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November 21, 2006

Xbox 360 and Microsoft’s midlife crisis

Posted by David Hunter at 11:23 PM ET.

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.

Filed under Financial, General Business, Investor Relations, Microsoft, Microsoft Research, Xbox

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One Response to “Xbox 360 and Microsoft’s midlife crisis”

  1. Founders leave Microsoft’s Rare game design studio -- Microsoft News Tracker Says:

    [...] “Chris and Tim have helped shape Rare into the world-renowned development studio that is it today and their impact on the videogame industry as a whole is well known. They are simply leaving to pursue other opportunities and we wish them luck in their future endeavors.” Microsoft acquired Rare 4 years ago from Nintendo. While I don’t think much of the TV show and merchandise part of the Viva Pinata goat rodeo, the game itself has been getting good reviews, but apparently failed in its mission to broaden the Xbox 360 demographic to a “family gaming” audience. Simon Carless at GameSetWatch suggest some reasons why sales have been so dismal, one of which has particular pertinence here: Sorry, Rare, but your reputation among a lot of the hardcore gamers who currently own an Xbox 360 just isn’t that good. Perfect Dark Zero and Kameo were both flawed attempts at X360 launch titles that probably got overrated by the press along the way, further disenchanting people who picked them up at hardware launch. And the Conker update felt pretty underwhelming – so I think that a family-oriented game done by the current Rare team just didn’t appeal to a lot of people. Game design is like movie production with a lot of duds for every blockbuster and constant shifting of the players in pursuit of the latter, so this isn’t a big surprise. Overall this doesn’t mean much for Microsoft other than once again raising the question of why they’re in this business in the first place. Filed under Acquisitions, Xbox, Microsoft [...]

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