Gaming A Disaster For Microsoft (XBOX Sucks)

by Microsoft Eats It, Saturday, April 21, 2007, 11:06 (3924 days ago)

When it all comes down to the business end...

Maybe the meme that became fact, that Microsoft's Xbox is merely a trojan horse to get into everybody's front room and control their lives hasn't been properly communicated to a chap called Roger Ehrenberg. According to his biog on the bottom of a piece on Microsoft for respected business mag, Forbes magazine, Roger runs Monitor110, an Internet data service for institutional investors - so he should know his stuff when it comes to investment predictions.

So, when Ehrenberg - having used, "objective numbers taken from Microsoft's own financial statements and comparative console sales figures extracted from and", concludes that:

"...gaming has been a disastrous endeavour for Microsoft, particularly from an investment perspective.

"...but what is it going to take to turn things around? Nothing short of a tectonic transformation in perception of Xbox 360 relative to its competitors."

it's probably a good idea to take some notice. Okay, we'll dismiss the Wikipedia comment (and hope to the gods that our investment advisor - Trusty Dave - doesn't use the same source for the SPOnG pension plan). Roger bases his decision that games - rather than being a way in for Microsoft to homes, content providers and a demographic that will age into wealth - are disastrous for the company on the fact that:

"The seeds of this failure are evident from its sales performance in Japan, particularly when comparing its 18-week sales figures (which is about how long the Wii, made by Nintendo and PS3, made by Sony have been out) relative to those of the most successful console releases."

According to Roger, this means that, "This early failure in the Japanese market has a compounding negative effect on worldwide console sales, as game developers are less willing to invest in high-risk projects for console platforms that are shaky out-of-the-gates, which makes it less attractive for gamers to buy these consoles, and so on."

Mmmm, 'early' failure in Japan means that developers won't want to work with Microsoft...

...moving on to the Home and Entertainment Division rather than simply the Xbox family - that's also Xbox Live, Consumer Software and Hardware Products, and IPTV. Here, without Microsoft's vision (or myopia?) of making its productS central to every home, are the facts according to Ehrenberg:

"...after five years and over $21-billion invested, all they've got to show for it is $5.4 billion of cumulative operating losses, and Xbox 360 doesn't appear to be the silver bullet to turn things around.

"I think it is also interesting to note that Microsoft's actual disclosure shows only revenues and operating losses--I backed into and show expenses below for explanatory purposes. Why might it be that Microsoft has strayed from the classic "revenues minus expenses equals profits (losses)" disclosure? Perhaps because it doesn't want investors to focus on the fact that more than $21 billion has been invested in a business that has performed so poorly, with unclear prospects for improvement."

Roger continues with a set of assumptions based on being successful in Japan. These are basically that:

1) There are more than 19 million PS1s and 20 million PS2s Japan. This is close to the total worldwide sales figures for the original Xbox.

2) Japan is key to getting game developers to support a platform.

3) People want to buy consoles with better game libraries - so we need developers.

4) "Success in Japan is frequently a precursor to success globally".

What of the competition? Roger points out that the Wii is successful not because of its "zippy graphics and technological superiority" but because it is fun, and appeals to a broad audience. He also mentions that it is "comparatively cheap". We're not sure about putting 'zippy graphics' or 'technological superiority' in the same sentence as the 'Wii' - but innovative, fun, broad-based and cheap, all of those make great sense.

So, why is Microsoft doomed to failure? "The Microsoft strategy sounds more like a niche strategy for hard-core gamers, in which case it's investment in a console strategy should be smaller and more targeted."

Before you start ranting on about how investment bankers know little or nothing about gaming or about what it means to gamers; or about the fact the Xbox 360 is that famed techno-trojan horse sent to destroy freedom; or that the 360 is the only real choice of console because it has support from consumers, developers and - of course from Microsoft - hold one thought: Forbes magazine is read by the kind of people who buy large amounts of stock in Microsoft.

The point here is not that one analyst might be putting 2+2 together and coming up with 22, but that Forbes is taking the time to print the analysis in the first place.

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