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10:17PM

Should Microsoft be in the console gaming space?

In November of 2001, Microsoft released the Xbox, it's entry into the game console space, and changed things in that space.

About a week ago, longtime technology analyst Rob Enderle and Technologizer founder Harry McCracken were tweeting about Microsoft’s consumer mishaps forays. The basic jist of the conversation was that Microsoft had done a boo-boo by entering the console gaming space.

Jumping into their Twitter thread - I love social media! - I said that Microsoft had to enter that space. A few days later, Rob tweeted a link to an article showing that Microsoft had lost a gazillion dollars in their Entertainment division.

Now, this.

Should Microsoft have entered the game console space?
Without a doubt, Microsoft HAD to enter the console gaming space.

If we look back to the pre-Xbox era, there was a triumvirate of tier-1 gaming OEMs: Nintendo, Sega, & Sony, with Sony as the de facto leader, followed by a Nintendo-Sega tie. Microsoft was hobbled by the unfavorable antitrust decisions in the US and Europe, and fighting lots of ticky-tack private lawsuits back here.

With the antitrust decision effectively limiting Microsoft’s business decisions, new avenues had to be sought. For Microsoft it was the consumer business, and console gaming, a business that seemed to have a low barrier to entry and dominance for a Microsoft entry.

Furthermore, one could make the assumption that Microsoft took into consideration the ability of the horde of Windows developers taking advantage of the fact that programming for the Xbox should be a piece of cake.

Why a consumer product?
As can be seen by the ascendency of Apple from its financial and product near-death experiences, creating aspirational products for the consumer space could lead to not only a corporate revival, but to dominance across several sectors.

Conversely, where is the former market leader in game consoles today?

At that point in time, with the uncertainty of revenues from the company’s bread-and-butter operating system products, and to backstop these consumer electronics companies from making moves deeper into (Microsoft’s ) computing space(s), I believe Microsoft had to embrace the consumer.

In fact, Apple’s success in consumer electronics should serve as an important lesson to Microsoft: id does not matter if you dominate the plumbing of computing; if you do not have a successful consumer-facing device, the perception of your being unsuccessful will become the reality. With your stock market value being a collateral victim of that perception. We suffering holders of MSFT know exactly how that feels!

Look at Google and Gmail. Despite all the digerati wishes for it, it is still a lagging also-ran to Microsoft’s Hotmail. However, the perception fueled by these yum-yums is that Gmail is number one, a work of fiction outside their melons.

Why a game console?
Microsoft’s history in the consumer device space is one that I am sure company executives would like not only to forget, but also to rewrite, since it has been fraught with one stumble to another, a self-imposed ceiling, if you will.

In that environment, after being stung by overpromises and under-deliveries in cable/satellite TV, telecommunications, and heralded by the spectacular failure of their consumer-facing product, WebTV, game consoles must have seem like a good bet to Microsoft.

And game consoles, for a company like Microsoft, should have been a very good bet. However, the devil as they say, is in the details. (see below)

The Xbox & Xbox 360
Microsoft delivered the Xbox in November 2001 to great acclaim. For the software.

Visually, the device, though clunky, was a PC repurposed as a game console. Not a bad idea, but suffering the aesthetic problem of a PC in a living room: it is somewhat very unsightly.

For that era though, the Xbox was thoroughly spanked by the Sony PlayStation 2, and didn’t recover from that full-suplex takedown.

For the Xbox 360, Microsoft co-designed the CPU, codenamed Xenon, and the GPU, codename, Xenos.

It features an attractive design, and it smoked the competition handily, and immediately achieved primacy in the game console space.

So, why the loses in game consoles?

In a word, Microsoft.

At the release of the Xbox, there was an Xbox 360 community called the Xbox social. The promise it held was to engage gamers. However, it devolved to being an echo chamber for shameless self-promotion by the managers. FAIL!

Xbox Live was a totally genius product. However, it was given as much attention as IE6 during that same period. It is only just trying out some innovative new things.

When was the last time anyone saw an ad for the Xbox, outside of the Christmas season? Or at the release of a new blockbuster product?

One of the things wrong with Microsoft these days is an over-dependence on Hollywood-style blockbuster marketing.

A product is released to great acclaim. Then the ads vanish, leaving the product to flounder.

This malaise permeates Microsoft consumer-facing products like a plague. And it shouldn’t be so!

Don’t believe me?

Where are the ads for: Windows 7? Windows Mobile Vista 6.5? Zune HD?

All gone after the product is released!

Another thing was the cost.

As with the Zune, Microsoft inexplicably set the purchase price at the same as the market leaders, giving the competition breathing room.

It was as if Microsoft management, after entering a market determined to dominate, suddenly got cold feet, and started protecting the balance sheets!

You would think that they would have learned from Toyota’s Lexus division. When the Lexus was introduced into America, Lexus executives sold the product on the premise that it was just as good as the Mercedes-Benz S-classe. However, in order to make the product – and brand – a success, the rollout cost of a Lexus, back in the late 1980s, was about 60% or less than that of a comparably/lesser-equipped Mercedes-Benz.

One is only left to wonder how successful both the Xbox and Zune lines would have been if the initial purchase prices of both devices had been about $399 with two games for the Xbox 360, and for the Zune, a cost priced at a 40% discount to a comparable iPod.

Can Microsoft walk and chew gum at the same time?
The second part of Rob’s contention is just as important.

Why didn’t Microsoft develop products in parallel for the Xbox and the PC gaming market?

This is a harder question, and one that speaks to the lack of power given to the Entertainment division, in my opinion.

For real, why didn’t they?

If the codebase commonality is about 80% or whatever number is always touted, why didn’t Microsoft? Why did they seemingly abandon the PC gaming market?

The PC gaming market is at the very apex of PCs, the ne plus ultra in gaming.

You would think that this market, populated by systems that cost an order of magnitude over the cheapest systems you get at mega mart would have the attention of Microsoft!

Nooo!

Would it be because Microsoft only gets the same amount of money per system regardless of the cost?

I always thought PC gamers had a higher attach rate for games, but, what do I know?

Unfortunately, Microsoft seems to have relegated PC gaming to the outhouse, and all new releases are for the Xbox 360, despite games for both platforms costing the same to buyers.

Microsoft has also frittered away the opportunity it had to have developed a handheld Xbox which would have encroached upon the Nintendo GameBoy DS & DSi, and the Sony PSP. Even right now, the Zune HD, with its beautiful UI, only has a handful of games, this despite having an accelerometer, a touch screen, a speedy chipset, and wireless functionality built in.

Conclusion
I still believe that it was the right choice for Microsoft to have entered the game console space. However, Microsoft’s execution of that plan, has left much to be desired.

I will concede that Microsoft should have not only continued in the PC game department, but accelerated development there, using the lessons and telemetry from the development of the Xenos GPU to turbocharge GPU development for PCs.

In fact, a consequence of Microsoft’s entry into the game console market has been the fall from grace and into almost complete irrelevancy of Sony, a company once mentioned as a rival to Microsoft in many spaces, and looked upon by some in the days of yore as the company to give Microsoft its comeuppance. (Apple is the company that has done that to Microsoft in hardware, and Google is looking to do the same in software/SaaS.)

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