Here's why Xbox's success in the consumer market doesn't matter

Here's why Xbox's success in the consumer market doesn't matter

Summary: Xbox is great, but just because Microsoft knows how to sell that doesn't mean they know how to sell smartphones to consumers... And can Nokia help?

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TOPICS: Microsoft
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Xbox One
Fancy an Xbox? It's a niche product in the context of smartphones.

I've always fancied having a computing industry law named after me. A good one, you know like Moore's Law, or Brook's Law. I'd even take an adage, like Hanlon's razor. (Easily my favourite razor.)

If I had a chance to create one, I'd like to create "MBR's Law" as being something like this:

Every discussion about Microsoft's inability to deliver in the consumer market will be met with the rebuttal, 'Yeah, but what about Xbox?'"

Of course, today we have to regard this in the context of Microsoft buying out Nokia's phone unit. Nokia do know how to sell to consumers, but let's look at Xbox first.

Toy

The Xbox is good. I've owned a few in my time and, when I've had the bandwidth to actually play with it, I've enjoyed it. It fits and suits the market well -- it's well executed.

As we know, it's a consumer device and it's trounced the competition. Sega is no more, Nintendo is floundering, and Sony's only chance with PlayStation 4 is if Microsoft fatally mucks up Xbox One.

Xbox is one of Microsoft's sixteen billion-dollar businesses, with $10 billion in revenues. It's not slow handclap time by any means.

It's no wonder that when I tweet comments like "Waiting for Microsoft to come up with a good consumer product is like waiting for IBM to come up with good sportswear", you immediately get back a response like, "Dude, have you forgotten the Xbox?"

No. I haven't forgotten the Xbox. It just doesn't count.

Neither does the fact that they make rather good webcams, mice, keyboards, etc. Yes, Microsoft so make consumer products, and some of them are very good.

Why none of this counts is that it totally ignores the terrifyingly vast scale that the computing industry is now operating at.

Volume

In the last financial year, Microsoft shipped 9.8 million Xbox 360 consoles. The year before that, they shipped 13 million. (Don't forget the impending Xbox One would likely have been pushing down performance over the last year.)

Apple sold 19.5 million iPads in the last quarter alone. That 9.8 million Xbox consoles is trounced entirely by 70-odd million iPad sales in that same year.

And the iPad is a high-end product. Look at smartphones and you get 723 million odd of those being sold (225 million). How does that sound against 9.8 million Xbox units?

For context, the last twelve months saw around 20 million Lumias sold. Worth remembering that from both perspectives -- just how tiny Windows Phone's success is, and just how irrelevent Xbox is.

What's happening to our industry right now is the biggest shift that we have seen since 1995 and the tipping-point that brought the internet to mainstream awareness. The shift before that was 1981 and the introduction of the PC.

The Xbox is just not a relevant product within that context, and by extension Microsoft's success at shifting those proves nothing.

Nokia

Today of course we have to regard all this from the perspective that Nokia is (effectively) no more, and that 32,000 Nokia employees will soon become Microsoft employees.

Nokia has always been able to sell to consumers. Yes, they sold to businesses -- back in the day they made some superb business workhorse phones, like the 6310i -- but they've always been there in Consumerland.

One has to assume that all the marketing skills that made Nokia able to sell to consumers is transferring over with those 32,000 staff. Those Nokia marketeers have their finger on the pulse much more than their Microsoft counterparts.

The danger of course is that Microsoft -- already in the middle of an extraordinary upheaval -- fails to learn the lessons that it can from those people within Nokia who do know how to sell to consumers.

Perhaps we can one day get to a point where when I say "Microsoft are hopeless at selling to consumers!" the response I get back will be "Dude, what about Lumia! It's the number one phone in the world!"

Perhaps.

What do you think? Post a comment, or talk to me on Twitter: @mbrit.

Topic: Microsoft

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42 comments
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  • Excellent article

    One of your best. Yes, Xbox is irrelevant. Most of Microsoft's other consumer business is too.
    RickyF
    • The article makes no sense.

