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Analyst: Xbox Business a 'Disastrous Endeavor' for MS
The Xbox 360 may be popular but it can't be considered successful, says financial analyst Roger Ehrenberg. He believes the entire Xbox business has been a bomb for Microsoft and that "Ballmer's Boys" in Redmond need to own up to it. More within...
Financial analyst Roger Ehrenberg has taken a hard look at the major investment Microsoft has made in gaming since the company first entered the space with the original Xbox , which was released in November of 2001. According to Ehrenberg's piece on financial site SeekingAlpha, Microsoft's decision to get into the gaming business has been nothing short of disastrous. He acknowledges that there are many who think the 360 is a "rocking product" but from a financial perspective he states that the Xbox 360 is a "bomb."
"Making money, e.g., the creation of long-term shareholder value, has got to be the ultimate driver of Microsoft's gaming (and H&E) strategy, right? Well, 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," says Ehrenberg.
Both the Xbox and Xbox 360 have often been thought of as machines for the hardcore gamer. That's all well and good, but as Ehrenberg points out, you need to reach the mass market in order to truly succeed. PS2 was a major, major success because everyone bought it, including people who only bought 1 or 2 games (usually a Madden or a GTA for an entire year).
"It seems to me that there is a disconnect between stated objectives, strategy and execution. Microsoft's vision of the gaming console as the window into the living room is a big, big bet, and one that clearly hasn't paid off thus far," says Ehrenberg. "Mr. Moore talks about the need to broaden its audience across both geographies and demographics, yet the emphasis on HDTV as being a key factor driving broad-based console sales kind of misses the point.
"Is the Wii successful because of its zippy graphics and technological superiority? No. It is successful because it is fun. And because it appeals to a broad audience. And because it is comparatively cheap. The Microsoft strategy sounds more like a niche strategy for hard-core gamers, in which case its investment in a console strategy should be smaller and more targeted. Would Lamborghini try to sell to everyone? Of course not; it would target those who the company knows value its features and are willing to pay for them. This is basic stuff."
Ehrenberg also claims that the Japanese market is vitally important to the success of any console and that a console's performance in Japan is often an indicator of how it will do on a worldwide basis.
"Success in the Japanese market is a key determinant of success in the worldwide market," he says. "In fact, one might say that is a necessary but insufficient condition for a globally successful console platform. Sony and Nintendo have absolutely thrashed Microsoft in Japan, and it shows in the global console sales figures. For historical reference, consider that over 19 million PS1s and 20 million PS2s were sold in Japan alone, close to the worldwide sales figures for the original Xbox console... an early read of the tea leaves does not bode well for the Xbox 360."
http://biz.gamedaily.com/industry/feature/?id=15859
An interesting read to consider when looking at the bigger picture of the console market.
The Xbox 360 may be popular but it can't be considered successful, says financial analyst Roger Ehrenberg. He believes the entire Xbox business has been a bomb for Microsoft and that "Ballmer's Boys" in Redmond need to own up to it. More within...
Financial analyst Roger Ehrenberg has taken a hard look at the major investment Microsoft has made in gaming since the company first entered the space with the original Xbox , which was released in November of 2001. According to Ehrenberg's piece on financial site SeekingAlpha, Microsoft's decision to get into the gaming business has been nothing short of disastrous. He acknowledges that there are many who think the 360 is a "rocking product" but from a financial perspective he states that the Xbox 360 is a "bomb."
"Making money, e.g., the creation of long-term shareholder value, has got to be the ultimate driver of Microsoft's gaming (and H&E) strategy, right? Well, 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," says Ehrenberg.
Both the Xbox and Xbox 360 have often been thought of as machines for the hardcore gamer. That's all well and good, but as Ehrenberg points out, you need to reach the mass market in order to truly succeed. PS2 was a major, major success because everyone bought it, including people who only bought 1 or 2 games (usually a Madden or a GTA for an entire year).
"It seems to me that there is a disconnect between stated objectives, strategy and execution. Microsoft's vision of the gaming console as the window into the living room is a big, big bet, and one that clearly hasn't paid off thus far," says Ehrenberg. "Mr. Moore talks about the need to broaden its audience across both geographies and demographics, yet the emphasis on HDTV as being a key factor driving broad-based console sales kind of misses the point.
"Is the Wii successful because of its zippy graphics and technological superiority? No. It is successful because it is fun. And because it appeals to a broad audience. And because it is comparatively cheap. The Microsoft strategy sounds more like a niche strategy for hard-core gamers, in which case its investment in a console strategy should be smaller and more targeted. Would Lamborghini try to sell to everyone? Of course not; it would target those who the company knows value its features and are willing to pay for them. This is basic stuff."
Ehrenberg also claims that the Japanese market is vitally important to the success of any console and that a console's performance in Japan is often an indicator of how it will do on a worldwide basis.
"Success in the Japanese market is a key determinant of success in the worldwide market," he says. "In fact, one might say that is a necessary but insufficient condition for a globally successful console platform. Sony and Nintendo have absolutely thrashed Microsoft in Japan, and it shows in the global console sales figures. For historical reference, consider that over 19 million PS1s and 20 million PS2s were sold in Japan alone, close to the worldwide sales figures for the original Xbox console... an early read of the tea leaves does not bode well for the Xbox 360."
http://biz.gamedaily.com/industry/feature/?id=15859
An interesting read to consider when looking at the bigger picture of the console market.
