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Discussion in 'Apple, Industry and Internet Discussion' started by IJ Reilly, Aug 31, 2006.
What I find poetic about this is unlike the popularity of the financial losers like the XBoxes, it is eerily apparent at this stage that the Zune will both be a financial and popular loser. And just might break the only other commercial music codec besides AAC.
What are they thinking?
EDIT: Spelling - how can I spell 'music' wrong?!?
Microsoft's new marketing strategy: lose money on every new product they sell, but make it up in volume.
I'm afraid the economic part of my brain doesn't understand how that might work.
How do you mean?
Sorry, it's just an old joke. I've never seen a company actually try to operate on this principle, but I think Microsoft is giving it a go.
BTW, I thought there'd be a lot more interest in this story.
The difference between MS and other companies is that MS has enough cash to do things like this, for now.
Didn't I read somewhere that M$ has been posting some really huge financial losses. I don't remember, it may have been just xbox, or stock value.
I think that you have discovered something that Microsoft already knows. People used to hate it. Increasingly, they just don't care.
MS posts strong profits. Windows and Office are cash cows.
From what I understand, MS loses money on each xbox unit that is sold. However, they expect to recoup the costs through licensing games and because production costs for the xbox units are expected to decrease over time.
Yes, this is how every console works, you don't make the money on the hardware, but the games. Almost every console is sold at a loss, atleast initially.
Microsoft is not turning a net profit on the Xbox from software either. Not many companies can afford to lose billions on a product in the hope that, some day, they will be able to turn a profit from it. Most companies have to show a profit from every product they sell fairly quickly, or they will be punished in the equity markets for making poor business decisions. Microsoft seems to be one of the few exceptions to this rule. The company's history of bad management doesn't seem to damage their reputation. In fact they now expect to get away with yet another big investment in a fruitless enterprise without anyone noticing.
-IJ Reilly, all, et. al.
It is my humble (and Scotch-induced drunk) observation that Microsoft has embarked upon introducing the XBox and XBos 360, and selling them at a loss to eventually outlast the competition in the console space, so that starvation of the competitors will occur. If that were to happen, then Microsoft would have the console space all to themselves, allowing them to increase prices to further result in actual profit.
A clever, yet Microsoft-typical strategy.
However, Sony and Nintendo have put up a stronger business defense in their own right and this has not yet come to pass.
And, at this point there is no reason to expect Microsoft to succeed here at this point.
This explains both their strategy, and why it has not yet proven to be successful.
Let us all hope that Sony - this branch of Sony - keeps fighting the good fight of competition. Oh, and Nintendo too.
To quote Fukui:
Windows is a 32-bit extension to a 16-bit graphical shell for an 8-bit operating system originally coded for a 4-bit microprocessor by a 2-bit company that can't stand 1-bit of competition.
Sure, they've got money in the bank (a veritable Fort Knox) so they believe they can outlast any competitor, no matter how long it takes. But in the meantime, they are still losing money, hand over fist, on projects like the Xbox, and next, Zune. No matter how you look at it, Microsoft appears to be amazingly inept when it comes to developing new products that actually make money. If it wasn't for the Windows and Office franchises, they'd be operating deeply in the red. They just don't seem to have the ability to make good, sound business decisions. Every day and in every way, Microsoft begins to look more and more like the General Motors of technology. And we all know what happened to them!
Contrary to popular belief, Microsoft can't afford to lose billions either. It is doing everything that it can to reverse its financial fortunes. Billions in the bank represent past successes. We will live in the future. Where would you rather invest your grandmother's retirement fund?
They can "afford" it only in the sense that they've got the money to burn, not just cash-on-hand but in the revenue stream supplied Windows and Office. It's not unusual for companies in secure financial positions to make long-term investments in products that will take time to pay off. What is unusual is for a company to have invested in so many doggy projects over the years, few if any of which have been financial winners. So long as they've got the active Windows and Office lifeline, Microsoft will continue to be profitable. But their ability to expand beyond this core has been a dreadful failure -- on every count, as nearly as I can tell. For a company with such immense financial resources, and theoretically a huge pool of talent, this is nothing short of remarkable.
