Hardware / Video Games Consoles

Ehrenberg dooms Xbox 360 but he's wrong

Forbes' Roger Ehrenberg thinks the Xbox 360 is doomed because it has cost a lot of money so far, and hasn't been a huge hit in Japan, but he's forgotten about the future.

If you believe Forbes' Roger Ehrenberg and his prognostications on the performance of Microsoft's powerful Xbox 360 console, you might just expect Microsoft to throw in the towel, bow down to the wisdom of the great Ehrenberg, and buy shares in Nintendo instead.

It's well worth reading Ehrenberg's article to get the full sense of what he's saying, but in short, he says it has cost Microsoft $21 billion US dollars to create the Xbox and the Xbox 360, that is has lost US $5.4 billion dollars, and hasn't been a success in Japan.

He even ends by cautioning Microsoft that they need to: "take a long, hard look at its gaming strategy--and, in fact, its entire H&E strategy. At what point, regardless of its virtually endless financial resources, does it say "enough is enough"?"

He then appeals to Microsoft's shareholders, telling them that maybe they’d have been better off with some of that money returned to them instead.

Well, excuse me for saying that Mr Ehrenberg is just a tad short sighted. Microsoft has well and truly admitted since day one that creating a games console empire and platform to rival that of Sony would never be cheap, and that it would take years to reach profitability.

Sure, Nintendo may have sold plenty of Wii consoles in the last four or so months, but Microsoft has still sold more Xbox 360's than Nintendo has sold Wii's or Sony of the PS3. NPD figures for March just released (and reported on in my previous story) show that Microsoft and the Xbox 360 are doing quite well against the Japanese onslaught from Nintendo and Sony.

Yes, Microsoft may well have had a year head start, which some are quick to dismiss, but it has brought forth games such as Gears of War, a 4 million copy seller, and a true 'next-gen' game that takes advantage of the power within the Xbox 360. Surely, Gears of War isn't the only next-gen game Microsoft and its gaming partners have up their sleeves – the best it undoubtedly yet to come, Halo 3 notwithstanding.

Look at the PS2, and of course, it's a different story. But we're talking next-generation games consoles here, the ones upon which the digital entertainment platform of the future is being built.

After all, the Xbox 360 is a true entertainment center. It plays the most popular type of movie disc today, the DVD. An HD DVD add-on is available, and Microsoft have even hinted that a Blu-ray add-on drive could easily be made available in the future if tha'’s the direction the market wished ultimately to go in.

It also plays next-generation games, quite a number of which are well recognized to be much better than what the PS3 is currently offering, although to be fair to the PS3, it too undoubtedly has a solid roster of 'Mark II' next-gen game titles coming over the course of the year that will truly start taking advantage of the PS3's inherent power.

The Xbox 360 can download movies and TV shows, with standard and high-def offerings available, at least in the US. It will also soon be an IPTV platform that can intelligently replace the not as intelligent 'set-top box' that subscription television companies use to send TV programming to your big screen TV.

The Xbox 360 can also act as a media center (or rather a media center extender), pulling content directly from a Windows XP or Windows Vista computer, with up to 5 Xbox 360's able to be connected to a single PC, each streaming different content – although if you wanted to use that many, I'm sure you'd want as powerful a PC as possible.

Of course, there's plenty more. If you want to know why else Enrenberg is plainly wrong about the Xbox 360, or you're a PS3 or Wii fanboi that thinks I'm wrong, read NEXT for the conclusion NOW.

The Xbox 360 also has the most advanced online gaming network currently available outside of a personal computer. The online experience is linked, letting players talk to each other through voice or text chat – no matter what game is being played. In contrast, the PS3's online service is much more closed – if you're playing one game, only players of the same game can contact you. A lot of the possibilities of rich online interaction are simply not yet available with the PS3, their as-yet unavailable Second Life clone 'Home' notwithstanding.

The Xbox 360's online service also offers a strong collection of gaming content to download, from Xbox Arcade titles, to game demos, movie trailers and more. The scope is there for Microsoft to offer even more should they so desire – and can there be any doubt that they are feverishly working on more online services for Xbox 360 owners to use and enjoy?

Let's remember the famous Microsoft axiom: it takes Microsoft three goes to get anything right. Windows 1.0 and 2.0 didn't hit the mark – it was Windows 3.0 that captured the imagination of computer users, boosted even further by Windows 3.1 and even more still by Windows 95 and its successors.

Windows and Office have built the Microsoft empire, and it was only after several versions that Microsoft essentially 'got it right', or at least 'good enough', and started earning billions of dollars in profit from sales to mostly happy consumers.

The Xbox 360 has broken that mould somewhat by being a version 2.0 product that has sold well in excess of 10.5 million units around the world, beating by Nintendo and Sony to double digit figures in the next-gen race by a long shot. Yes, they had a year long lead, but would anyone have purchased the Xbox 360 if it was no good?

That's the beauty of the free market. No-one has forced anyone to buy an Xbox 360. Consumers did it themselves, and the Xbox 360 continues to sell in strong numbers.

Let's not forget the long heritage of games that run on the Windows platform. I'm sure that has made a lot of money for Microsoft as well, and gave Microsoft a lot of good learnings to use in the construction of the Xbox and the Xbox 360. None of those learnings or profits are 'deducted' from the US $21 billion cost of Xbox development.

Microsoft, it must be remembered, is always in the game for the long run. There can be no doubt that Microsoft is working on the Xbox 360's successor to come. What’s the bet that it will make the PS3 seem like it came right out of 2006?

Microsoft's video download service is only available in the US, but Microsoft have already announced that they want to bring similar services to at least Australia (and undoubtedly elsewhere) by the end of the year. IPTV will be another revenue stream.

Hit titles like Gears of War, its sequels, Halo 3 and other as-yet unknown hit titles to come will push Microsoft into profitable territory. It has been reported that Microsoft is now making a profit on each Xbox 360 sold. The Xbox 360 Elite has generated massive attention and there are reports of big pre-orders.

I'm sure that Microsoft knows full well how much the Xbox and the Xbox 360 has cost them. But there is no doubt that Microsoft has a plan to make it all back, and more. So far, against Sony, their progress has been astounding, and as far as I'm concerned, Microsoft are well on track with the Xbox 360 experiment.

Microsoft shareholders, listen to Forbes' Roger Ehrenberg if you want. But if you want my advice, Microsoft and the Xbox 360 are doing just FINE, with the best still yet to come this year and next, as gaming enjoys a new golden age and outgrows the gaming roots to become the total entertainment platform we have been promised for years.

Microsoft undoubtedly has a massive challenge with the PS3 and the Nintendo Wii. But it's when Microsoft is under pressure that they truly perform above expectation. It won't be any different this time.

Source: ItWire
Author: Alex Zaharov-Reutt

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