Why Ballmer and Hirai will control the next-gen war

Monday Muse: PS4 and Xbox strategies will closely reflect the commercial fitness of Sony and Microsoft

By Rob Crossley

What can we learn from that remarkable day in March 2001, when Sega killed off the Dreamcast?

Sony chief executive Kaz Hirai In an interview with The Guardian (published in 2008 but still illuminating in 2013), the former Sega of America chief Peter Moore gives insight into, among many matters, the difficulties in being beholden to a parent company.

"We [Sega of America] knew we could win," he said.

"We had a tremendous 18 months. The Dreamcast was on fire [in the US]. We really thought that we could do it. But then we had a target from Japan that said - and I can't remember the exact figures - but we had to make N hundreds of millions of dollars by the holiday season and shift N millions of units of hardware, otherwise we just couldn't sustain the business."

[Chaostar]

There's this perception that Microsoft have this endless well of money they can use to simply buy their way into anything. While it certainly seems they can but they are still bound by the mechanics of business. Investors won't allow MS to just throw money at the games industry if they aren't seeing a return for that investment. I'm fairly sure that the money spent this gen on buying timed exclusivity deals was explained to the board as necessary to get a 'foot in the door', however, now that they have that, investors are going to be looking for a return.

Yes MS have 'deep pockets' but if they don't see a return they'll drop the investment like they did with the original Xbox and Zune.

There's an old Chinese proverb that goes "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime."

Microsoft are buying loads of fish but not teaching enough fishermen, if you follow.

[zeee]

:'(

I want to see a SEGA console so bad! So very bad! I wish Sega were to launch another console. I'd be a day 1 purchase for me. No seriously, I am ready to put down some serious money on Sega consoles and YES, I am a Sega console fanboy!

"We [Sega of America] knew we could win," he said.

"We had a tremendous 18 months. The Dreamcast was on fire [in the US]. We really thought that we could do it. But then we had a target from Japan that said - and I can't remember the exact figures - but we had to make N hundreds of millions of dollars by the holiday season and shift N millions of units of hardware, otherwise we just couldn't sustain the business."

It is so sad to read all that. See that's why I want all three companies making a nice profit. We need Sony, Microsoft and Nintendo competing for the top spot instead of trying to survive. Competition benefits us all and unless you want to pay exuberant amount of money for DLC, Hardware, Software and what not, you'd want the same thing.

[Capodastaro]

As long as MS make money investors will get their divided or a split divided regardless...

[mcstorm]

@Chaostar I see where you are coming from but I kind of disagree with what you are saying.

Microsoft had a plan with the xbox brand to lose money with the xbox and then break even with the 360 and then expect to make money with the next device.

That is what they have done so far. Microsoft know that some times you have to make a loss to earn big £ in the end. The also know you need to spend a little to get a big return.

If we look back to when they showed of the Xbox everyone said it would be a flop and never catch the PS2. This was kind of true but it did manage to out sell the Game Cube and this was the starting block for the next gen consoles that became the 360. Again at the beginning of the gen everyone said the PS3 would blow the 360 out the water in terms of sales and even though its looking like the PS3 will out sell the 360 by the end of this gen it has closed the gap in terms of total sales and the xbox name is now a global brand like Playstation is.

The 360 is now also making MS a nice sum of money to.

It should be interesting to see what Microsoft do with there next console as this one has been a success in terms of pulling the core in and then also opening it up to be a none core console with Kinect.

The next xbox now needs to bring the core and none core games together and make it a consoles for all like the Playstation brand has become.

Sony did mess up with the PS3 but they now look like they are going to correct this error with the PS4 and its now up to MS to now go up against the PS name on an even footing because if one of them slip next gen it could be the reason why one out sells the other.

I think next gen will be close in terms of total numbers of consoles sold between Microsoft Nintendo and sony come the end of Next gen because of the way the console business is looking at the moment but 7 years is a long time and anything can happen.

The one thing we know that will happen is no one knows what will happen next gen.

[Chaostar]

All great points but non of them really conflict with what I'm trying to say.

"Microsoft had a plan with the xbox brand to lose money with the xbox and then break even with the 360 and then expect to make money with the next device."

This one in particular supports my point that with MS aiming to make the 720 their 'cashing in' console, investors will be looking for higher returns for what they put in and are therefore less likely to invest in new IPs, niche games, and core interests.

You are right that it will certainly be interesting and nobody knows how it will all unravel. I do love turn of the generation anticipation :D

[nukeitall]

@Chaostar:

If investors aren't happy with MS performance with the Xbox 360, I wonder what they would be with the PS3.

Xbox division is making money hand over fist right now and is why they haven't dropped the price of the Xbox to gain marketshare.

If you look at MS plan they are preparing to monetize their platform greatly. Why do you think they have all the apps?

In terms of investors looking for higher returns, that isn't true for a large corporation like MS. Investors are primarily looking at their other divisions, such as Windows, Office and so on. Where the real meat of their profit comes from.

The entertainment division pales in comparison to those, but it has huge potential to become the main driver to replace Windows for MS in many ways.

