CNN Money: Microsoft is a Dying Consumer Brand

Microsoft is rich enough to be able to pour billions of dollars and millions of engineer-hours into a project without seriously committing to it (Kin).

Throwing crap against a wall and hoping it sticks, even if you spend billions, isn't innovation, that's flailing.

Its both business and consumer sales. Around 90% of the market share.

The large amounts of apple machines in colleges is probably more an indication of students wanting to be fashionably correct, than it is microsofts brand being tarnished in the general population.

I've been thinking about that lately. Consider the companies that the article compares them to in the consumer market: Google, Facebook, and Apple.

Google and Facebook identify individuals, track personal details of their lives to a degree beyond what most individuals can imagine, and then generate revenue by using those personal details. Apple on the other hand, as a hardware company generates revenue through planned obsolescence (and Apple is moving more and more toward consumer data collection as a major source of revenue).

For each of them one might argue that there is a misalignment between the revenue model and important long term interests of consumer. The problem for consumer oriented companies is that the easiest source of increased profits is simply raising the price of your products (reduced operating expenses are bounded by zero, increasing market share in mature markets is expensive, and creating new markets is very high risk).

Conversely, to a large degree, Microsoft makes products and provide services which contribute to their business customer's bottom line. This puts them in an entirely different position in relation to the consumer market, because their sales increase as with the economic expansion of their customers (a unique advantage of B2B sales over consumer sales).

Unlike Chrome, Microsoft doesn't send every keystroke in the IE address bar back to a server to be analyzed with the intent of targeting their customer. When you register your copy of Office, you're not encouraged to list your children with their ages and to post pictures of them on the web. And you can load up your copy of Office 97 in a Win95 virtual machine on a new Windows 7 system. Their B2B revenue model requirement that Microsoft align its interests with the long term interests of its customers carries over to their consumer markets.

I see Microsoft in the unique position to differentiate itself as "the company which protects consumer privacy." The requirements are not all that difficult, some changes to Bing, a realignment of Internet Explorer toward user anonymity, and proper positioning of WinPhone7. What's more, all these are things which are in the interest of many of their B2B customers and none would have meaningful negative impact on Microsoft's bottom line.

The XBox line over the decade has cost them a fortune.

Until relatively recently when manufacturing costs dropped Microsoft were selling the hardware at a significant loss which means that you have to sell a certain number of games just to break even. This isn't an uncommon model for consoles (the Wii was an exception being profitable as a console from day one) but it was pretty extreme for Microsoft who were basically making an aggressive play for market share and damn the expense.

Up to 2005 the XBox gaming division (including hardware and games sales) had lost $4 billion (http://www.forbes.com/2005/09/12/microsoft-management-softwa...) on a total investment of over $20 billion and it continued to lose money up to 2009 including a cost of $1 billion for replacing bricked XBox360's in 2007 (http://www.engadget.com/2007/07/05/xbox-360-warranty-extende...). All in all I'd estimate up to 2009 total losses up to or even in excess of $6 billion.

In 2009 it finally posted it's first profit - $165 million, though it's probably worth noting that as a percentage of the $6 billion it had lost to that point this is basically nothing.

They have a total installed user base of 41 million consoles (360s) world wide. This puts it slightly ahead of the PS3 (38 million) - though it should be noted that the PS3 launched a year later and is currently selling faster - but way behind the Wii (79 million) and the PS2 (over 140 million). It's likely that by the start of 2011 once Christmas is out of the way they'll be last place in terms of installed user base - not a great reward for all that money spent.

(If these numbers don't feel representative of what you see it's worth noting that the XBox is far stronger in the US than in Europe and Japan).

On the positive side Kinnect is apparently priced so that it will be profitable from day one, they do have a decent installed user base for new games sales and live subscriptions, and console production costs are now a lot lower than they were which means that the next three or four years (the likely remaining life of the console) will all be profitable, however it would seem unlikely that they'll be able to bring the total investment to break even for the life of the XBox range.

Maybe we have different definitions but for me that's not only not a success, but it's not far off being a disaster, particularly given that this isn't a tale of a couple of years of growth at the expense of profit, but a decade long tale.

Since I no longer work there I can say that the insider "scoop" was that main reason it was killed wasn't because Microsoft didn't allow the team to make the right product it was because the carriers interfered too much. The price point was completely wrong for the device that actually came out, but Verizon mandated the price regardless of what the actual target was. By the time everybody had gotten together no one knew what the target market or feature set was.