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Forbes

Humiliated in its early efforts to crack the videogame market, Microsoft has a bold new strategy: Design a videogame machine for people who don't play videogames.

Four years and approximately $5 billion in losses later, Microsoft has fought its way to the front of the store. Twenty million videogamers have bought an Xbox and 170 million games for it. Its Halo 2 title grossed $125 million on its opening day in November. Though it will never catch up to the PlayStation 2's global installed base of 87 million consoles, the Xbox has won enough converts that last Christmas, for the first time ever, Microsoft outsold the PlayStation 2 in the U.S.

But now as Microsoft girds for the simultaneous worldwide release of the new Xbox 360 at the end of this year, it has completely reversed strategy. After years of touting the Xbox's superior technical specifications--speedier chips than the PS2's, a built-in high-speed Internet connection and an 8-gigabyte hard drive--Bach says that raw performance is no longer that important to winning the console wars. What matters is beating Sony to the market with a new console and making sure it appeals to people beyond the core following of young male game players. "We are really a niche business when you get right down to it," says Bach.

 

[M3wThr33]

Right, beating the leader to the market always results in a win.

 

[Unison]

Wait a minute... They lost $250 per Xbox owner? :lol :lol :lol :lol

 

[DarienA]

I'm getting some serious f'n deja vu from reading this article... Sony's whole mantra leading in to THIS generation was expanding the audience by having more niche titles on it's system, etc.... hell one of the reasons the Eyetoy EXISTS is for doing that....

 

[Ghost]

The article is a load of crap, it isnt some quick 180, this is what MS have planned all along, the power was necessary this gen to get people interested, now they have that mindshare they can try and control the living room, which requires good timing just as much as power.


Whether or not the plan works is a different matter entirely, but it has been the plan from the start.

 

[Pedigree Chum]

Wait a minute... They lost $250 per Xbox owner? :lol :lol :lol :lol

That's what happens when you don't own your own hardware and are at the mercy of Intel and Nvidia. Is it any wonder they're trying to cut Xbox's life short?

 

[DarienA]

The article is a load of crap, it isnt some quick 180, this is what MS have planned all along, the power was necessary this gen to get people interested, now they have that mindshare they can try and control the living room, which requires good timing just as much as power.

...you actually believe that shit you typed? A powerful but hastily(i.e. off the shelf components) put together system was created simply to get people interested and not in itself to attempt to turn a profit? Riiight.

 

[Forgotten Ancient]

"We are really a niche business when you get right down to it," says Bach.

Wait...Didn't Bill Gates label Nintendo as a niche player?

Wasn't it J. Allard who said Microsoft planned to reach a billion consumers? (I may be off by a billion or 800 million...but I think this is what was said).

 

[PhatSaqs]

The high-definition PS3 will be built around a microprocessor that will run at more than 4 gigahertz and be 10 times more powerful than current PC chips

Did Sony upgrade the PS3 cpu in a week?

 

[vissione]

.

 

[Razoric]

I can't believe they think timing is more important than games.

I think good games are a given.

 

[sol5377]

solid article.

 

[Roland Hood]

...you actually believe that shit you typed? A powerful but hastily(i.e. off the shelf components) put together system was created simply to get people interested and not in itself to attempt to turn a profit? Riiight.

In the book 'Opening the Xbox', they go over how MS was scared of losing future 'battle of the living room' to Sony, the all in one hub of the entertainment center which we're now seeing in the functionality of 360/PS3.

At the time they had WebTV (I think) and some other stuff going on and recognized that Sony was poised to dominate this market.

So Xbox was literally thrown together just to get their foot in the door, get some mindshare and so forth - I think the projected loss on Xbox that they had to sell to Gates was something like 800 million (maybe more I can't remember now...regardless I guess they were a bit off )

This was the investment, if you will, that MS decided to make for this/next gen.

 

[MrAngryFace]

Microsoft has been reading Nintendos book! There cant be two Nintendos! Nintendo Beats MS in second place.

 

[bigNman]

"We are really a niche business when you get right down to it," says Bach.

lol thats after Gates said Nintendo are bound to be "niche"

 

[Baron]

Losing $250 on each of 20 million units sold is...$5,000,000,000.00...5 billion dollars.

 

[dorio]

I don't understand why this article claims that the cell will be clocked at 4Ghz when Sony says 3.2. Did their specs change?

 

[ToxicAdam]

Say what you want about specs. But this doesn't sound like an interview with someone who thinks they have the most powerful system (or lineup for that matter).


Whats thier niche? Taking their smaller "niche" user base and nickel and diming them to profitability? If they think they are going to take away Nintendo's "non-traditional" gamers .. they are sadly mistaken.


They really should leave all the talking to J Allard. He is the only one who knows how to talk like a winner.

