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Comment by freehunter | Hacker News Reader

Anyone remember Microsoft's last huge push into the hardware market, the Xbox? How would this headline have looked in 2001? If we remember, Microsoft took seven straight year-over-year billion dollar losses until the Microsoft gaming division finally posted a profit in 2008.

I don't mean to directly compare Windows RT with the Xbox, the point I'm making is that Microsoft is used to sustaining huge losses for long time periods until they finally capture the market they want.

http://www.pcworld.com/article/148982/xbox.html

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Two things about Xbox:

1. they actually had the time to let brute force work

2. it was well isolated from their main business - no matter how badly they failed each year, it did not, for example, take away office or windows sales.

But the tablet space is different. There are already enough iPads in workplaces now that people are re-thinking their dependence on MS office since they can't get anything with full compatibility. Android tablets are only just starting to impinge there but they will eventually as well. People are already talking about Android PCs too. The OEM partners are all shipping Win8 tablets but they are also shipping Android tablets and they have very little allegiance or dependence on MS in the tablet space. So MS has to anticipate they will not be able to charge high prices for Windows on cheap consumer laptops and tablets forever. Those days are over. The only way MS can be sure to maintain their margins is if they get a high margin hardware business going like Apple has.

So I would argue that Surface is a very key part of Microsoft's bid to stay relevant and it directly ties to their core business rather than being a parallel venture like Xbox was.

How exactly did they have time to let brute force work? You say that as if PlayStation/Nintendo were nobodies that MS could just casually let time sink in to turn a profit

The XBox was subsidized by the profits from Windows & Office.

Surface is an attempt to stop the losses to other tablets and smartphones. If they don't fix the problem, they won't have years of extra profits to wait for the Surface to gain a footing and shore things up.

Think about the difficulty of switching from a PS2 to an Xbox in 2001 versus switching from an iPad to a Surface in 2013. The garden walls are much higher today.

Microsoft could sit behind their Office/Windows/Exchange moat and lob millions of dollars of cruise missiles at them for a decade until they could get it figured out. A competitor who has nothing to lose and a huge source of profit is exceptionally dangerous. They could afford to lose money on Xbox until it worked because unlike the others, this was a hobby for them.

The difference: MS's competitors are not named Sony and Nintendo this time. Apple and Google move faster than MS; enjoy huge brand name recognition; have as much resource as MS does. One may only look at Google vs. Bing to see it. Windows Live Search was introduced in 2006, following by Bing. How much market share has it captured?

Another difference: the ecosystems of iOS and Android dwarf that of the games market, making playing catch up much harder (when will Nokia catch up to Samsung?)

Can MS become a viable tablet option? Absolutely. MS has limitless pocket. Will it be focused and nimble enough to do it? That's still an open question. Meanwhile, the competition doesn't stand still.

> Microsoft took seven straight year-over-year billion dollar losses until the Microsoft gaming division finally posted a profit in 2008.

This page suggest XBox still has accumulated losses of 3 billion:

http://www.neowin.net/news/report-microsofts-xbox-division-h...

But I agree with you. Because these are strategic decision with long term agendas, to know if they succeed or fail will take many years if not decades.

In this case, they didn't just branch out in to a new market. They took their flagship product (Windows) and redesigned it in to something that most would consider to be a massive failure.

They spent quite a bit on the Zune without getting much traction. Sure, they "pivoted" some of the experience into Windows Phone, but that product basically sunk to the bottom of the market.

I'd say that Microsoft didn't so much fail at the Zune as they realize that the PMP market wasn't a place where success could happen even after dropping billions per year. Zune became part of Xbox Live, Windows 8, and Windows Phone. Apple is the only major player in the PMP market for a reason, Android has barely even touched that space. Everyone I know who used a Zune loved the experience, although it was ridiculously easy to make fun of. The problem is, PMPs are a niche market, and upending the iPod will cost more than any profits there are to be had.

Don't forget the MS Kin: a half billion dollars in development, just 500 units sold.

But Microsoft was trying to enter a new market with the XBox, and the rest of the company was doing very well. It was an offensive move to prevent Sony or someone else from dominating gaming.

But the Surface is defensive. They made fun of the iPad as worthless but the truth is that it (and other tablets and smartphones) are eating away at what used to be a very secure customer base.

It is not an entirely foregone conclusion that the losses Microsoft incurred to break into an infamously cutthroat industry were a good idea from a business standpoint. To say nothing of whether 2013 Microsoft can afford to invest the kinds of sums it would take to break Apple and Google's hold on the market.

Is the Nexus 7 posting huge losses? I'm pretty sure it's profitable. Microsoft is doing something wrong. Years of unprofitability is not a prerequisite for profitability.

well you can't always be sure since many suspect that the Nexus 4 is a loss making device for LG (certainly before the redesign to fix the LCD yield issue).

Yea but the Xbox had user adoption. What does the Surface have?

What was user adoption like in year 1 of the XBox? I seem to remember that it really wasn't that hot, especially outside of the US (I remember it basically outright failing in Japan, but that's probably due to a combination of nationalism and a mismatch in the titles available to local tastes).

I think it did OK in the states. The real problem was that the PS2 ended up being so phenomenally successful that the XBox looked terrible in comparison. By the end of the console's lifecycle it was a respectable machine. It had good games and defined the online experience with XBL.

Not to mention taking an initial loss was standard industry practice in the console industry.

Every company I know of other than Microsoft who did that is either out of business or Sony. As far as I am aware, Nintendo has never taken a loss on hardware, or at least doesn't make a habit of it.

Nintendo has always been an exception, every other console maker did it. Even Nintendo changed their tune for a while, taking a loss after the 3DS price cut.

The XBox's 3-month figures were better than just about every other console on the market, including the PS2 & PS3[1]. Lifetime sales were lower, at about 24M, vs. the PS2's 155M. The 360 and PS3 are neck and neck overall, in the 70-80M range. And, as you said, both of the XBoxes failed in Japan, with 2M or fewer units sold.

[1] http://arstechnica.com/gaming/2013/02/wii-u-has-historically...

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