MSFTextrememakeover runs the numbers on Microsoft’s Xbox venture in the videogame console business and it isn’t a pretty sight:
So, actual time to recoup the investment, assuming it ever occurs, will likely be measured in decades.
The real question, of course, is what to make of this and other Microsoft emerging business plays that are, to be polite, a bit on the slow side:
All of which raises the question of what MSFT’s broader strategy wrt emerging businesses is, and how success is measured. Are they worthwhile standalone efforts, meant to be profitable in typical industry 3-5 year timeframes (or less), but MSFT just can’t execute properly? Or are they always, at least in part, defensive plays aimed at protecting the existing crown jewels and only justifiable (financially at least) on that basis? I think the answer is a combination of both, which explains why MSFT’s “investments” continue to be viewed by many externally as hopelessly unsuccessful, especially when they weren’t sold to the street or shareholders on that basis.
Perhaps my view is too pessimistic, but I frankly tend to the first explanation and view Microsoft’s Xbox as yet another instance of the odd actions produced during the corporate midlife crisis that afflicts so many business organizations that have achieved great success in their early years. Would Microsoft’s crown jewels (Client PC OS, Office, Servers) really have been endangered if they had not entered the game console business? The only one you can even make a case for would be game consoles somehow endangering the Microsoft’s PC client operating system franchise and it’s pretty thin stuff.
There’s nothing wrong with taking a flyer in an emerging business, but when the executives of a famously successful company use their hard won bankroll to pursue it beyond all reasonable expectation of return, you have to wonder if they have started believing their own press.