb shocks".

Sorry but their isn't much chance Nintendo would go third party. A quick glance at Nintendo's history and you will notice Nintendo has always been in controll of where the company is going that mentality is what has kept Nintendo alive all these years. The idea of them becoming dependant on another company by going third party is ludacris.

Nintendo's leaders like Shigeru Miyamoto and Iwata have stated if Nintendo left the hardware industry that would be the end of Nintendo in the software industry. You would never see Mario on the PlayStation or Donkey Kong on the X-Box Nintendo would die before going third party.

Keep in mind Nintendo is an honourable company that seems to still operate much like companies did in Japan a hundred or so years ago. You don't submit to anyone you don't tolerate defeat you die before giving in to an opponent! This mentality is what seperates the great companies from tose that fail. Other companies would gladly accept defeat for profits they would sell out sell their souls but Nintendo fights to the bitter end.

 Nintendo was loosing steam and Microsoft attempted to by them, Nintendo wanted  complete controll of its assets. The second that was refused they turned Microsoft down, no amount of money could buy them. This is why Nintendo will never go third party if Microsoft couldn't buy them nobody can.

 Some will say well that wasn't under Iwata, Iwata would sell, maybe but not likely. It's true that Yamuchi (Spelt wrong) was actually running his families buisness , his families heritage and his families legacy and Iwata may not see as much sentimental value in Nintendo. However that doesn't change the honour Japanese citizens can feel in one of Japan's oldest companies a company that has been around since the days of the imperial army. A company that is at the root of Japan's heritage a company that single handedly made Kyoto a place on the global map!

@ Lingysis

Buying Apple was just an example, not necessarily what they would do.  Try reading the Wall Street Journal and watching CNBC more often if you've never heard of large shareholders threatening to sell stock if changes aren't made.  It was done to the big auto companies a few years ago by guys like Kirkorian (and maybe Buffett but I'm not sure on his role), the WSJ had an article a few months ago about a group of activist shareholders who buy into mid-size manufacturers and then threaten to sell if the plants aren't made more efficient, mutual funds are always moving their money around and threatening companies with profit issues.  Microsoft isn't at the moment at risk of such a major move but the Xbox360 is showing no signs of being profitable anytime soon and if MS profits begin to slide shareholders will have a very obvious first place to look.  For lesser actions by shareholders just do a news search for "shareholder discontent", shareholders are causing problems all over even at companies that have a single majority owner.

That's great you think MS subsidizing the gaming habits of young males (I'm assuming youself included) is a good use of its money but I'm willing to bet most shareholders would not.  I would also bet most would have preferred MS just give them $6 billion in dividends if they knew what a sinkhole Gates was getting them into.  They could have done more with the money than MS has.  Nintendo is doing just fine, the last thing they need is to throw there cash reserves into some new venture that bleeds so much money that they'll never make it back.  Assuming market return rates is called "marginal cost of capital", ie the money spent on a venture should return more in profits than the money would have earned had it been saved or not borrowed instead.  At this point MS could have made over $6 billion in investments, instead its lost $5.4 billion.   Addmitedly I'm just using a rough average since I don't know what MS' exact cost of capital is.  They do have more of their own money that may be locked in safe low interest savings or some such so it would probably be lower.  Even so, if it were half of average for the Xbox division to ever be considered a good move it will have not only make back $5.4 billion but also the $3 billion in lost earnings (which grows every year).  In short it's impossible. 

Just for reference it's almost virtually impossible for Nintendo to go out of the market. And if they did wow would it smell a lot of doom for it. For one they are the only company to ever make a successful handheld and virtually run a huge monopoly over the entire handheld market. If Nintendo were to dissappear from the handheld market then that entire section would most certainly crash cause I don't think there is anyone that could just pick that up. Not only that but Nintendo's software contributions are amazing. They are still the best saling developer and still today one of the best saling developers worldwide. Only EA even gives them a challenge. If that entire section of games were to dissappear then another doom for both software in handheld and console. Now if Nintendo were to just drop from the console market section it wouldn't be that bad but still not great either. If you look how much Nintendo has drive the console market over the years you'll understand. Simply making it alive again in North America, the continuously innovating it over and over to make it better. If Nintendo just drops anyway in the console market it could become a very linear progression. Last time that happened for 2 generation the market crashed in 1983 and whatnot here. I'm not trying to say that the console market couldn't live without Nintendo but unless someone steps up and takes there place the same thing will happen as in 1983. Nintendo is a very vital key in this entire gaming market. More important than any other devloper or console maker. It's jsut the truth. Any faltering on their part causes the entire industry to fumble. And any innovation or success they have causes the entire industry to rise. It's no coincidence that when the DS starting having huge success worldwide that all of a sudden the entire market started to rise to new highs. Nintendo is very vital to this market and they'll be here for long times to come. I don't think I see them at all dropping from any gaming section market. They could lose this generation badly and I think they'd still be around for another turn. Most likely cause they'll still make a profit. So all you Nintendo haters, Nintendo ain't going anywhere for quite sometime. Your just going to have to deal with them.