      It's nothing more than an excuse to bash Microsoft.

      Seriously, he's comparing the sales of iPads and iPhones to a game console, three COMPLETELY different devices.

      One is a dedicated game player, another is a portable consumption device, and for goodness sake, the last is a phone.

      Pure volume can't be used as a comparison.

      - Most families only have one console to share and use. However, having multiple smartphones for several people is quite common.

      - People buy one console, and it'll last them years. People can buy one iPad and when a sufficient upgrade comes, they can buy another. Consoles don't have constant hardware refreshes.

      Even sadder is, he's bringing up the "irrelevancy" of the Lumia, despite the fact that it's only been 2 generations in, compared to the iPhone's 6 and the iPad's 4.

      Of course Apple will have a larger volume, they've had 6 years to sell their products.

      Does Baxter have a grudge against MS? Did the CEO touch his sister or something?
      ForeverCookie
      • It's the usual anti-MS trash talk

        It is always wonderful when haters give advice to MS. "MS you're a failure here, just give up! Let me find a weakness you have in an area, and declare that because you fall short in this area, you're a failure! You don't have as much apps for Windows Phones as the iPhone, so you're a failure. Oh what's that? The Mac has only a fraction of the apps and peripherals support as PCs, therefore it is a failure as well? Of course not! The Mac is different! What 's that, sales of Windows PCs dwarf sales of Macs, that means the Mac is a failure or is irrelevant? Of course not! The Mac is different!"

        You see this happening over and over. Find a weakness of MS and declare that its a failure because of it, and MS should pack in and go home. While the countless failures of Google, and the shortcomings of all other companies like Apple are ignored. Then there is the strategy of declaring immoral, one of more of MS' business models. E.g. "Why is MS charging money for its Windows OSs? It should be given away for free!" Why? "It is not right; money should only be made higher up the software stack!" Oh, I know, because that's how MS makes its money.

        It is the above and other rubbish why MS stock does not move. Writers and media outlets keep talking smack about MS, many, many times over than they talk garbage about other companies, which make investors pause at investing.
        P. Douglas
      • Agreed

        I agree that to compare a gaming console's profit generation with a smart phone's is off, but in comparing these companies, and the profit they are looking to make/increase, the Xbox division isn't going to generate that desired profit; therefore, it isn't as valuable as the smart phone division.

        I see the author's overall point there, but while the Xbox brand is doing great, it's not going to be the profit generator that the smart phone division can bring, but the article seems to claim that Microsoft is after that, which they never communicated that to begin with. Looking back 10 years and seeing where the Xbox brand was then and where it is now, Microsoft continues to make excellent progress.

        I'm not sure why so many are automatically relating the Xbox with the acquisition of Nokia. They are different divisions.
        backyardbread
        • He was talking about units, not revenue/profit.

          Notice he said, "Xbox is one of Microsoft's sixteen billion-dollar businesses, with $10 billion in revenues." How much does a smartphone unit generate revenue wise? Given that Microsoft only paid $7.17 billion for one, I would guess it won't generate too much more than $10 billion. Units shipped means nothing, profit is everything. I don't have any clue as to the real numbers, but Xbox seems plenty relevant to me.
          Patrick Aupperle
      • Cookie's Law

        Cookie hits this one, I think.

        The XB is a permanent fixture in the living room. The games you buy for it are sold for $40-$60. The add-ons are $10-$20. In the case of COD BlackOps II, there have been 4 add-ons at $15 apiece.

        Can you name the most expensive app you've purchased for your mobile pad/phone? How much did you pay for it? How much did you pay for the add-ons?

        The XB enables M$ to rent/sell movies and other content, right to the best screen in your house.

