Xbox: "do not touch"

Xbox is in the crosshairs The Redmond adventure in the world of video game consoles has cost them millions of dollars to the company and it has not yet become a money-printing machine like Office or Microsoft business services. More than one seems willing to cut their losses forgetting that the bet is in the long term.

The truth is that it is difficult to assess the results of Xbox from the outside. Microsoft does not separately detail the results of its console, which for much of its existence has shared a division with other products and services.Whether it was MSN in its early days, Zune later, Windows Phone and Skype recently, and now also Surface; Xbox has never been alone. With all these colleagues, it is difficult to distribute responsibilities in terms of financial results.

Since 2001, when Xbox came out, the balance of the different divisions that have been in charge of it continues to be negative, accumulating losses of more than 500 million dollars Although in recent years the numbers have been positive, there are those who consider that they have nothing to do with the successes of Xbox and associated services, quite the opposite.

Some analysts believe that growth is being achieved thanks to other income, such as Android patent licenses, which would be hiding the billions of dollars that the console costs the coffers of Android every year those of Redmond.Some CEO candidate even seems willing to get rid of it, in a move that more than one investor welcomes. The problem is that Microsoft's console has come a long way and giving in now might be a mistake

Nobody said it was easy

The video game console market is tricky terrain. Companies compete with hardware that has to last between 5 or 7 years, a life cycle that is an eternity for any other technological product. To better stand the test of time, the consoles are technical brutalities at the time of release, incorporating the best existing technology with the mind set on keeping the hardware competitive for many years to come. To prevent such technical waste from leading to exorbitant prices manufacturers heavily subsidize their consoles

Large investments, subsidized hardware and advertising wars mark the console market

"The problem is that price competition never ends and over the years the consoles have to receive successive discounts that carry with them the progressive reduction in manufacturing costs. This is how the world of consoles has been for years, and Sony and Microsoft continue to play that game, as much as Nintendo seems to opt for a plan b>"

To the subsidized hardware strategy are added the corresponding expenses in research and development that design each new generation entails Convert to your console in a good representation of the technological state of the art of the moment is not an easy task and involves investing large sums of money that have to be recovered during their life cycle.

The expenses don't end there. During this entire life cycle, companies also have to carry out intense campaigns and marketing Microsoft competes in a market with well-established names, true myths of the sector through those that are not difficult to beat in the collective imagination.Placing your name among them must necessarily cost billions in .

Microsoft knew what it was getting into

Microsoft knew all of the above when it entered the world of consoles. And he complied with all this to place Xbox as one of the consoles that any gamer expects to find in stores with the arrival of each new generation. It didn't come cheap. In the 12 years of the brand's life there is no doubt that those from Redmond have left a lot of money in the effort

With the first Xbox the company didn't even seem concerned about ever making money from the hardware. It was necessary to enter a market totally alien to them and gain a position in any way, beginning by assuming the release of the console well below the manufacturing cost. Although the figures were never officially confirmed, it seems accepted that, at the time of release, Microsoft was losing around $125 on each Xbox sold

That's a horrible margin that few companies would be able to sustain. Even more so when the losses would be extended for years, since the Redmond plan involved accepting that the console would not be profitable for at least the first 3 years. The worst thing is that the continuous price drops to stay in the fight only lengthened that time.

Xbox was a bit late for its generation. Playstation 2 and GameCube had already been on the market for months. In Redmond they knew this and that is probably why they willingly accepted that their first console would never turn out to be profitable. This explains how it is possible that until 2005 Microsoft's entertainment division accumulated losses worth 4 billion dollars without heads rolling everywhere.

The goal was to settle at all costs

The bet was on the long term and there came a second generation of Xbox.With the new Xbox 360 Microsoft arrived prepared for a new war and did so before anyone else. He had experience and the brand was already recognized worldwide. Even so, the console market was still equally demanding and it was time to repeat the strategy: large investment in the development of the console, heavily subsidized hardware and huge expenses in .

Ironically, for a long time, more consoles sold meant more losses for the company

The numbers are fuzzy again, but according to more than one analyst, at the time of release Microsoft could have lost more than $70 for every Xbox 360 soldand more than 125 if we took into account the complete pack with remote control and other accessories. In Redmond they were in the same situation again. More consoles sold led to more revenue but also more manufacturing and distribution costs.

