Microsoft says it will stick with its Xbox business come hell or high water. But with years of heavy losses behind it the time has arrived to turn a profit. Has it all been worth the effort and how can the company turn its hard won market share gains into actual profits?
Earlier this week, an interview with Microsoft COO Kevin Turner affirmed that Microsoft is willing to stay the course with its videogame business, despite the fact that it hasn't been profitable on an annual basis since the original Xbox launched in 2001.
For some, the reaction to the interview was surely, "'Duh.' Of course Microsoft plans to stick with the Xbox business." That reaction stems from the fact that it's easy to see Microsoft's successes as the lone next generation console on the market. The games library is good, upcoming titles are looking great, Xbox Live is a robust service with many appealing features and Microsoft is insistent that it will move 10 million hardware units by the end of the year.
But all of these successes and admirable plans have come at great expense-greater than Microsoft had expected initially. For fiscal year 2005, Microsoft's home and entertainment division posted a $485 million net loss.
After its third fiscal quarter ended March 31, 2006, when Microsoft posted a $388 million operating loss for its home and entertainment division, Microsoft CEO Steve Ballmer issued an internal e-mail that stated, "…The cost of producing Xbox 360 consoles was higher than expected..."
In fiscal 2006, ended June 30, 2006, the division lost $1.26 billion, mainly due to Xbox 360 launch expenses.
Of course, these losses represent investment-heavy investment that Microsoft hopes to turn into profits by fiscal 2008, the target date that Robbie Bach said the home and entertainment division would turn a profit.
The question is, how much loss is too much? Microsoft's resources for supporting the Xbox 360 business seem unlimited, as other profitable divisions rake in the dough. But would it take for Microsoft to throw in the towel?...more at next-gen.biz...