Is Microsoft in trouble?
fernstrategy.com
fernstrategy.com
I was with them until here. The Xbox 360 has claimed a gigantic share of the market starting from nothing just a few short years ago.
Compared to Nintendo, whose sales of the Wii have slowed to a relative crawl, and whose mobile gaming market is being relentlessly gutted by smartphones.
The Xbox is also enjoying an attach rate that is the envy of the industry (simplified: number of games bought per console), as well as being the only one able to get away with charging for online services. They're also about to launch a device that (having tried it myself) makes the Wii's #1 selling point an also-ran.
If anything, the Xbox is stronger than ever before, and one of the few examples of markets where MS is doing just about everything right.
I'm convinced that J Allard's departure was a gigantic blow to Microsoft; in fact, IMHO the secret to MS's success in the consumer products space lies in the Xbox team.
- All three consoles started from nothing just a few short years ago, and in fact the XBox 360 had a year head start on the PS3 and the Wii (launching at the end of 2005 versus end of 2006 for the PS3 and Wii.)
- According to VG Chartz, the Wii has sold 8.97 million consoles from Jan-Oct 2010, while the Xbox 360 has sold 6.8 million and the PS3 has sold 7.1 million. Yes, XBox 360 sales faired much better over the summer, but we will have to wait and see if this indicates a sustainable trend or a blip.
- Yes, Xbox 360 is doing well from the standpoint of attach rates, with an 8.9 versus around a 7ish for the Wii. It appears the PS3 has been gaining significant ground lately with its attach rate.
- In the fiscal year 2010, Microsoft's Entertainment and Devices Division (which includes the Xbox 360) generated $8.5 billion in revenues and just $679 million in operating income. Considering Microsoft's consolidated operating income in 2010 was $24 billion, this $679 million represents only about 3% of Microsoft's profits.
- Ultimately, the Xbox 360, the PS3, and the Wii may be irrelevant given the emergence of connected televisions, thin devices, and cloud-based gaming.
I have a Wii at home, and after the first month I got tired of it. I also cannot use it as a DVD player and it's just sitting there.
And I wish I would've bought an XBox or a PS3 because you can at least use it as a media station when you're tired of it.
This doesn't make sense. Why would they become irrelevant? I presume we're also talking about future generations of said consoles. Even if, by some magical miracle, computational needs of those consoles push onto the cloud (like Gaikai and OnLive), they'll still be a platform, and developers and publishers will still make games for them - and player will buy games for them because games are on those platforms.
True, but I firmly believe this trend will be further cemented by Kinect. The amount of marketing and public awareness of the product is incredible (and damn well better be given how much marketing force MS is applying), and having used it myself I firmly believe this will be a bigger hit than the Wii. Sales compared to the Wii will be tempered by the higher price point, but overall public opinion will go towards it - and IMHO that's going to cause a sizable drop in Wii sales.
> "In the fiscal year 2010, Microsoft's Entertainment and Devices Division (which includes the Xbox 360) generated $8.5 billion in revenues and just $679 million in operating income. Considering Microsoft's consolidated operating income in 2010 was $24 billion, this $679 million represents only about 3% of Microsoft's profits."
Agreed. It's unlikely (if not outright ridiculous) that the Xbox will ever be a primary revenue driver for MS to the same tune that Windows and Office are. Even if MS owned the entire console market it still wouldn't be the case.
My point though, was that as far as their consumer products go, the Xbox team is the only one demonstrating any appreciable success - building products that are not only well respected in-industry, but outright loved by their customers. That's a level of success, vision, and loyalty that MS has never shown anywhere else in the consumer space. They've also demonstrated a willingness to toss out things that don't work and start anew (see: the new Dashboard UI that replaced the Blade UI). Heck, they're the only MS product out there that shows any real focus on the user experience - Windows is a damned joke in that regard. The success of the Xbox holds a lot of key concepts that the rest of MS must adopt it it wants to survive in the consumer space (and that includes home computing /w Windows)
> "Ultimately, the Xbox 360, the PS3, and the Wii may be irrelevant given the emergence of connected televisions, thin devices, and cloud-based gaming."