This meant that, ironically, more sales meant more lossesSuccessive company financial reports reflected this tension, with Xbox earning higher revenue but at higher cost, making it difficult to get out of the red. At least that's how it would be while the console did not reach profitability, which it refused to reach due to the continuous price drops demanded by the competition. Sony wasn't going to budge and kept up the pulse with PlayStation 3, while Nintendo abandoned the raw power race and opted for a second way with Wii.

Hits that save the ballot and mistakes that are expensive

The console found an ally in the form of an online service. Xbox Live managed to catch on from the beginning among users and kept the type turned into the most successful online service among home consoles. To this we had to add other milestones in the software section, such as the Halo saga.

But despite these achievements, the company's entertainment division remained in the red for years.It was somewhat inevitable with the arrival of a new generation and the investment required initially, but there was another unexpected element that did not help at all and ended up becoming a stone in Xbox's path to profitability: three red lights

Xbox 360 came to market with a design flaw that prevented the console from dissipating heat properly. Over time many consoles would fail when trying to turn on and display three red lights between the leds on the front that surrounded the power button. The percentage of affected users was very high and Microsoft was forced to extend the warranty of the first Xbox 360 up to 3 years. Just because of the adjustment of the warranty program, with the consequent changes in inventory and return management, the prank cost more than a billion to company accounts

Fiscal year 2007 would reflect those numbers. During that fiscal year, the Entertainment and Devices division in which Xbox was integrated lost almost 2 billion dollars. Numbers that added to the losses of all the previous years, which also continued in the following fiscal year until the course began to change, or at least that is what it seems.

From 2009 the division began to paint some of its graphics green. Rising sales, lower costs and Xbox Live subscriptions managed to keep the group's numbers up until Kinect and with it some hope of higher profits. Following on from Nintendo's halo of success with the Wii and its controller, Microsoft brought to the world a device that would become an immediate bestseller for the company. The division reduced costs and increased revenue, exiting negative path for the first time in a long time.

But not everything has been rosy since then. Now it's Xbox Live that has stopped helping. Consoles are becoming more and more entertainment centers and not just gaming devices. Xbox was not going to be less and Microsoft turned Xbox Live into a video and music service on demand. This is not free and entails high costs in payments of rights and licenses to content providers. The service that at certain times kept the platform afloat now became a new source of expenses to take into account.

In return, the hardware seems to be paying back what was spent in previous years. During fiscal 2011 Xbox 360 peaked in sales, and with it the profits of Microsoft's entertainment division. The group has not yet recovered what was lost in past years, but the hardware seems to be very profitable for the company now.The problem is that it's been 8 years now, the time has come for a new generation and it's time to once again face the expenses associated with it.

Xbox One and the need not to give in

New generation, new expenses. History seems to be repeating itself just as Xbox 360 finds its way to profitability. But this time something may change. In Redmond they seem willing to go for another strategy with Xbox One and make the hardware profitable from the start According to Yusuf Mehdi, head of marketing and strategy for Xbox, the The company aims to make money early on from console sales, albeit at a very small margin, while continuing to add money from games, Xbox Live, and other associated services.

Surely it won't be that simple and a new console will cost Redmond millions again. Even so, and as difficult to understand as it may seem, it is likely that this is the way.There is no doubt that Microsoft has lost money with Xbox over the years, but it is not the only one. Sony has lost as much or more during the same period and it seems that Nintendo's cheap hardware strategy that was giving such good performance no longer works. The three manufacturers strive for more than just being a complement to our televisions

It took too long to get Xbox to where it is to consider giving up now

With other companies considering the assault on the room, Microsoft is one of the best positioned on a new battlefield. It has taken a lot to get to that position and giving it up now could be the wrong decision. The Redmonds would be next to our televisions long before their main rivals, what's the point of leaving now?

The company continues to be profitable despite Xbox's supposed losses, and with the division coming out of the abyss, thanks to one thing or another, it seems absurd to drop out of the race.The console may still have years of losses to make its position profitable, that may be too much for some impatient investors unable to wait for future opportunities, but maybe the biggest mistake is to stop tryingThe new CEO should know.