Timothy Tripp

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    • When Will Microsoft Own Up to the XBox 360 Bomb? [view article]
      This is a great article and it’s always useful to get an independent analysis of financial numbers, but I think there are a few missing pieces to this puzzle that help form the whole picture of Microsoft’s apparent stubbornness in this market:

      1. Japan has – at least since WWII – been a very closed market to imports of any kind when there are comparable Japanese products in the same markets (with the exception of the iPod, which has been reasonably successful there), so this has been an uphill battle before they ever got started. Japanese gamers generally prefer racing games, RPG games, and puzzle/novelty games much more than Western gamers. Racing games is the only area where Microsoft has some strong offerings, and it’s the only one of the genres that lends itself well to online multiplayer games, which is key to Microsoft’s revenue plans. Europe and the U.S. are generally the money making territories for Western companies and that won’t change any time soon. Western companies can’t ignore Japan, but Japanese consumers buy Japanese products and that’s ingrained in their economy. It may change but it will take a while and a LOT more products like iPod to crack that mentality. South Korea is also helping in this area with their excellent electronics offerings, but there’s still a long road before the average Japanese consumer treats products equally regardless of brand.

      2. The 360 itself does not need to be successful financially to be a success for Microsoft. They have found that the Media Center PC has had a large number of configuration and driver issues which have made it difficult for them to get a pipeline into users’ living rooms in any kind of meaningful quantity. While a large number of Media Center PCs have been sold, only a small portion of them are connected to TVs. PCs have also never given Microsoft a good model for a “storefront” to sell additional content to users. Sure, the web itself can give a decent storefront, but the experience of buying, maintaining and playing content such as movies and music is hardly seamless as you see in a controlled system like the 360. More importantly, video content NEEDS to be delivered to the living room – even Apple has now released the $300 Apple TV – and the 360 allows them to do this.

      3. Digital Rights Management is a real pain on PCs. The 360, being a closed system with tight protection in place for commercial media sold to the user, finally addresses DRM in a way that is completely transparent for most users. They have a centralized profile management tool (Xbox Live) that users log into (usually immediately and automatically) when they turn on the system. This gives MS an account ID to tie content to, and the content is somewhere between highly improbable to and impossible to decrypt and distribute illegally – a big win for the movie and music property owners. Once Vista is opened to the Xbox Live Marketplace in June, users will also be able to buy and use purchased media on their PCs and eventually mobile devices, which will just continue to make the Microsoft DRM model a win-win for content providers and end-users. The only fly in the ointment for MS may be Sony Pictures and Sony BMG – if these two companies decide to go PS3-only there will be some popular content that will never be available on MS Marketplace. Still, MS will probably acquire or partner with someone who already has applicable rights to Sony content if this happens, and Sony has an even more difficult road ahead for securing 3rd party content in the movie and music markets since they are a direct competitor.

      4. IPTV changes everything, and whoever controls the set-top box stands to make a lot of money. IPTV will truly let “mom & pop” users buy things other than PPV movies on their TV. Think of watching theatrical movie previews and buying movie tickets and snacks from your TV, then going to the theater and it’s all ready to go (MovieTickets, Fandango, etc. but without the middle-man). Although certainly not the only unit capable of delivering IPTV, the 360 will make a very good IPTV set-top box with even a 20GB drive - although the upcoming 120GB drive is much more suited to the task – and again the closed nature of the box will make it easier to deploy and support (no strange Taiwanese hardware drivers to worry about crashing users’ systems because no such drivers can be installed in the first place, and no viruses either). Compared to a PC, the 360 looks to be a fine IPTV solution and won’t be “just” a set-top box like other manufacturers will offer.

      It all comes down to this: Microsoft needs to develop more revenue streams beyond Windows and Office. As Linux and Google have shown, it’s becoming possible to do business without Microsoft’s core product offerings. MS still controls a huge market share of end-users’ machines, but this may not always be the case and they’d be foolish to assume that they’ll be able to maintain such a monopoly. They have wisely decided to seed many other markets and transform short-term profits from Windows and Office into long-term profits in phones, entertainment hardware and media content. It’s risky, expensive and difficult, but if they succeed they will have secured many years of additional revenue. Look at what’s happening in the phone market now – after 5 years of poor market-share performance in Smartphone and Pocket PC Phone Edition, take a look at the Cingular phones available. Nearly all of their “Smart Phones” are Windows Mobile – only a few BlackBerries, one Palm and one Symbian compared to 9 Windows Mobile devices. This turn-around has only happened in the last year, so if Microsoft had given in to the pressure of nay-sayers in the first 4 years they would have wasted all of that investment. Instead they’ve now created an entirely new revenue stream that also opens up another player for users to play Microsoft DRM protected content. Sounds like a good strategy to me.       Apr 18 10:25 AM
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