Possible, but IMHO unlikely. Consumers are very price sensitive to commodity items, and TVs are just that. Current connected TVs offer an incredibly poor user experience (I have one), and I don't see it getting much better anytime soon.
Software is not a demonstrable strength of the likes of Samsung, Sony, etc, and the level of hardware required to give a proper user experience adds significant cost to the set - something that IMHO consumers will select against.
(W.r.t Azure) "I suspect it’s not performing well" and "Put simply, it’s hard to imagine that Microsoft is aggressively developing or marketing Azure, since cloud computing offerings directly threaten Microsoft’s revenues and profitability in the PC market, especially its Windows and Office products. "
From Ballmer mentioning "we're all in" in pretty much every speech he has done recently all the way to Azure being all over the financial analyst meeting [1][2], I sometimes think there's not a day that goes by when I don't hear about Azure in some way from MSFT :)
[1] http://kara.allthingsd.com/20100729/liveblogging-microsofts-... [2] http://www.eweek.com/c/a/Cloud-Computing/Microsoft-Pushes-Cl...
- Back in June, we announced 10K paying customers (6 months post launch)[1]. If you're looking for some 'big names', eBay, Dell, Fujitsu and HP are going to be using the Azure Appliance [2]. This is of course apart from internal teams like the Bing Twitter stuff. There's a neat Pivot visualization of case studies and partners here [3]
- Review - I'm not sure what you're looking for. Searching for 'Windows Azure review' brings up a lot of hits. I've written a book on it and so have others. There are tons of blogs dedicated to it (azurejournal.com for example). What exactly are you looking for?
My intent with this isn't to sound like some marketing droid.:)
[1] http://www.zdnet.com/blog/microsoft/microsoft-passes-the-100... [2] http://www.techflash.com/seattle/2010/07/microsoft_cloud_com... [3] http://www.microsoft.com/windowsazure/evidence/
http://blog.rescuetime.com/2010/06/17/google-is-eating-micro...
This article shows the number of Office online users in just the first 100 days after launch as 20 million, compared to 25 million for Google Apps.
http://seattletimes.nwsource.com/html/microsoftpri0/20130869...
http://www.betanews.com/joewilcox/article/Microsoft-Windows-...
They're smart enough not to invest billions into markets where they have no particular expertise, but make bets that play to their strengths, instead.
Apple in particular. It's easy to forget it wasn't long ago that the Mac was the lion's share of their revenue. iPod, iPhone, iPad have all added revenue and profits from day one.
The same can't be said for Microsoft's attempts to expand into new markets. Which is why Apple surpassed them in market cap, which still sounds ridiculous to me remembering what the situation in the 90s.
It feels like Microsoft is 1 winning product away from turning the tide, or 1 loosing product from sealing it's irrelevance. I can't help but think how this article would've been written if Windows Phone 7 turns out to be a huge success 2 years from now. It's easy to paint a gloomy picture.
The only trouble I see for Microsoft, is one where they are not seen as a leader. One where reactionary product after reactionary product renders them as a technology company seen by the outside world as chasing technology and not laying it's bricks.
a) XBOX usage destroys Wii in usage, games purchased, and subscription fees all of which are better indicators of the platform' success than hardware units sold which are traditionally a loss leader. And oh yah, XBOX is wildy profitable. Meanwhile Wii sales are down 45% since last September!
b) They are JUST launching their mobile platform which has gotten fair to begrundgingly good reviews and is opening in 30 markets supported by HTC, DELL, LG, AT&T, Verizon, etc. You can expect MSFT to be AT WORST the #3 player in an insanely huge and growing market.
c) BING just signed an innovative deal with Facebook, Google's copying features from them, and they're gaining traction while Google has been stagnant and slightly down year to date.
And that's ignoring that Windows 7 is on a tear, and a great product to boot.
2010 has been a huge year for MSFT, if they manage to keep executing at this level they are going to win a couple of these markets.
Microsoft plays loooonnnnng ball and they've got tens of billions in the bank, I certainly wouldn't say they're in trouble.
