Elessar wrote:Knowing that Microsoft intends on blowing this kind of cash and can write it off as a mere investment... it feels eerily like the free market is failing to quash the inferior product and its parent company. Then again, my understanding of economics is poor, at best.
Is it normal for companies to plan ten years of losses to build up momentum? Or perhaps a better question is whether there are examples of another company (auto industry?) that has done the same and succeeded in breaking new ground. Something tells me GE might have done the same in the past.
That's a valid question, although in Microsoft's case $17 billion, while a big investment, isn't really that big of a risk over a 10 year period in an effort to gain a foothold. This is a company that is sitting on $50 billion in cash, they can afford these sorts of expenses, especially spread over 10 years.
As for how ethical this is, I really couldn't say. Certainly you need to spend money to make money and let's keep in mind that a lot of these losses are going towards building up the appropriate infrastructure to support the Xbox (game companies for example), although $17 billion does seem like a bit much.
For Microsoft the Xbox probably isn't so much about games as new horizions. The media functionality of the X360 may not mean much to a lot of people right now, but if you look at it through a crystal ball and take some of Microsoft's statements about this in context, it's pretty clear what they intend to do with this initiative. IPTV is the name of the game, and Microsoft could make a fortune being the end-to-end provider for television content. This sort of thing scares the everliving shit out of the cable and sat providers as it could blow a huge hole in their business, but the level of advertising and licensing revenue that Microsoft could potentially see would be enormous if this is done right.
Granted, IPTV is still a new concept, relatively unproven, and could be extremely cutthroat, but at this very moment the X360 would be a heck of a platform to launch such an initiative from. You have a device which not only could be the best DVR imagineable, but interfaces with your PC (Windows of course) and allows you to intelligently manage content. It's the sort of grand project that Apple wishes they had the money to spend on (Apple TV obviously WANTS to be this but can't) and it may sound crazy, but it could be the next big thing in digital entertainment.
Of course this is highly dependent on companies like Verizon laying fiber lines (good luck getting Comcast to go along with these plans...) which is something Microsoft has very little control over, but it's pretty much inevitable that we will soon have massive fat pipes in our homes. Combined with fast networking the X360 and its successors can become more than a mere media extender, it can become the centerpiece of entertainment content in your home, all with seamless integration with Windows based PCs.
This sounds like a nutty idea, but it's really just extremely high concept stuff and the more time goes on the more I think Microsoft could realize this idea. I remember when I was still working as a journalist in this business I had a conversation with Ed Fries over at Microsoft about this (he's essentially the father of the Xbox) and his feeling was that games was only a wedge to get Microsoft into the living room, and after a few generations they'd leverage their strengths to expand into a lot of areas you wouldn't expect a game console to go.
Normally I'd say that this sort of thing is a bad idea. After all, a games console is for playing games right? People don't want a device that plays games along with doing a bunch of other things on the side, it's simply too complex for them. But the more I play with my X360's extremely well done media center functionality, the more I think Microsoft is seriously on to something here.
Anyway, I didn't mean for this to be a rant, but I thought it might provide some enlightenment as to why Microsoft is willing to dump all this money into a games console. I don't think they ever hope to regain the money spent on this from games sales alone, but I think Microsoft is banking on the Xbox to eventually be what the WebTV couldn't: a must have consumer electronics device that goes beyond one specific application.
Also, for those of you'd that would argue that Microsoft is not the company to do this, I'd like to point something out. Microsoft is extremely good at making things when they are faced with stiff competition. Period. It's only when they rule the roost that they tend to grow complacent.
