[mckilljoy]

Well, define your criteria for success.

Xbox is successful in that it has a large mind-share in the hard-core gamer community, but financially the project is still a failure. Had Microsoft decided not to begin the Xbox project 10+ years ago, it would easily have a few more $billion in the bank today.

Contrast that with the Wii, which, along with the DS, has added billions of dollars in profit to Nintendo's coffers over the past few years alone.

Now that Xbox has established itself, the next decade will show whether or not the system is net-profitable, or whether the project never should have started to begin with.

[sshumaker]

No, Xbox has largest market share in the gamer community period, with > 25 million units shipped worldwide. And they will be profitable overall on their gaming unit by the time this console generation is over (2015?).

Nintendo is operating in a different market. They are a toy company, first and foremost. And it's better, conceptually, to think about the Wii and DS as toys. They have a completely different audience - and completely different revenue model. People buy toys for a short-term entertainment value, or novelty - and then the novelty wears off.

This describes the Wii exactly - people buy one, they play a game or two, or maybe Wii fit, and that's it. You aren't seeing serious time spent with it - and the tie ratio demonstrates that.

BTW - I think I'd classify Guitar Hero / Rock Band as toys, too. Hence the horrible sales numbers this season - people are sick of this particular kind of toy.

[mckilljoy]

I'm not sure it is valuable to segment the market into those who buy "toys" and those who buy "hard-core games". At the end of the day, there is just one big market: the human population.

Yes, Microsoft sold 30 million Xboxs to "hard core gamers" and effectively conquered that market niche.

But, in the same time, Nintendo sold 50+ million Wiis to people who like "toys", making billions of dollars in the process.

As a hypothetical investor, I don't really care if Microsoft "wins" the hard-core market, I care about the bottom line. Nintendo effectively created a new market and capitalized on it, and they would get my hypothetical dollar.

[InclinedPlane]

Not every venture can completely pay back its initial costs in a short time period. It took Amazon.com an entire decade to finally start making an annual profit. The XBOX division is now on a very solid track of success, with significant annual profits and a substantial growth trend. This is hardly a failure any more than a family 10 years into paying off a 30 year mortgage is a "failure". The XBOX division has become a substantial profit center for Microsoft and will almost certainly turn a lifetime profit sometime in the next few years.

This is the nature of the game in the tech industry, significant returns are rarely achieved without significant risks and investments.