DATA:
http://www.crunchgear.com/2010/10/15/uh-oh-september-wii-sal...
http://www.gamespot.com/xbox360/action/halo3untitledodstgame...
http://www.engadget.com/2010/10/11/microsoft-announces-ten-w...
http://www.businessinsider.com/chart-of-the-day-total-cash-a...
http://siteanalytics.compete.com/bing.com/
http://www.comscore.com/Press_Events/Press_Releases/2010/10/...
http://www.comscore.com/Press_Events/Press_Releases/2010/6/c...
Xbox is wildly profitable? xbox (original + 360) has lost MS tens of billions of dollars in its history (not an exaggeration). The fact that its just now (the last 2 quarters, an no more) pulling in profits in the hundreds of millions means that they'll break even in 5-10 years.
If you gave me $10, and I gave you back $0.50, would you consider it a "wildly profitable" venture for yourself?
And in fact, they've made that sale 8,650,000,000 times so far (current outstanding shares).
http://www.dividend.com/dividend-stocks/technology/applicati...
EDIT -> You're ignoring that the division DOUBLED profits over the last year, what if they maintain that growth rate?
Or 1/4 of that growth rate?
Either way YES, that's a solid return on investment.
Having conceded that its trending positively, in this specific business, you're only as good as your last console. Nintendo is probably the only company that can lean heavily on its brand to get it through a poor hardware iteration (its brand and its so-far good-as-gold portable product).
The mere fact that both Sony and MS now sell hardware that imitates the Wii's functionality should tell you this isn't a poor hardware iteration.
That's a terrible argument structure. You might as well cut straight to "What if we just assume I'm right?" and be more honest about it.
http://www.joystiq.com/2010/04/23/xbox-division-posts-165-mi... says $165 million in profits on $1,670 million (1.67 billion) in revenue for the division. Saying "doubled their profits" sounds impressive, but it's not sustainable; say rather instead "increased their quarterly revenue by 5%" (or so, give or take a bit depending on the real numbers) for a better view of what that really represents. Still nothing to sneeze at (I'd take it), but not the same picture at all.
I believe that overall, Xbox will be profitable for Microsoft, it gives them a foot in the user's living room and could be used to stream content onto their TV. But wildly profitable ? Probably not. You've got to be Nintendo to do that : sell your hardware with a good margin from day one and sell millions of every Mario/Zelda game that you release.
Nintendo is king because they build the hardware, sell the software and have the vision thanks to Miyamoto. It's really the Apple of video games.
Essentially, for every 1% non-reoccurring market share (worth $150 million), MS is spending $500 million.
The problem is here, where he compares $2 bill for internet business, and then talks about a 4% increase in search.
"Over the past year, despite losing more than $2 billion in its Internet business, Microsoft has gained about 4 search share points."
Their internet business is far more than Bing.
I actually think MS is doing really well with it's online initiative. Windows Live software is actually really nice, their Windows Live website actually does a great job integrating a large number social networks. MS Office still sets the bar for office apps (and no, OOo still suffers from missing out on basic functionality). Visual Studio is light years ahead of the competition. Windows 7 is really, really slick. And Windows Phone 7 looks nice. It's not a clone, they seemed to actually push forward with their Metro interface style. On top of all of that, you have XBox.
When you combine all these efforts together, it's very ambitious. Just think, though, for a second, what will happen if they get all these pieces working together.
That being said, I'm hoping for something special the 20th from Apple. They have the hardware, now they just need to get the software right (MS has the software right, they just need the hardware to bring it all together). Apple has the mindshare, but MS has the numbers. Also, MS has put a lot of work into it's developer tools to make app development across all these platforms incredibly easy.
Anyways, what matters to me is that whatever happens, I benefit. I want a strong MS only because it means Apple is forced to innovate and not just rest on it's laurels (which, to be frank, it feels like it's been doing for some time now).
But yeah, it's getting really interesting out there. All sorts of fun. =)
XBox has been a money pit, but WAIT, they are start to eek back some of the billions in losses.
The Kin died on the vine, WinCE phones were blah, but WAIT, they have a new mobile strategy.
Various search and online presence initiatives got their numbers only by being embedded as the default home page on millions of new PC's, but WAIT, Bing is taking off.