The conversation is going into deeper territories than I thought, but it's a good.  What forums are for... though not necessarily a video game forum   

It is pretty much accepted, right or wrong, that the whole Windows shibang will eventually go the route of, say, railroads.  For Microsoft's existence's sake, survival is diversification.  As we have seen, MSFT has lost billions.  They are willing to lose that much, IF this foray is worth it.   Now, it's still up in the air whether it's worth it.  I have always found Microsoft's decision to enter the video game console business utterly ridiculous, but they justify that by their "vision", i.e.  integrated home hub.  The technology and expertise harvested is an asset, and MSFT executives need to find a way to make good use of it.  This "diversification" or "expansion" or whatever one like to call it is in line with the company's business, otherwise it could go out and buy NBC (still a GE property i think) or something but it's not Sony.

Now the question becomes, is diversification good for the MSFT shareholder?  That is a much deeper question.  One could argue that if MSFT eventually becomes irrelevent, it is the shareholder's job to reallocate, and the overall payoff to the economy might be greater.  But there's also arguments along the lines of what's best for the company (individual) is best for the economy.  It is not at all a trivial problem.  In general, I would put faith in management--that's what their for--theoretically anyway.

Maybe we're actually talking about the same things but just expressing them in different words, I do not disagree with anything here. Kirkorian's GM foray (now he's getting into chrysler again) was a failure. Icahn is another, wanting to split Time Warner despite holding just like 2% of its stock. And then there's lost of so-called activist hedge fund these days. Some of them were successful, some were spectacular failures, Icahn's case being a textbook example. The extreme end of this spectrum would be private equities--buy the company, put in a new board, oust the management, run the company themselves, float the company later at a profit.

In the end, it wasn't the threat of selling stock. The threat is to oust management if they are not perceived to be acting in the best interest of the shareholder. It's with no recovery in sight that prompts the selling of stock. There is a difference.  (that's also what i mean by giving an example where the threat is selling stock)

The most recent example, and quite appropriate too, given this forum, is Take Two. The management was completely unfaithful to shareholders, and the shareholders did the right thing.

Again, I do not think MSFT's goal is the make consoles. It's about their "vision" of a home entertainment hub, and the XBox is merely the start to gain some experience. I might as well state my personal view on this. I simply don't have any faith them being successful... they have too many issues, with their insistence of integrating everything with Windows being their bane. I see Windows as a transition user-friendly operating system towards cheaper, more universal OS's. It doesn't even have to be an OS--Netscape made Microsoft tremble. And they're right--look at the google office suites, all online and a browser is all you need (I love it). Like the hardware spec argument in video games, software "eye-candism" (i.e. interface friendly and feactures) has a limit. Beyond a point, the consumer simply won't notice. When the time comes, Linux will be fully ready (I use Linux... still too many inconveniences).

Thus, MSFT, seeing the writing on the wall, needs this diversification. In my other post I've stated I believe this is likely the most efficient mode how the economy operates.

Obviously MS needs to diversify. But they aren't going to succeed in any of their endevours if they keep entering existing fields. Sony, Apple, Nintendo, Google... These are the companies MS is worried about... But look at how those companies have continually created new markets over the years... Microsoft is merely trying to buy its way into the new markets that these companies have created... And it has failed every time... Even if it succeeded, none of those new areas are as profitable as Windows and Office have been, and by cluttering the field with a new, very similar competitor, they are ensuring that they will be less profitable in the future... MS figured out an amazing business model to both create the market for and gain a monopoly of PC OSs. But they haven't demonstrated any ability to repeatedly create new market space like these other companies have. Whether you want to call it "diversification" or "defense," the long list of areas MS is currently attempting to break into, (of which XBox is the most prominent, both for its reletive success and extreme cost) are never going to yield any returns. The way MS could have eliminated what they perceived as the Sony threat was not to release a PS-clone as they did, but to invent a market-expanding system like Wii, crippling Sony's ability to really push the PS line as a personal computer in their need to compete as a game machine. The way to eliminate the iPod threat was not to release an iPod clone as they did, but to come up with something like Apple TV or iPhone, which doesn't directly compete with iPod, but threatens it anyways by establishing a similar PC-to-entertainment device platform. But all of this requires Microsoft have some creativity, some ability to perceive consumer wants before any market indicates them, and the ability to design great user-experience focused products. And thats not happening with the increasingly messed-up corporate culture over there.

Yeah, MS culture for some reason just isn't "the way" anymore. Google is now the "it" place to work for... in fact, all startups think "we want to be the next google". Maybe MS should have just bought nintendo when they're struggling... hehe. of course if that happens, the talent probably leaves and miyamoto ends up making the wii at a startup or something.

 Microsoft already tried to buy Nintendo in the early millenium (2000) Nintendo turned the offer down. Many reasons weresited but the main one was Nintendo wanted complete controll over all of its assets despite being bought up by Microsoft. This was unacceptable to Microsoft and obviously that was the end of that.

 Since then Microsoft forcefully took over RareWare, when they bought the Stamper brothers 51% shares in the company. Microsoft then pretty much forced Nintendo to sell the remaining 49% when they cancelled all of Rare's GameCube projects.

Also since Microsoft exec's have often praised Nintendo and openly mentioned when ever Nintendo would want to sell M$ would be just as quick to buy them up.

That being said, Nintendo has never ever been in trouble. (Struggling) maybe market share wise it appeared to be so but profit wise is a total different story. Nintendo maintained profitability while it took a dip from where it was when 64 was around it still was far more profitable then any of its competitors. Nintendo's software deviision continued selling software like mad. In the end Nintendo has been king since the NES they have always been the most profitable and will continue to be so!