You're too kind. I'd say a veritable country's economy
But you are absolutely correct, the Windows and Office cash cows are the only things that have ever kept the afloat. What I find interesting, is both of those ideas are from no later than the mid-80's.
If it weren't for these cows, I think they'd be lucky to still exist at all. In fact, the'd have probably disappeared around the time of Osborne Computer.
Ok I found what I was looking for. The losses I remembered were from xbox, in the billions. They are still profitable from Windows and office. But, their stock performance lately has not been good. It has been steadily losing value for the last few years, suggesting that their success from windows and office does not immunize them from concerns over poor marketing decisions. Links below.
And when you consider, Microsoft effectively blundered into the OS franchise, and then built the Office franchise by leveraging the OS, you have to wonder where they'd be today without both of them. No place good, I suspect. I always flinch reflexively whenever someone talks about the brilliance of Bill Gates and Microsoft. Where have they succeeded, outside of Windows and products they leveraged from Windows, I ask? The list of failures is long, with Zune apparently about to be added.
I just flinched myself.
Yes, the propensity of some pundits to declare Bill Gates a genius really gets me.
He's one of the best opportunists out there, but not a genius.
I think the 360 provides a superb experience. Microsoft have really put the effort into the whole experience of it and they are rightly commended for it. Yet its made an astronomical loss. So just how much praise can we heap on J Allard and co, who has been rewarded handsomely for his role in the 360. End of the day it hasnt made any money for the company, and if the goal is to win the living room long term its going to have to lose much much more before it even begins to turn the deficit around. We are talking about an installed base of 50-60m before they make begin to make meaningful returns.
So how do we guage Xbox and the 360? Is it really a success? Its difficult when the parameters for success at Microsoft are a million miles away from reality for every other company in existence.
This link better represents the point that you are trying to make. Microsoft's stock has not done well for a very long time. In the 1990's it skyrocketed, but it lambdaed in 1999. Since 1999, Microsoft's stock price has been in logarithmic decline. Even during Microsoft's best days, only three of its seven business units were profitable. Having achieved monopoly status in operating systems and office productivity software, it finds itself in search of new revenue growth.
Microsoft has done its best to cut nonrevenue-generating software such as the non-Windows versions of Windows Media Player and Internet Explorer. It has also sold its position in the MSNBC cable channel, though it maintains the MSNBC web portal. Microsoft is floundering around for new revenue sources. To date, the best that it done is the Xbox/Xbox 360, which will never earn a profit, and Zune, which has the potential to add $162.13 to Microsoft's bottomline.
Damn, and I thought I used big words...
Anyone see the new Zune photos at C/Net?
comes in 3 colors- white, black, and gasp... brown.
Nothing screams "cool" like brown plastic.
I almost fell over laughing so hard.
Well at least the M$ marketing folks are daring. Releasing a brown plastic MicroPod 48 hours after the coolest aluminum iPods ever conceived hit the market.
The name just isn't graspable or friendly, even.
"Hey is that a Zune?"
No ITMS, no iTunes, no dice. (Broken record).
And its not because I am a MS hater - I wanted something great, personally.
It's looks you said to your R & D dept. - "Here's this really cool Apple iPod, now what can you do to it to make it really ugly?"
Wait... is that a floppy drive slot on the bottom?
I don't know, maybe the brown one is just burned into my brain, but they all look so just 'slapped together'. If you were to make them more polished, they're looked more like a real iPod I guess. So you deliberately add some subtle differences, but by doing that, you totally lose the "cool-ness".
Even though I hate M$, I was really expecting something very different looking. They get an A+ for originality and daring for making brown a real color choice. Oh, be careful... don't accidently drop that one in the commode; you might have some trouble finding it. (ok, cheap shot I know... but it's brown!!! ugh!)