        It's not irrelevant at all. If M$ gets out of its own way with XB1, how many folks are excited about throwing down for a PS4? Anyone?
        m0o0o0o0o
      • I think that he is thinking about

        the cost of these devices (iPads/iPhones), the profit on each devise, (iPad/iPhones), and the volume of these devices sold (iPads/iPhones) against the same on Xboxes
        What they are doesn't matter.
        Transporter25
        • Also the

          turnover rate.
          Transporter25
    • The article is haywire nonsense.

      Where id all these bizarre conclusions come from???

      ZDNet writer should not, I repeat, SHOULD NOT be writing screwball articles like this that are based on purely fantastical conjecture by a writer who clearly dosnt have any kind of grip on the angle of the issue hes trying talk about. And that isn't because its a Microsoft based article; oh no sir. Nobody whos so uninformed about the nature of the topic hes trying too comment on should ever write such a nonsense article about ANY company, not on Apple, Intel, Facebook, Google, Microsoft or anyone.

      The whole point of this article is clearly that in Matt Baxter-Reynolds "opinion", just because Microsoft has been able to sell the X-Box very well, and some various other nit-bits of well made hardware here and there, it dosnt translate into Microsoft being able to potentially sell smartphones or tablets well. He then backs that premise up by simply asserting that the reason is the X-Box doesn't count.

      Sorry. It does count. The fact that fewer console gaming stations sell than cell phones is a question of scaling for comparison and has little to nothing to do with the question of "does being able to sell the X-Box well mean you have the potential to sell other devices well".

      The fact is, Matt Baxter-Reynolds clearly dosnt have a clue what hes talking about and has applied some non expert cockeyed way of thinking to come up with a skewed opinion. And as I said, this would be every tiny bit just as cockeyed if such nonsense was applied to any company this kind of way.

      Look, the X-Box and smartphones and tablets are not intrinsically linked. Selling one doesn't necessarily mean that it gives you some kind of instant winning ability to sell the other. But that's not what Matt Baxter-Reynolds is trying to point out. If it was it would have made for a painfully obvious pointlessly short article of about two lines. What hes trying to say is that the great sales of the X-Box simply doesn't count in any analysis of Microsoft's ability to sell hardware like a smartphone or tablet. The basis for him believing it doesn't count is ridiculously flawed.

      While its quite true, that there are almost always specific dynamics that are radically different from a market that lets say sells multiple millions of very cheap devices as compared lets say to a market that sells only thousands of "Big money" items and comparing the two markets can be a flawed concept because of the radically different issues in play, the differences between being able to sell a $499 X-Box and a $499 tablet or cell phones that do tend to sell in larger numbers is not so radically different that simply makes the X-Box "not count".

      There are certainly issues of scaling for proper understanding and comparison of the two markets, that along with some other issues I am sure, but those kinds of things can only be properly considered by an expert in market analysis which neither I or Matt Baxter-Reynolds, or probably next to nobody around this place are. So while there is nothing that I can see that says the two markets are intrinsically connected and therefore a direct comparison can be made, one thing that is also sure is that there is nothing there that simply and obviously says "The x-Box dosnt count".

      The thing that really makes the two markets so different is nothing linked so directly to the sheer number of units sold in each market in so much as when the associated competitors became involved in the market and what advantages they gained in market saturation and exposure over late comers like the WP8 is in the smartphone race for example. That in a nutshell is very likely the single most massive road block that Microsoft has to over come in the tablet and smartphone market that wasn't nearly such a problem in the console gaming market.

      And ffor those wise guys who think this is all just fine for Matt Baxter-Reynolds to be writing misinformd articles like this about a Microsoft product and are wiling to back him up on this kind of non expert opinion where only an experts opinion would be reasonable lets not forget that its only this time, with this particular writer that's about Microsoft, next time its going to be another writer drolling on about Apple or Google and then you will be screaming about what an uneducated supposition the writer is giving. Nobody should stand for nonsense writing like this about any product.

