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11/23/2013
10:06 AM
Michael Endler
Michael Endler
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Xbox One Key To 'One Microsoft'

Microsoft's Xbox One isn't just about taking over the living room. It's a proving ground for CEO Steve Ballmer's "One Microsoft" vision.

Microsoft sold more than 1 million Xbox Ones within 24 hours of the console's Friday launch. Sony's PlayStation 4 sold at about the same rate when it debuted the week before.

The launch is auspicious, if not necessarily extraordinary. It's been seven years since Microsoft released the Xbox 360, after all; with so much pent-up demand, an early rush of sales was inevitable.

Here's what's more important than day-one sales: whether the Xbox One's performance remains strong enough to affirm the consumer-oriented aspects of retiring CEO Steve Ballmer's "One Microsoft" strategy.

[ Is Microsoft's Surface 2 the right tablet for you? See Microsoft Surface 2: Hands-On Review. ]

A recent Bloomberg article spoke to this question, claiming that former Nokia CEO Stephen Elop, widely perceived as a frontrunner for Ballmer's job, would consider jettisoning Xbox and Bing if he is selected to lead. The article cited unnamed sources close to Elop, but even if he is less trigger happy than implied, Microsoft's consumer efforts face scrutiny from others as well.

Influential hedge fund ValueAct, which owns around a 1 percent stake in Microsoft, opposes Microsoft's decision to manufacture devices, for example, according to a July report in Reuters. Wall Street commentators such as Nomura analyst Rick Sherlund routinely say Microsoft would be stronger if the Xbox were spun off. Reuters also reported in October that several major shareholders feel Microsoft chairman Bill Gates is blocking the radical changes the company must make-- further indication of the contentiousness that surrounds Microsoft's future tactics.

Nonetheless, it's a foregone conclusion that Microsoft will continue to target at least some consumer markets; otherwise, it wouldn't have purchased Nokia's device business. But it's one thing for Microsoft to get serious about smartphones; they're the gateway to end users, and Microsoft's hand was somewhat forced because no one besides Nokia was wholeheartedly supporting Windows Phone 8 in the first place. It's something else for Microsoft to invest billions in Surface tablets, Bing and the Xbox -- the first two have lost more than they've earned, and the Xbox eats up resources that might be better spent on Windows, Office, Azure or other more profitable products.   

The Xbox One
The Xbox One

To be sure, the $499 Xbox One brings a lot to the table, perhaps enough to justify its $100 premium over the PlayStation 4. Its headline features include a next-generation Kinect sensor that can not only identify individual users, but also track a gamer's heartbeat during fitness games. It supports not only cable television, but also a number of video services, including Netflix and Hulu; can connect to the Web via Internet Explorer; and even supports multi-tasking for, say, watching a basketball game on one side of the screen while viewing an app with your fantasy league statistics in the other.

There's more. The Xbox One also obeys voice commands, has the cross-platform games you'd expect, and will boast a library of interactive titles once Microsoft finishes building them. Depending on your taste, you might also care about its exclusive games, such as Forza Motorsport 5 and Dead Rising 3.

Early reviews indicate the Xbox One doesn't get everything right, but as a grab at living room domination, it's as good as anything in the market -- which is to say, good enough to be intriguing, but not good enough to be an iPhone-level disruptive force. Research firm Gartner projects the video game market will be worth $111 billion by 2015, a 19% increase over this year, so if the Xbox One expands on the Xbox 360's reach, the spoils could be substantial.

If Microsoft's plan plays out, those spoils will extend outside the pure video game market, however. The Xbox hooks into Microsoft's cloud services such as Skype and SkyDrive, and its interface looks more like Windows 8's Start screen than ever. Under "One Microsoft," this synergy is designed to turn Xbox sales into subscriptions for Microsoft's cloud services, or, better yet, higher adoption of Windows 8 devices. If it works, Ballmer's interest in consumers could be vindicated. But if the Xbox One can't appeal to more than a core gaming audience, incensed investors will start circling.

