Why Microsoft Got Into the Console Business 257
An anonymous reader writes "Joachim Kempin, former vice president of Windows Sales, has explained how the original Xbox came to be. It turns out it was Sony's fault, simply because the Japanese company wasn't very friendly towards Microsoft, and Microsoft eventually decided they had to 'stop Sony.' Apparently, long before the Xbox was even an idea, Microsoft was trying to collaborate with Sony in a number of areas they thought there was overlap. That collaboration was sought before even Sony had a games console coming to market, and would have focused on products for the entertainment sector."
I remember a story when I worked at Microsoft... (Score:3, Interesting)
About Bill Gates throwing a fit in front of Sony because they refused to put his garbage software on their hardware. Also not that while Xbox is profitable for Microsoft, it is not considered profitable enough.
Xbox Subscription (Score:3, Interesting)
Xbox sucks. One must own a Gold membership (about $5/month) to install many key applications, such as Netflix (for which a paid Netflix subscription is required, of course). And whenever an update is available, refusing to install it immediately will close the Live session, preventing any access to Netflix. This is hugely annoying as those pesky updates frequently happen at the least convenient time.
They really do milk the customers. I bought a 1-year Gold membership but I probably won't renew. Unfortunately the alternative (Playstation) is not that great.
Dreamcast (Score:5, Interesting)
I always thought it was because Sega failed with the Dreamcast. Sega had worked with Microsoft for 2 years for the OS on the Dreamcast. So I assumed Microsoft decided to go on their own with out Sega.
Re:Dreamcast (Score:4, Interesting)
Having owned both a Dreamcast and a first-generation XBox, I was surprised at the similarities. The controller for XBox looked like it was very much patterned off the Sega Dreamcast and some of the earlier games had a very similar look and feel. I had thought that Microsoft basically brought out the XBox as a Dreamcast II, but under their name instead of Sega's.
Re:Dreamcast (Score:4, Interesting)
And word on the streets on the time was that XBox would be DC compatible, as the DC hardware had been reduced to a single chip.
Re:I remember a story when I worked at Microsoft.. (Score:5, Interesting)
There was an April, 2007 article written by analyst Roger Ehrenberg called "When Will Microsoft Own Up To The Xbox 360 Bomb?". Essentially, he ran the numbers for the divisions of Microsoft where they'd stuffed their console business, and determine they'd invested over $21 billion (at that time) in the console business, and had earned a whopping $5.4 billion of cumulative operating losses in return. That didn't fully account for the Red Ring Of Death either, which apparently cost them another $1 - $5 billion.
They have had profitable quarters since then, but as far as I know they haven't come anywhere close to earning $26-$30 billion just in order to break even on their investment in the console business.
Consoles have been a money pit for Microsoft.
Worse, in order to remain competitive with Nintendo and Sony, they're going to have to sink billions more into the next-generation of consoles if they want to stay in that business (and pride pretty much dictates they have to stay in that business).
It's likely they'll never break even on their investment. They may have blocked Sony or Nintendo from becoming the de facto home entertainment hub, but it isn't clear to me that keeping their options open in that space has been worth close to $30 billion. There's also the considerable threat that Apple will waltz into that space with a compelling new offering and blow most everybody else out of contention (while spending far less than $30 billion to do it). Google and Amazon are disruptive threats as well in that space.
Ironically, Apple spent far, far less than $30 billion developing the iPod, iPhone and iPad, combined - a combo that's proven a money machine for Cupertino almost since the day the products were released into the market. Each one of those products could have come from Microsoft - they were certainly years ahead of Apple at one point when it came to smart phones and tablets. Redmond took their eye off of that space while chasing the console business, a decision which I think will go down as one of the biggest misallocations of resources any corporation ever made.