Game Over for the Xbox 360?

Roger Ehrenberg, a financial analyst and the president and COO of Monitor110, said in the article "When Will Microsoft Own Up to the XBox 360 Bomb?" that Microsoft might very well have created the ultimate video game console with its Xbox 360. However, Microsoft can't hide the fact that the Xbox 360, like its predecessor, has been a financial disaster for the company. Maybe it's time that Microsoft stopped hemorrhaging cash and looked to other markets that would be more rewarding for the company and its shareholders.

"Gaming has been a disastrous endeavor for Microsoft, particularly from an investment perspective," Ehrenberg reported in a recent blog posting. "After five years and over $21 billion invested all they've got to show for it is $5.4 billion of cumulative operating losses, and Xbox 360 doesn't appear to be the silver bullet to turn things around."

Although Ehrenberg's financial data is sound, his Xbox 360 report focuses too much on the Japanese market, which is indeed meaningful in the video game world, and a market where the Xbox 360 hasn't performed well. However, the Xbox 360 performs better in other important markets, including North America and Europe, so Ehrenberg's decision to focus on the Japanese market suggests that he isn't as nonpartisan as he claims. Surely worldwide video game console sales trends are more important than those of a single market.

However, Ehrenberg is correct in saying that there's a disconnect at Microsoft between the people making product decisions and the realities of the markets in which the company is trying to compete. "A hard-core high-end gaming console or a console for everyone? The Zune as the answer to the iPod?" Ehrenberg pondered on his blog. Not coincidentally, both the Xbox 360 and the Zune are the brainchildren of the same Microsoft executive. "I don't know who was in those focus groups but clearly that was a misread from a market perspective. Are these miscues a function of unwieldy size or simply flawed strategy? Something is clearly amiss," said Ehrenberg.

And there are other problems with the Xbox 360, of course. The console is so unreliable that Microsoft has had to update the Xbox 360's warranty at least twice to appease its customers. The Xbox 360 runs so hot and so loud that it's almost completely unsuitable for use in living rooms, and these problems no doubt contribute to the console's unreliability. Furthermore, Xbox 360s are scratching game discs in various situations, a problem that Microsoft has yet to officially acknowledge 18 months after the release of the console. The lackluster Nintendo Wii continues to outsell the Xbox 360, and now that Sony is selling its PlayStation 3 in volume, it's only a matter of time before that console also overshadows the Xbox 360.

So what does the future hold for the Xbox 360 and Microsoft's gaming endeavors? If the Xbox 360 ecosystem weren't as good as it is, I'd suggest that the company cut its losses and run. What's disappointing is that Microsoft has built an excellent gaming console with serious multimedia capabilities that's linked to a high-quality online service, giving gamers what amounts to the best overall experience in gaming today. If Microsoft doesn't figure out a way to make money in this market while introducing a more reliable and quieter version of the console, then it's game over for the Xbox 360.

"When Will Microsoft Own Up to the XBox 360 Bomb?"

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