[hugh3]

Xbox was their last big success in entering a new market. That's just under a decade ago.

The problem is that they have a sucky innovation model. They find something that's already successful, throw money at making a slightly better version (or whatever they can convince themselves is a slightly better version).

Sometimes it works, sometimes it doesn't. It worked when they copied the Macintosh to make Windows. It worked when they copied Netscape to make IE. It worked when they copied Playstation to make Xbox. It stopped working when they copied iPod to make Zune, and continued to not work when they copied Google to make Bing.

Why it's stopped working? Either (a) a run of bad luck or (b) folks have learned to preempt Microsoft's move or (c) the really good people don't work for Microsoft any more.

[Tyrannosaurs]

Their last big success? It was launched 10 years ago, last year was the first time the XBox division made a profit and it's still years and years away from recouping the investment made in it.

If that's a success I really don't want to see one of their failures.

[hugh3]

I'm not familiar with the detailed financials, but the Xbox has at least captured a substantial market share, which is more than I can say for any of their subsequent major pushes into new market segments.

I'm actually surprised if the xbox hasn't been profitable. It can't have been that costly to develop (get a fancy graphics chip and stick it in a box), they've sold a helluva lot of them, and they only update it once every five years, and they're making a crapload of money on the games too (don't forget they own Bungie) so I would have thought it would be a bit of a cash cow. But maybe they need to sell the consoles at a loss.

[Tyrannosaurs]

The XBox line over the decade has cost them a fortune.

Until relatively recently when manufacturing costs dropped Microsoft were selling the hardware at a significant loss which means that you have to sell a certain number of games just to break even. This isn't an uncommon model for consoles (the Wii was an exception being profitable as a console from day one) but it was pretty extreme for Microsoft who were basically making an aggressive play for market share and damn the expense.

Up to 2005 the XBox gaming division (including hardware and games sales) had lost $4 billion (http://www.forbes.com/2005/09/12/microsoft-management-softwa...) on a total investment of over $20 billion and it continued to lose money up to 2009 including a cost of $1 billion for replacing bricked XBox360's in 2007 (http://www.engadget.com/2007/07/05/xbox-360-warranty-extende...). All in all I'd estimate up to 2009 total losses up to or even in excess of $6 billion.

In 2009 it finally posted it's first profit - $165 million, though it's probably worth noting that as a percentage of the $6 billion it had lost to that point this is basically nothing.

They have a total installed user base of 41 million consoles (360s) world wide. This puts it slightly ahead of the PS3 (38 million) - though it should be noted that the PS3 launched a year later and is currently selling faster - but way behind the Wii (79 million) and the PS2 (over 140 million). It's likely that by the start of 2011 once Christmas is out of the way they'll be last place in terms of installed user base - not a great reward for all that money spent.

(If these numbers don't feel representative of what you see it's worth noting that the XBox is far stronger in the US than in Europe and Japan).

On the positive side Kinnect is apparently priced so that it will be profitable from day one, they do have a decent installed user base for new games sales and live subscriptions, and console production costs are now a lot lower than they were which means that the next three or four years (the likely remaining life of the console) will all be profitable, however it would seem unlikely that they'll be able to bring the total investment to break even for the life of the XBox range.

Maybe we have different definitions but for me that's not only not a success, but it's not far off being a disaster, particularly given that this isn't a tale of a couple of years of growth at the expense of profit, but a decade long tale.

[electromagnetic]

The 360 has recently started making a profit, why? Because they released the 360 making a loss, and dropped the price rather quickly. They then dropped the price even more. And even more.

IIRC they've always made money off of the special edition elite consoles, they've been making a profit off of the elite as a whole for a while now, however these represent a small amount of their sales compared to the big sales of the arcade consoles they had.

PS3 made huge losses to try to stay competitive with 360, and never really dropped much in price and lost huge market share because of it.

However, both have been ridiculous profit makers for their parent companies as the entire devision makes wheelbarrow loads of cash from selling games for ridiculous prices (again something Sony fucked up with by getting greedy in the beginning, although Xbox eventually followed).

[Tyrannosaurs]

> both have been ridiculous profit makers for their parent companies as the entire devision

Sorry, this is completely untrue for the XBox which has haemorrhaged cash for it's entire life as a division, not just on hardware sales. I've linked to the figures in my post above.

The PS3 is in a similar position - it moved into profit on the hardware sales earlier this year and total losses are estimated at around $3 billion to date. I can't find any figures on the whole division profitability (other than that it is profitable) to know how likely it is to recoup this, though there are statements that they do expect it to make money over it's full life (though I suspect it will be questionable how much for an investment of that size).

If you're wondering how this can be possible, the console subsidies at launch were of the order of $250 - $300 per console. That's a lot of money to make up off of game sales and live subscriptions (remember you're making it off the profit on each game - maybe $10 - $20, not the revenue of $50).

> PS3 made huge losses to try to stay competitive with 360, and never really dropped much in price and lost huge market share because of it.

In terms of global (not US) market share the PS3 will pass the XBox360 shortly which isn't great news for the 360 given that it launched a year earlier so had a head start. Given that Microsoft's sales figures are based on shipped to retailers and Sony's are on sold to consumer's it's possible that the PS3 is already in the hands of more people (rather than sat on shop shelves). In the US the figures are better (18 million vs. 12 million) which might explain why you think it's doing well but that picture isn't reflected in Japan (1 million vs. 5 million) or Europe.

But if you're wondering where the next generation of consoles are, these figures should make it clear - they're nowhere. Both companies need to eek out the life of the current consoles for financial reasons before looking at further significant investment.

Indeed it may be the case that the XBox360/PS3 generation of consoles will prove to be a one off in terms of the level of investment made given the difficulty in recouping it, and that future consoles will be based on smaller, cheaper increments in power and functionality.

Just to be clear, I'm not knocking MS for the sake of it (I actually really like the look of Kinnect and give them great credit for the innovation) but the economics of consoles aren't quite what some people seem to think they are.