Microsoft is a HUGE ship, and it's sinking slowly. It likely has decades left, but overall it's going down, not up.
a) In Microsoft's 2010 fiscal year (which has ended), its Entertainment and Devices Division (which includes the Xbox 360) generated $8.5 billion in revenues and just $679 million in operating income. Considering Microsoft's consolidated operating income in 2010 was $24 billion, this $679 million only accounts for about 3% of Microsoft's profits. And in any event the Xbox 360, the PS3, and the Wii may be irrelevant given the emergence of connected televisions, thin devices, and cloud-based gaming.
b) I am moderately pessimistic about Microsoft's prospects with its Windows Phone 7 OS. There are definitely some promising signs, such as WP7’s distinctive and innovative user interface and Microsoft’s extensive partnerships with smartphone OEMs, application developers, and carriers. But there are also some definite warning signs: WP7 isn’t market ready, and it’s already mid-October; Microsoft is making it difficult for developers to convert existing iOS and Android applications over to WP7; Microsoft’s brand is weak with consumers and the developer community, especially in the smartphone market; and WP7 comes with a price tag, while the competition is free, at least on a variable cost basis. There’s also the fundamental issue of competition, which includes several ambitious and innovative companies, especially Google and Apple, that have established platforms and abundant application markets. Here are some more thoughts on WP7: http://www.fernstrategy.com/2010/10/13/the-windows-phone-7-c....
c) Bing has made some inroads in search, but laregely at the expense of Yahoo. For the year, I don't believe Bing has gained at all on Google. There are powerful network effects and learning curves in search, and tremendous scale economies. It will be very difficult for Bing to grow its share in search, much less overtake Google, unless Bing releases a game changing protectable innovation, or Google makes some kind of fatal mistake.
a) "may be irrelevant given the emergence of connected televisions" - Don't dismiss the millions of gamers that will buy in next generation for MSFT exlusives like Halo which popped off $200m in sale in a day, bringing net total Halo copies to ~34m sold.
b) I argued for #3 which I think is in the bank with RIMM falling all over themselves. And the competition definitely isn't free, not even Android - http://www.businessinsider.com/android-costs - I believe we'll see a trend towards Win7 adoption from companies that aren't going for vertical integration.
c) I believe this is the point that holds the most water. But to continue my contrarian rant I'd say that I put some credit into the argument that MSFT is fighting this war explicitly to distract Google's attention from desktop / mobile / etc.
And what do you mean by 'Windows Phone 7 is not market ready, and it's already mid-October' ? They're launching in 2 days in Europe and in 3 weeks in the US.
Also, from your linked article you write that Verizon won't be bringing out a WP7 phone in 2010 or 2011. Source?
I'm not sure what the OP meant by that, but here are some guesses:
1. If your friend emails you his address and you want to see the Bing Map to the location, you have to find a pen and paper to write it down. Then you have to open the Maps application and manually type it in.
This is because there's no copy+paste.
2. The web browser is IE7 + bits of IE8. This means very slow JavaScript, no HTML5, and a MS-locked-in web experience.
3. App developers cannot use sockets to access the internet, so most cool apps will be near-impossible to develop.
>For example, if someone sends you an address in an email, the phone will pick that up and turn it into a link. Click on that and you are in Bing maps
Also, Copy paste in coming at the beginning of next year.
2. JavaScript is fast enough. See http://www.youtube.com/watch?v=zgvphQx9MY8 There's no HTML5 though but I fail to see how it creates a 'MS locked-in web experience'.
"Just launching"? It's the seventh iteration of the OS. It's in the name.
But I'm definitely wrong. List of versions:
* Pocket PC 2000
* Pocket PC 2002 (the first to work on a smartphone, based on CE3)
* Windows Mobile 2003
* Windows Mobile 2003 SE
* Windows Mobile 5
* Windows Mobile 6
* Windows Mobile 6.1
* Windows Mobile 6.5
People buy a Wii, play Wii sports and maybe another couple games for a few weeks, and then it collects dust. Xbox owners subscribe to Xbox live and buy new games quite frequently.
Total Wii games sold as of June 1, 2010: 573 million
Total Xbox 360 games sold as of December 2009: 353.8 million
Total PlayStation 3 games sold as of June 30, 2010: 315.3 million
So yes, the Wii is beating the crap out of the Xbox. Americans don't realize that the Xbox only does well in the US. Europe and Asia are a tough market for Microsoft.
