Technology Pundits: Why Microsoft Should Not Be in Consol Gaming Part II Feb 22, 2010 – By Rob Enderle
After my last post (http://www.technologypundits.com) Jay Livens enters (http://absolutelywindows.com) on the pro side (I missed
the memo on double teaming) and argues on 4 points. I’ll quickly
summarize all of his points in front of my rebottles but you should first
click on the link and read his arguments.
Point 1 is a little muddy but says that Microsoft had to do a proprietary
hardware product because the OEMs couldn’t deliver on a model where the
hardware was subsidized by game royalties. In short, and this is a common
argument, the OEMs couldn’t be asked to bring to market offerings that
cost more to make then they could be sold for.
Rebuttal: The initial goal wasn’t to go into the game business but to
block Sony from turning the PlayStation into a PC replacement product that
didn’t run Windows. Microsoft’s primary defense against an attack
against the PC is Windows and the Windows 7 response to Apple seems to have
worked better than the Zune response to the iPod suggesting a decoupled model
using Windows would have been best. By turning Windows into a better gaming
platform they would have leveraged their strength against Sony rather than
their weakness (which is hardware). In Software they are unmatched in the
world, in hardware little Nintendo kicked their butts for several years.
Point 2 OEMs were moving away from Windows because of price pressure on
hardware and Microsoft margin envy not the Xbox.
Rebuttal: This is clearly partially correct but one of the reasons that PC
prices collapsed was that the reason for buying up market, performance,
collapsed as well. One of the primary justifications for buying a more
expensive machine was PC gaming performance and as interest in that declined
so did the high end. Granted Apple showcased you could create a premium class
product with a custom experience without gaming but, as yet, no one has
demonstrated the differentiation, line depth, and marketing focus required by
a premium line. So I argue the Xbox accelerated the decline of PC margins,
slowed PC churn and made all parties less profitable than they were while not
generating much profit itself in exchange. In short it helped cause the very
trend identified.
Point 3 The Xbox is part of Microsoft’s necessary strategy to broaden
their presence in the house (and repeats point 2).
Rebuttal: The problem is that game systems typically go into the kid’s
room and not the living room and the Xbox remains a game system. Only the
Nintendo has really broken that trend and most that initially bought the PS3
didn’t even know it had a Blu-Ray player. The target, where most of the
consumption is, for Xbox advancement is the living room but the Media Center
was positioned against that opportunity, under resourced and never truly
completed and now needs to be rethought. Effectively the Xbox is now
competing as a game system against the Media Center and neither is as good as
Media Room while all compete for Microsoft resources. Xbox is actually, in
terms of seats, their most successful set top product but, based on profit,
sill largely insignificant. They currently have three conflicting platforms
consuming resources but none are hitting the financial number Microsoft
needs.
Point 4 is actually a conclusion; in his own words “In summary, I
believe that Microsoft made the right choice entering the videogame space.
The entry was driven by their desire to broaden their product portfolio
outside of their traditional computer-centric model. While the business may
be a fraction of the size of their traditional Windows OS and Office apps, I
believe that it represents an important adjacent market that is complementary
to their traditional business”.
Rebuttal: The Xbox is a computer, running a custom (arguably easier to use)
version of Windows, on a Microsoft branded vertically integrated PC. It is
less profitable than any of Apple’s major platforms, less profitable
than any of Microsoft’s major platforms and has generated impressive
losses historically. It pulls resources from Windows which makes up the vast
majority of Microsoft’s profit, and it is in conflict with both Media
Room and Windows Media Center. It has significant cost but insignificant
profit and they can’t even afford to update it very regularly or market
it at Apple levels. (Next platform update is not yet in plan).
It was created to block the PlayStation 3 from becoming a successful
non-Windows PC which never came close to actually happening and is no threat
to Google or Apple who are primary competitors. Windows Phone 7, like
Windows, blends Xbox gaming in with the general platform and has been very
well received. If it is successful, and most think it will be, it will
showcase what might have happened had Microsoft focused on Windows gaming and
not done the Xbox. Windows Phone 7 Series confirms that Xbox should not have
been created and the focus should have been on simplifying the Windows user
experience, completing Media Center, and adding Xbox like gaming to PCs
rather than building a custom Microsoft branded gaming PC.
The Xbox was and continues to be a mistake, the new Windows Phone series,
iPhone/iPad, OnLive and Android gaming should prove that shortly if
Microsoft’s financial performance hasn’t proven that already.
Technology Pundits: Why Microsoft Should Not Be in Consol Gaming Part II