Microsoft director John Thompson, who leads the CEO selection committee, has repeatedly stated that the company's next CEO will use the blueprint Ballmer has already established. But you wouldn't expect him to say anything else; otherwise, he'd be dooming products like the Surface Pro 2 and the Xbox One before they'd even had a chance.

 If the Xbox evolves into a dominant media hub, it will have to grow from a gamer base, but it's not yet clear if the majority of gamers will go with Microsoft or Sony.

Apple and Google already dominate gaming, and media consumption in general, on mobile devices. Both are also experimenting with ways to expand their grasp to televisions. Microsoft and Sony are essentially trying to infiltrate the living room from one end, if one other words, but even if Microsoft prevails, it might find a Siri-equipped iTV or some future iteration of Chromecast waiting for it on the other.

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Michael Endler
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Michael Endler,
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11/24/2013 | 1:54:11 AM
Re: Xbox
A good point. Game consoles are one hedge as they try to catch up in mobile, and as everyone waits to see if wearables will be as big as Forrester and other research firms (to say nothing of Google) think they'll be. None of this addresses the point of whether Microsoft should be pursuing consumers in the first place, but if they're going to do so, the Xbox One might be the way.
Michael Endler
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Michael Endler,
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11/24/2013 | 1:51:43 AM
Re: Apple
From what I can tell, it's pretty tough to make money with game consoles. In this market, everything comes from ecosystem revenue; I think Sony is still losing money on PlayStations, even after years in the market.

This business model isn't Apple's style. Apple loves to rake in ecosystem revenue, but the company has never used a product as a loss leader. Instead, Apple gets not only great ecosystem revenue, but also preposterous margins on all of its devices. It would be hard for them to preserve these margins while designing a console that could compete with the Xbox One or Playstation for hardcore gamers. Apple already makes a ton of money from mobile games, but I don't think they consider games the key to taking over the living room. Instead, I think Apple will bank on the interaction model between a future iTV and its user, first and foremost.

But what do others think? Does Apple or Google need to compete with an Xbox-style product? Is Microsoft going to redefine the living room, or just enjoy popularity among gamers?
Michael Endler
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Michael Endler,
User Rank: Author
11/24/2013 | 1:38:12 AM
Re: Oculus Rift type VR is the only way to disrupt MSFT and Sony
Graphics are important to gamers, no doubt, but my reference to Apple and Google wasn't a suggestion that either is (or should be) planning an Xbox-style console. Rather, my point was that Microsoft and Sony are doing something different than Apple and Google, and that even if Microsoft wins the gaming battle against Sony, it will still face interesting competition for the living room.

Microsoft is going for living room domination via hardcore gamers, first and foremost, and then extending from that base. The company is hoping this expansion can eventually collide with other bases--e.g. that Windows and Xbox reinforce one another, as I alluded in the article.  Apple and Google are trying to take over the living room through a different set of tactics. The iOS and Android/ Chrome ecosystems are components in these tactics, and so is mobile gaming. But whereas gaming is the primary conduit to the living room for Microsoft, it's less important to competitors, who are leveraging their ecosystems in different ways.

Take Apple. If/when Apple produces a TV, I see its UI and content model being the differentiators, not gaming. It will probably include app support of some kind, which should not only enable hooks to different iDevices and iServices, but allow facilitate support for certain types of games. It will have similariries to Microsoft's strategy, but it will be meaningfully different, and far less interested in hardcore gamers as a central audience. And from there, I see Apple expanding into Internet of Things-style applications, rather than traditional consoles. This includes wearable devices, some variant of iOS that runs in cars and other objects, more advanced motion-tracking and biometric applications, etc.

And there are other players too. Comcast isn't just supplying cable to televisions; it's also providing home security monitoring, making an early play IoT-style play on not just living rooms but the tech backbone of the entire house.

Right now, we think of apps as things we run on smartphones, but soon, they'll hook into devices that we wear, and objects that we interact with. Microsoft, Sony, Apple, Google, Comcast, Intel, Cisco, Qualcomm and many others are all vying for pieces of this future universe, and there are many different tactics at play. Some of these tactics are compatible, some aren't.
timrdsn
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timrdsn,
User Rank: Apprentice
11/23/2013 | 10:51:47 PM
Re: Apple
Apple's business model is to make lots of money on premium hardware, and to pursue innovative, high-growth sectors. The console market is extremely low margin hardware, and it has no growth prospect. It can't be very exciting; it's seven years since the last generation of consoles, and in all that time, Microsoft has sold only 80m xBoxes. Apple has sold twice as many iPads in half the time, and they make much more money.