That is what investors will be looking for and MS understands this. That is why they were willing to throw gobs and gobs of money at the original Xbox, and then again on the Xbox 360.

MS will not pull out, and you bet they will throw massive amount of money and resources at it.

At this point, there aren't many companies that can compete with MS except for a few like Apple and Google.

That said, throwing money at a problem doesn't necessarily return results and MS Xbox division has gone from a "startup company" like division to a mature one and that might yield great products, but also a slow moving company.

Sony is a competitor, but I think the bigger threat are Apple's iTV, Steam and to a significantly lesser extent Google TV.

It will be interesting and I love this competition.

[cee773]

xbox lost 4 billion
xbox 360 lost 4 billion

if you call that breaking even then ok whatever makes you happy and not to mention if microsoft wasnt charging for live xbox would be in the red even more

sony could put pressure on microsoft by simply having psn free again next gen and keep the bell and whistles on ps plus

the only thing that keeps microsoft up is windows and office and windows 8 selling way below expectations and getting office abilities for free elsewhere I dont see microsoft throwing money around like the past

its all about exclusives next gen

[dcbronco]

@Chaostar

In most companies you would be right. But there are two problems with your initial comment about Microsoft. The main one being that Xbox isn't making money. To believe Xbox doesn't make money means you believe the 360 is sold at a loss. Which would mean after two die shrinks on the CPU and GPU and then combining the CPU and GPU onto one chip, also shrinking the power supply, box size, eliminating a fan, re-negotiating parts deals and several other things, the 360 still cost cost $300 to make. I'm sure you're not saying that.

When you add Kinect, you are adding an additional $100. We know from several parts companies that Kinect cost $59 in parts at launch. So that is a gain. MS charges , on average, around $45 for Live and has over 20-40 million subscribers. That would mean you assume that is at a loss also. Then you would have to believe that all of the DLC, avatar items, XBLA and indie games are all sold at a loss.

There is no way you can believe any of that is true. Sony started out with a $850 machine and by 2010 Kaz said that it was about breaking even on the console. Die shrinks are the biggest savings since they drastically cut cost on the two most expensive parts. MS has done the same shrinks and has eliminated an entire chip with the 360 S SoC. But somehow you believe Xbox doesn't make a profit when they started out at $526. You are completely wrong. They have made a profit on every 360 for years now. Live makes a profit. If it doesn't then $60 a year is underpriced. And we know digital content makes a profit.

On the shareholder part. MS makes a larger than normal profit on what they sell. Most businesses make less than ten percent profit. MS made close to 30 billion profit on 85 billion in revenue. So they make closer to 30% profit. Software and services has a lot better return than goods. Companies like MS gets a lot more leeway than most companies because of high margins. They also pay high dividends. After years of not paying a dividend. They started to pay one not long ago when they had so much money and couldn't figure out what to do with it(swear, true story). Also, after giving 30 billion back to the investors and paying a double dividend each year, MS has a cash reserve of over 60 billion again because profits have gone up so much. And that problem will get worse as profits are increasing again.

http://www.nbcnews.com/id/5...

So neither of your reasons for MS cutting gaming holds water. Xbox is only getting bigger. And the ways they are using to expand it will pay major dividends in the future.

[mcstorm]

Cee773 I don't think you know that much about Microsoft from your comment.

Microsoft is not just about office and windows it has a lot more products than these to that make up the missions of $ the make each quarter. In fact Ms last quarter they saw it grow over this time last year.

Also to say windows 8 is not selling well is not true. They already have 7.5% of the tablet market with windows 8 and that is only including any tablets sold without a dock or keyboard.

Even the surface RT alone has out sold the total sales of chrome os, iosx and all Linux sales.

Microsoft are not making the money Apple are making but they make both hardware and software Microsoft don't at this moment in time. Also apple is starting to become flat in terms od how much money they make and Google make no where near as much as Microsoft.

As for Sony and Nintendo they don't make anywhere near as much as Ms and we all know Sony are in the middle of trying to turn things around at the moment.

I really don't get all this hate people have for Microsoft Nintendo and Sony though. For me we need all 3 to keep making consoles as it is keeping them all trying to out do each other and if you look at the ps3 when it came out it was a bit of a mess compared to what the 360 offered online and Sony have worked to get psn on par with live and if it was not for the Xbox and 360 online gaming would not be where it is today.

If it was not for Sony bluray would not of taken off. If it was not for Nintendo we would not have games consoles as they were the ones who pulled gaming out of the dark.

They have all had + and - times but imp having all of them in the industry is good for us gamers and None gamers.

[SkyGamer]

All Microsoft wanted was to be the software imprint on consoles, hence the origninal plan to buy Nintendo and Sega and start their business there. They essentially had Sega but Nintendo didn't want to sell, thus Xbox was born. Microsoft would probably step out of the console business and just be the software and make games for whatever console that has their imprint on it. Now they taste the success and can write off the losses of their Xbox division for tax relief. Microsoft is only 1 of the 5 US businesses that still has an A+++ credit rating. They own SO much. It is sad when Steve tells his assistant that this company looks promising. Let's buy them. Assistant taps him on the shoulders saying, umm boss, we bought that 3 years ago... These purchases aren't cheap as well. Look at how much they paid for Skype. They would have paid 25 billion for Nintendo....

