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...
“It's very hard to calculate the worth of a defensive business. I personally think Sony will have a really hard time with the PS3—fewer games at launch, $200 price premium, and yet they're losing more money per console than Microsoft is on the 360. More long-term, imagine no PlayStation 4 and how Microsoft might profit from such an environment.”
Yup it really could happen. PS3 failing like the mighty Nintendo once fell hard. And no PS4. Although I won't wish it. Competition is good. But I truly believe the PS3 will fall so freaking hard. Especially this Christmas when fanboys will say: "Damn here I have Killzone 2/3 CGI stuff but then ingame in Gears of War on this demopod... Why wait any longer? Let's buy the 360 with Gears and a couple of other games!"
I really see that happening, especially here in Europe. Ppl hate Sony for pushing it back to spring 2007
If they do not reach 20 million consols sold ver a 5 year span.
"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"
- That's just plain funny. But from a business point of view, thats REALLY bad business. The only damper to that statement is the fact that it's Moneypots Microsoft behind it so they don't care if they lose some money since they already have loads. Any other company would think, hmm, we've lost loads of money on this. Lets stop.
"Microsoft is insistent that it will move 10 million hardware units by the end of the year"
Ahaha, dream on. But they are refering to SHIPPING 10 million units, not selling. Shipping 10 million is of course possible. But if they think they're gonna sell 10 million consoles by the end of the year, FAT CHANCE. Its already taken them nearly a year to sell 5-6 million consoles. And with the Wii and PS3 launching in a few weeks, they think they are gonna crank up 5 million more sales by the end of the year?
Microsoft had a whole year to themselves and only sold 5-6 million consoles. They're never gonna reach 10 million consoles by the end of the year when they have competition
The only (possible) negative stories they can muster seems to be about MS's profits which happens to blow Sony's profits (on a whole) out of the water.
hey im not a fanboy cuz i dont buy games i just rent them ... but i see MS spending alot of $$ just to stay on the race ... they have billions to spend ... is true they havent even see any plus signs yet... i do think that even tho sony is shipping few consoles in a year they will sell more ...actually PS3 will be sold out for a year long since everybody will buy that thing