      This isn't a website about market analysis and if ZDNet wants someone to write about marketing related issues they should hire an absolute expert in the field to do a full and proper analysis to see why Microsoft has such an uphill battle in the tablet and smartphone market, not just let Matt Baxter-Reynolds waste a whole column on his personal musings that when trying to figure out if Microsoft can "sell" hardware that its no use considering the X-Box because it simply dosnt count".

      What a waste.
      Cayble
  • Just quit, please

    You are comparing an immobile video game console with entertainment capabilities to an ultraportable computing device. I guess PCs aren't office equipment either because pen and pencil sales (by unit) dwarf them. Heck...more sheets of paper are sold than tech devices...oh no!
    ikissfutebol
  • Key

    You're dead right here. Microsoft has to recognize that they have failed miserably to market to consumers with Surface and Windows Phone. Windows Phone is where it is today because of what Nokia has done developing great devices and marketing them intelligently. With Ballmer on his way out, maybe intelligent decisions will be made about the marketing side: Leave Nokia's marketing team in place and in fact move all of Microsoft's pathetic consumer marketing team under Nokia's.
    FDanconia
  • XBox's relevance in the conversation

    isn't that it's a directly comparable product to mobile products. The relevance to the conversation is that you do not count Microsoft out when it wants to enter a new product line. They have the resources and the tenacity to stick out the hard times and the ability to learn from their mistakes and improve their product. They may change strategies along the way or abandon certain marketing themes when they get stuck in people's heads in a negative connotation (e.g. Zune) but they stick with the thrust of trying to learn the market and what direction it is going in and improving their product and marketing until they finally get it right.
    Michael Kelly
    • Has Microsoft realized a net profit on Xbox yet?

      I know they bled a tremendous amount of red ink on it for years.
      baggins_z
      • I don't think so

        But there is little doubt that if they haven't yet, they will. But that highlights the point I was trying to make, they have the resources and tenacity to stick out the bad times until they reach their goal.
        Michael Kelly
      • Yes

        Has YouTube?
        Tim Acheson
      • Very likely, MS has made a fortune from XBoxes, because...

        sales of the boxes is not the total picture, and games and online gaming are also icing on the cake, and when the total picture is examined, there has been a lot of profits from the XBox ecosystem.

        MS might have taken losses in the first few years, but, the losses was mostly on the boxes, and not with the games and online gaming site. There are no losses with the 360 consoles, and, after the initial losses, everything that is related to the 360, including games and online sites, are more profits to MS. Dwelling on the starting history of the XBox would yield losses, but, MS and the XBox have moved on and become a giant success. And, with XBox One, it will just get a log bigger. BTW, where is Apple's game console? And, no, the iPad or the iPhone are not gaming systems, although they're basically toys.
        adornoe@...
  • Xbox is not so successful

    Sony is selling more units worldwide, and Nintendo was never a real strong player, they just have done the right thing with the wii.
    Overall profits are non existence or negative for consoles, from a business point of view they are kind of irrelevant.
    They become more irrelevant when we assist a shift in gaming type, market for traditional consoles is getting smaller - all of them failed to make consoles the center part of living room entertainment - a huge failure from Sony, Microsoft and Nintendo.

    While history tell us that Microsoft has failed a few times, I don't think that is a reason to predict that current or future MS services/devices will fail also, each one must be seen individually.

    If the rumored price of the new xbox is real, it will be very tough for them, consoles from Sony used to have the premium price, while xboxs were priced in a lower way. Sony consoles have enjoyed better longevity by making them more powerful from the start, but with a (arguable) dying market i doubt that makes sense anymore.
    AleMartin
    • Sony and the real story

      In the US, xbox is the number one selling console for I don't know how many months now, and in the US is where people spend more money in video games (second place is not even close).

      Sony can be number one in Denmark and Poland..who cares?
      josephvba@...
      • So the US is the country that matters?!

        Ok, I rest my case :)
        AleMartin
        • How someone saying the US is all that matters

          ... gets 4 votes, while I get flags? :-)
          People are strange...

          It's not even very accurate and it's kind impolite for Denmark and others.
          AleMartin