[cee773]

@mcstorm

I never said microsoft is just windows and office I said they make the majority of their income of windows and office thats A known fact has been for decades

[BigStef71]

This man definitely will:
http://www.youtube.com/watc...

[SOM3ROiD]

Yeah.. "war." They play 'war' and make billions of our money and we here argue who should win.

[Hicken]

Well, if I'm giving them my money, I want a say in who should win. And I think it only makes sense, when I'm making such an investment, that I try to convince others that their money would be better spent in the same way.

[Agent_hitman]

Hirai will use Samurai spirit while Ballmer will use Kinect.

[Jaqen_Hghar]

Kaz uses Naughty Dog! It's highly effective!

[KillrateOmega]

The wild Ballmer fainted! Kaz has gained 720 xp!

[Minato-Namikaze]

Lmao, Lets start this as a trend

[majiebeast]

A wild Don Mattrick appears! He uses bored to death at Microsoft E3 2010! Its not very effective. Kaz uses GAMES! Its super effective! Wild Don Mattrick faints.

[Jaqen_Hghar]

a man finds it funny that we're using a Nintendo property to make a joke about Sony against Microsoft, but now a man feels like watching Pokemon all of a sudden.

[SkyGamer]

I think the biggest thing Nintendo and Microsoft has is a mascot. The mascot's for Sony has always been third party, not first party and sony never really promoted them properly. When you think of Nintendo, well they have their staple 4, Mario, Metroid, Zelda, Pokemon. Of course Mario trumps them all and when you think of Microsoft, you think Master Chief. Now Cloud is owned by SE, and you can't really have a mascot out of a car, ala gran turismo. The GTA's went multi so the success of 3, can't use that. Kratos maybe and Nathan Drake but they need to properly nurture those. Nathan looks more suitable as Kratos is a god killer and may not set well with parents. It needs to be pg-13ish and while MC does do a lot of killing, it is usually aliens. He fights to save and preserve humanity while Kratos is hellbent on revenge and whatever makes him tick. I haven't played too much of the God of War series so I am just taking things off of what I see. Plus you can't have a mascot that has been on other platforms. At least console platforms as Mario has been on arcade and Halo on PC/Mac? Bottom line is that Mario will never see the light outside a Nintendo console and MC will never see the light outside a Microsoft console.

[Minato-Namikaze]

Sony has never a had that 1 mascot because they have many. I play many games so i like the fact that sony has a game in many genres. When you have just one mascot you some what pigeon hole yourself into having to keep making that game, poeple always expect MS to make that new Halo, or for Ninty to make a new Mario or Zelda. But Sony has nurtured so many new IP's that people never know if that are gonna announce a sequel or brand new game, it keeps me on my toes at least.

[Jaqen_Hghar]

A company will forever regret not buying up Crash at the height of his popularity and giving him the Mario treatment of 1 amazing game per gen (ok 2 this gen but that was the exception).

[Williamson]

I think the sales between the 2 will be split or not that far off from one another similar to this gen. Obviously things can change which the wii showed that, but I feel that each brand already has loyal fans.

[Darrius Cole]

I want to push back a bit on the notion that Sony messed up this generation. Sony will fininsh this generation in second place overall (behind the Wii and ahead of the 360) in consoles sold, in spite of costing at least $100 more for the entire generation.

Sony made a calculated decision to push blu-ray. It looks like their decision has worked. Blu-ray discs are the standard for HD movies and Sony gets a cut of each one sold. The next Xbox will have a blu-ray player in it, so Sony will get a small cut of each Xbox Durango that gets made.

If anything Microsoft is probably looking at Sony's success at forcing blu-ray onto the market and drawing confidence from it. They are probably thinking,"if Sony can use the PS3 to force blu-ray on the market, why can we force (insert multimedia option here)on the market next gen."

[WickedLester]

Sony was coming off of a generation where they had seen sales of 100 million + PS2's sold. They owned the market and were aboslutely in the driver's seat going into this generation. Their market share has effectively been cut in half this generation. Sure, they may wind up with more units sold than MS when it's all said and done but I don't see how Sony can look at this generation as anything but a disappointment.

[Jaqen_Hghar]

While a man agrees that they messed up, especially financially, this gen a man would hold off declaring PS3 even 2nd. PS2 sold 33% of its total post PS3 launch. If PS3 can do just 25% of its total post PS4 launch it'll be above 100m easily and seeing Wii struggle to reach that mark makes a man think PS3 could end up being the winner considering it hasn't even hit $200 yet which Wii started close to and 360 has been at for years and PS2 was at 2 years into its life.

[Max-Zorin]

The fanboys can enjoy killing each other. All the neutral gamers will be in underground bunkers playing all games regardless of platform and on occasions laugh at the fanboys argue over a piece of metal and plastic