I was reading the thread about "how MS can win in NA", and I thought I'd put down a few thoughts about the whole "winning" thing, because it seems to me that people have different measurements of winning for different companies. Sometimes it's sales or being no. 1, sometimes it's about making the biggest profits (which is not the same thing as being no. 1 in sales), and sometimes it's simply about disrupting the competition.

Generally speaking, I think most people have accepted that Microsoft got into videogames because they saw the success of the Playstation, and saw that if it became the standard media centre in the living room, it could threaten the dominance of the PC and hence Microsoft's profits. So simply by having disrupted Sony's plans (as they certainly have done), MS has achieved a certain amount of success. What I wonder is, whether or not this is a genuine reflection of Microsoft's intentions when they entered the console business? And, if so, was it ever a good plan to begin with?

All companies are out to maximise their profits. Sometimes they take a short-term view, sometimes long-term. Microsoft can afford to take a long view, since their profits from Windows are so great. So they can afford to make a large initial investment in a new business and wait for the business to become profitable. So, sure, they never expected to make money from day one, and probably didn't expect to become the no. 1 console with their first effort. The question is, when did they expect to make money, and how much did they expect to lose initially?

Personally, I think they had budgeted for a loss over the lifetime of the Xbox, and they intended to use their competitive advantage (i.e. their ability to absorb losses) to push the Playstation 2 close, and to wipe the floor with the Gamecube. However, I think that they were surprised, not just by the strength of the PS2, but by the Gamecube's capabilities as well. It didn't have a hard drive, or DVD playback capabilities, but in graphical terms, the gap was very small - a lot smaller than, say, the gap between Xbox and PS2. And of course, the Gamecube was much cheaper - when it came out in Europe (I don't know the US details), the Xbox cost 399 euro, whereas the GC was announced with a starting price of 199 euro, which (I think - I could be wrong) was a lot lower than anyone expected. This in my view was the main reason why the price of the Xbox was cut by 100 euro just after launch (I think they gave a rebate to the early adopters). And this in turn was why the Xbox made such huge losses - as MS has said (I think), the pricing agreements they entered into with their suppliers were such that the Xbox could never have made a profit, and that was why they cut it off after 4 years. Obviously they wouldn't have entered into agreements like that if they had known what the actual pricing structure was going to be (well, I think so anyway - someone else may disagree).

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.

And now we come to the Xbox 360. As we know, it took large losses initially, but MS haven't made the same mistakes with their cost structure that they made with the Xbox. So, it may break even over the life of the console (although this is by no means certain - we don't even know how profitable it is now, since so many other things are included in MS's entertainment division, and I presume that this is exactly why they were included). But is it enough to justify the investment in videogames? You have to remember that companies don't just try to make enough money to cover their costs, they try to make a return on their investments. At the X360's current rate of profitability, whatever it is, how long will it take them to make that $4bn back - 10 years? 20 years? I'm pretty sure that there's no way that that's acceptable, even if you take a long term view, even if you're Microsoft.

So then, there's the other part of Microsoft's plan - to disrupt Sony. As I said at the start, they've certainly done that - who knows what Sony would have done if MS hadn't been around to compete with them? Maybe they wouldn't have included HDTV support (a mistake in my view, the market doesn't seem to appreciate it). Microsoft started a high-end features arms race, and Sony followed, with the result that Sony has made huge losses on the PS3 so far. But in the long run, has it made any difference? Sony expects the PS3 to be profitable next year, in basically the same amount of time as the X360 became profitable. They'll probably break even over the life of the console. In other words, they'll get over it. Is this why Microsoft tried so hard to disrupt them? Was it worth it?

The more interesting question is, was trying to disrupt Sony ever a good idea? The PSX, which was supposed to be the media centre Playstation which would take over the living room, was a flop. People didn't want a media centre. Doesn't that indicate that, maybe, Sony wasn't that much of a threat to Microsoft's core operations? Shouldn't Microsoft have tried paying more attention back in 2000, to, let's say, Apple or Google?

So what Microsoft have ended up with is a huge investment, which they may or may not make back, and a reasonably big presence in the living room. They're investing in the multimedia capabilities of the X360, downloading movies etc, and MS might say that, if media centres in the living room do take off eventually, the Xbox brand is set to be a leader in the market. But doesn't history show that brands don't really count for that much? The Playstation brand went from first to third very quickly. The Wii brand pretty much came out of nowhere to be first. If a media centre does take off, it's just as likely to come from a new entrant as it does from the Xbox brand - and it's most likely to be Apple.

That's pretty much it. Sorry, it's far too long, but I just wanted to get it off my chest. There's plenty here to disagree with, and some of my details could be wrong (I'm relying on memory), so if you want to call me an idiot I won't take offense. If anyone has any counter-arguments, I'm genuinely interested.

Jesus Christ, I didn't realise I'd written so much. Sorry again.

M$ entered the console market to make money, but they wont make a profit for a while as they undersetimated the costs behind it, the 360 is good though and im sure there next console will see them make a profit.

In a market that had 3 major players at the time, I dont think M$ could have expected to come in and destroy the competition. Namely because the only thing they brought extra was graphics. I believe certainly that M$ after Xbox 1 know it will take maybe another generation to capatilise Sony. Nintendo this gen have surprised both Sony and M$, and in a way both those companies know they will not win this gen.

But now 360 is in profit and only 30-50,000 a week behind PS3 worldwide shows that it will take an entire generation for PS3 to catch them. Both have exclusives that will bump one console up alot at the time of game release e.g. MGS4 will bump PS3 sales to like 200,000 over 360 in it's release weeks and GOW2 will do the same for 360. But they surely know that next gen they have to think outside the box to compete with Nintendo.

Certainly your statement that M$ should not have entered is utter nonsense. Without M$ Halo would be stuck on MACS and have a fanbase of a couple of hundred thousand. Even for Halo alone I thank the gods they entered as it's one of my fave games of all time. Cos I would never have played it on a MAC. I played Halo 3 the other day from the start again and remembered the feeling I had seeing that fireball come to land with cortana's voice narrating. B=No other game gave me butterflies like that. Knowing I was about to finish the fight to one of my favourite stories in game or film.

Or the next one after that, or the one after that. That was sort of the point of the first post - there's no way any company would accept that kind of timeframe (3 consoles = 15 years?) to recoup their investment.

Personally, I think MS should sell the gaming division. After all, it is a strong brand, there could well be takers at the right price. If they could get a price which covers their accumulated losses, they should take it - otherwise they don't know if or when they will ever get their money back. The Xbox will still be out there, disrupting Sony. And the gaming division itself might benefit - without the comfort zone of the parent company's massive profits, they might have broken even much sooner.

There was a rumour going around that EA were going to launch their own console - maybe they'd be interested?

the way i see it is, microsoft want everything. they will buy and copy anything that is making their competition money. it as helped them a little, but with that kind of attitude, they are never EVER going to stand out in any generation of consoles. they'll either float in between their rivals, or fall off.

I don't think I did say that they should not have entered the market. I was trying to look at it from the company's point of view, not from a gamer's - so the fact that Halo is a great game is kind of irrelevant. I'm sure MS is pleased that they released a great game, but it doesn't pay the bills.

I would've added something but, you pretty much said everything I could've. Microsoft is very aggressive. There are reasons why they FAIL in Japan.

botong said:

>>So simply by having disrupted Sony's plans (as they certainly have done), MS has achieved a certain amount of success. What I wonder is, whether or not this is a genuine reflection of Microsoft's intentions when they entered the console business? And, if so, was it ever a good plan to begin with?