Apple probably already makes more money on games than Microsoft, if you apportion a cetain share of iPad profit and look at app sales. 

This is why activist shareholders are calling on Microsoft to sell XBox. It's no-profit, no-growth and hasn't helped Microsoft with Bing or consumer market share. Apparently, though, it's cool. 

 
Joe Stanganelli
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Joe Stanganelli,
User Rank: Ninja
11/23/2013 | 10:48:11 PM
Re: AMD is the real winner in TV console wars
History suggests that the gaming market cannot carry the success of more than three competing consoles (and even that's a lot for the market).  I don't think gamers would stand for five or six consoles.

This isn't to say that other companies can't infiltrate the market and find success as Sony did, but -- as in the Old West -- this town isn't big enough for all of them.
Joe Stanganelli
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Joe Stanganelli,
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11/23/2013 | 10:42:25 PM
Xbox
Remember when iPhones first came out and were considered fancy toys?

Kinect has already made headway in the enterprise.  As gaming systems evolve into entire home entertainment systems, and as IoT continues to proliferate, the key to Microsoft redominating the tech industry could well be the XBox.

Indeed, with Apple and Google dominating mobile, Microsoft's better shot at domination seems less likely to be trying to huff and puff and catch up with mobile and more likely to be taking some other tack.
gatoloco
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gatoloco,
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11/23/2013 | 6:48:57 PM
This is a bougus report
Very Hard to belive Most Xbox Users are Mad at Microsoft for what they plan to do that eventualy they will enforce thier Capitalist ideas to create a Monopoly plus you got to be crazy to give them 500.00 dolars for a tv converter box is lame like they say TV TV TV     plus AMD CPU sucks the have a tendency to overheat
Alex Kane Rudansky
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Alex Kane Rudansky,
User Rank: Author
11/23/2013 | 4:39:33 PM
Apple
Why hasn't Apple released a comparable product to the Xbox or Play Station? It seems like a no brainer. 
anon0739723612
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anon0739723612,
User Rank: Apprentice
11/23/2013 | 2:06:22 PM
Oculus Rift type VR is the only way to disrupt MSFT and Sony
Mobile  games appear quite lame when compared to AAA video games.

 

Very few people would pay a few $ hundred to buy a console from Apple and Google, so they could play mobile games on their  flat screen TV.

 

The disruptive future force in AAA gaming is VR head sets.

 

The key to the MSFT and Sony consoles is  the AMD APU.

 

If Apple, Google, and Samsung want to compete with their own  "smart" TV boxes with powerful cameras, microphones attachments devices, like the MSFT Xbox One,  they will probably want to use a similar AMD APU chip.

 

The differentiating factor between  plugged in consoles/PCs and mobile device is GRAPHICS.

 

MSFT will focus on creating devices that can WOW people with powerful graphics.

 

Qualcomm is already focusing on improving the graphics of their mobile chips.

 

I do not think it is a coincidence that  AMD's  founding partners in the HSA foundation include mobile powerhouses Samsung, ARM, TI, and Qualcomm. 

 

 

 

 

 

 

 
anon0739723612
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anon0739723612,
User Rank: Apprentice
11/23/2013 | 1:34:00 PM
AMD is the real winner in TV console wars
 

 Apple, Google, Samsung, etc, will bring out  TV consoles to compete with MSFT.

Since ALL the games are already being optimized for MSFT and Sony  hardware, which is powered by an AMD APU,  it only makes sense that they would want to use AMD also.

 

The AMD APU is estimated to cost Sony and MSFT about $100.

To put this in perspective, the Intel equivalent chip is the Iris Pro, which is listed at a price of $650.

 

There is NO way that Intel can compete with AMD in graphics!

 

The company to keep an eye on is  AMD!

 

 

 

 

 
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