 

[Pedigree Chum]

I don't understand why this article claims that the cell will be clocked at 4Ghz when Sony says 3.2. Did their specs change?

SONYTON (right before launch)

Believe.

 

[ronito]

So wait. If I buy an Xbox microsoft loses money AND get to play Ninja Gaiden? It's a win/win situation! I'm off to buy one now!

 

[CaptainABAB]

I don't understand why this article claims that the cell will be clocked at 4Ghz when Sony says 3.2. Did their specs change?

These articles are written well before e3 and I guess he didn't bother to update it since then.

Notice that it doesn't mention one detail from the event, etc.

 

[sscrew]

It isnt an outright $250 loss on each console(they still lose a lot, but their are other costs on what . That would include the marketing, costs of setting things like LIVE up, costs of purchasing exclusives or timed exclusives etc. which didnt pay off in terms of profit, but im sure MS are more than happy with how these moves paid of in market share. I guess if you divide it in what they sold, it would be though. I wonder what each system sold would equate to in losses. If marketing/games werent a factor?

 

[goomba]

Whats the use in all the money spent to gain marketshare based on superior tech when that advantage is lost next gen?

 

[Forgotten Ancient]

There were also costs in the initial R&D and all of those FREE XBOXs they were giving away. One per Taco Bell

 

[MightyHedgehog]

Whats the use in all the money spent to gain marketshare based on superior tech when that advantage is lost next gen?

Probably because they figured out the truth...that tech-superiority isn't necessarily a direct advantage to gaining marketshare and profit. They've focused on software and things that are more directly important to the gamer instead of whipping up bad tech deals that lose them money on every console sold. Certainly, if MS believed that tech-superiority was a major, major reason for success, they'd wait until after Sony showed and would go ahead and trump them, spec-wise...and they'd be putting out a system that, again, loses a large amount of money for each system sold for much longer into the generation than their competitors. MS is MUCH smarter about their new system than they EVER were about XBOX 1.

 

[dorio]

Whats the use in all the money spent to gain marketshare based on superior tech when that advantage is lost next gen?

Mindshare, its not about flops, its about how halo3 will look.

 

[seismologist]

MS has to be losing money on 360 if it's as powerful as they say it is.

 

[blackadde]

There were also costs in the initial R&D and all of those FREE XBOXs they were giving away. One per Taco Bell

Singaporeans are literally swimming in a sea of Xboxen. MS gives them away for pretty much anything - opening a bank account, renewing your cable, etc.

 

[MightyHedgehog]

MS has to be losing money on 360 if it's as powerful as they say it is.

Sure, up front...just like everyone else likely will. The difference will be that MS can actually acheive a proper scaling of costs throughout the lifetime of the new system, where XBOX 1 didn't have that opportunity thanks to stupid deals with nVidia and some mistakes about the HDD.

 

[Wunderchu]

MS has to be losing money on 360 if it's as powerful as they say it is.

Q: The billion-dollar question: Will the next Xbox be profitable?

Bach: We believe it will. We've designed the business model for this product so that the hardware, the console we sell, over its life cycle probably breaks even, and makes money on the peripherals, like controllers, and makes money on games and the Live service, hopefully someday.

Our forecast right now, and we've said this publicly to the financial analysts, is that the Home and Entertainment Division will be profitable in fiscal 2007. We're making a lot of progress on that, and we think we're going to turn what's been a great investment into a great business.

Q: You've added a bunch of different peripheral opportunities -- expandable hard drive, downloadable content, faceplates. Will that be a material source of revenue?

Bach: I think some of those will end up being a material source of revenue. Advertising is another opportunity. Sponsorship. As an example, spectator mode. People run (online) tournaments, and people are going to sponsor the tournaments. That's another opportunity for us and for our publishing partners.

So I think the combination of all those different opportunities probably adds up to a meaningful addition to the business model. Any one of them, you'd say, well, that's a segment. But when you add them all up, you say, wow this is going to be a different business than it was before.

[source: http://www.sci-tech-today.com/news/...t-the-Games/story.xhtml?story_id=11300CM6RHJE ]











(I first heard about this interview from: http://www.rage3d.com/board/showthread.php?t=33816573 )

 

[MetalAlien]

Well they might not be aware that's how video game hardware works... They lost 5 billion on hardware, and probably made it all back and then some on software...

I'm sure if you only count hardware sony lost a shitload too.

 

[Phoenix]

Microsoft's current position is a Pyrrhic victory if there ever was one in the console market Surely the investors aren't willing to take another 5 billion dollar bath...

 

[Phoenix]

Well they might not be aware that's how video game hardware works... They lost 5 billion on hardware, and probably made it all back and then some on software...

Nope, the MGS was in the black only towards the end of its life and o nly for a few quarters. The Xbox losses were actual losses on the balance sheet. Microsoft just makes enough money to absorb those losses and stay in business.