Asia is a tough market for Xbox. Europe is just fine.
PS3 in Europe as of August 17, 2010 : 16 million
XBox 360 in EMEA (including UK) as of November 13, 2009 : 10 million
Sources : http://www.computerandvideogames.com/article.php?id=260424
Xbox users pay to subscribe to Xbox live. Microsoft makes money providing the same service that Sony and Nintendo give away for free, and more people use it.
I call B.S. The majority of XBox purchasers buy a bundle. Whether it is the Kung Fu Panda / Lego Indiana Jones (this my Bundle...my XBOX came with 2 games) or the Left 4 Dead 2 Bundle or the Halo: Reach Bundle.
Usually if you are buying an XBox console and NOT buying a game, you're buying a replacement XBox because of the Red Ring Of Death.
And everyone who trashes Wii games forget about games like Super Mario Galaxy. Games like that can give you three months of solid playing if you want 100% completion. And no worrying about having to rush/grind through the game before another comes out so the online play is empty.
Microsoft, like DEC with the mini to micro transition, is having a tad bit of trouble jumping from PCs driven by corporate sales to mobile devices driven by consumer sales. This is being mitigated by their experience with the XBox line in the consumer market. They make a lot of cash and probably will be one of the big cellphone / portable device operating systems. They also have a very large chest of patents to help with positioning.
They are threatened in the consumer space by the trend towards web applications, they're not threatened in the enterprise space by the trend towards subscription-based cloud services (which is overhyped - including by Microsoft! anyway, but that's another story) - they welcome it. I guess people are conflating the two.
(Since you posted a version of this article in another HN thread, I've reposted my response from that thread here.)
IMO, on contrary to the author, MS should stick to desktop/laptop Operating Systems. Desktop usage might have decreased but laptop is not going anywhere. There is so much market untapped in the world, I can't see the end of desktop OS.
I don't see not using my laptop fo at least a decade. And yes, I don't want to use iOS or Android on my laptop. I like the old school Linux, Windows or OSX.
Microsoft is not in trouble until they make products like Windows 7.
I thought Sharepoint and SQL Server were huge hits - no?
The issue is that in more consumer targeted areas MS is in trouble. But in the enterprise they're probably stronger now than in any time in recent memory.
Indeed. Tech historians will scratch their heads about that for generations. It's such a horrid product to use that one can only wonder how bad its competition is.
> If some bright YC company (...)
As soon as this founder visa thing gets sorted out, I'm in.
What problems did you experience with it? I may be able to help.
There are several key points in the growth (or lack thereof) of a company. There is the initial inflection point where the rate of growth is positive (the company begins growing at a faster than linear pace). There is the inflection point where the rate of growth becomes negative (the company may still be growing, but slower and slower). Then there is the point where the effects of that 2nd inflection point become readily apparent, the peak, when growth stops and then begins to reverse. Then there is the point where the company has shrunk to a shell of what it once was.
MS has passed that 2nd inflection point, but the peak and the fall are still ahead of them. With the amount of marketshare, locked in business, and cash-on-hand they have they'll be a long time falling but the writing is on the wall, unless something changes.
Despite setbacks (Vista) Microsoft held its own in terms of operating systems and office productivity software over the previous decade, but in the next decade I think it's going to be more than overtaken in these areas.
That being said, visit any college campus and most people are using Apples. The younger generations are growing up with the perception that Microsoft is for old people in suits and Apple is creative and classy.
It's been years, and they are just barely getting around to addressing the iPhone. They let Apple take off running with the iPad, and Microsoft still offers no comparable hardware or software... and it's not clear at all when they will.
2. IMO, they are making a long bet on C# and .Net that may pay of huge. C# in particular is a bit to programming languages what Apple is to computing devices: nothing really new, but really nicely packaged. Having said that, their focus on backwards compatibility doesn't help in keeping things nice. For example, .Net has how at least 3 XML serialization technologies, all with their own set of problems.
They have done well with their version of Java. It's generally well regarded.
Xerox has PARC, and AT&T had Bell Labs. Xerox is still in business, still making copiers, but where's AT&T? Bought by SBC, that's where.
Also, Bell Labs went to Lucent when AT&T split, not because of SBC.