Xbox’s biggest threat: Microsoft itself

Recently, Microsoft released their K10 report [1] which detailed how well Microsoft has done over the last fiscal year. The report details how much the Xbox brand has lost this fiscal year which a lot of users, even I, were shocked by. A lot of these losses can be attributed to launching a new console and even the report discuss a large amount of cost being attributed to hiring of new staff. All in all the news isn’t disastrous but nor is it confident news. But this isn’t the most worrying news; there are large parts of the report that could be a major cause for concern for the Xbox brand’s future. Microsoft is failing to make significant gains in the manufacturing side of the business.

To understand this we must go back to when Ballmer was in charge as under Ballmer’s leadership Microsoft loss important ground to Apple and Google. There are many instances, such as the laughing at the iPhone [2]; the failings of Bing [3][4] and their failures in the mobile os scene [5][6], where Microsoft has spent a lot of money making very little ground. Ballmer, because of these failings, resigned his position as CEO of Microsoft [7] which led to a share increase of 8 per cent [8]. Though this all interesting, there was an important discussion that came out of Ballmer’s failures and resignation. It was Microsoft’s direction to concentrate on hardware instead of software which some believed was a mistake. The more cited of these people is Stephen Elop, the Microsoft head who left the company to go and run Nokia [9]; ran it into the ground [10]; then Microsoft scooped it up [11] (I know fishy but that is another discussion entirely) . He was reported to be considering selling off these, smaller, Microsoft business and instead focus on Office [12].

Lucky for some this never happened as Satya Nadella was appointed instead [13] and he even showed a commitment to the Xbox platform; though this commitment seemed more focused on mobile gaming [14]. But despite this reassurance the recent K10 report points out a worrying issue that could actually affect the Xbox platform. This Surface, Microsoft’s attempt at the tablet market, is the biggest issue for Microsoft. Beyond Devices [15] produced an interesting article based upon their filings of the K10 report. The article shows how the Surface is a constant loss for Microsoft (both annually and quarterly) [16]. So far they have lost about $1.7 billion on the Surface endeavour which isn’t a small loss because they are still struggling for a good market share (As of 2013 it was 2.1% [17]). The news isn’t exactly positive with its mobile market share which is around 2.5% [18].

But what has this go to do with the Xbox brand I hear you ask? Well the Xbox platform is at risk of being swallowed up by the losses of other products/division. In the grand scheme of things the Xbox division makes small ripples in Microsoft’s pool of money. Microsoft has been losing money in other hardware adventures that could end up taking a fall. The issue with that is that it means a new focus for Microsoft. In the public letter sent out by Nadella 177 out of over 3,100 were spent talking about the Xbox [19] and far more space was spent talking about these other divisions. In the grand scheme of things, it is an interesting position the Xbox is in. It is low on the totem pole but there are more important division doing a hell of a lot worse. If Microsoft decided to cut and run (it didn’t get to where it is now by losing large amounts of money) would the Xbox brand be allowed to be left standing all by itself (when the company has taken a major shift in direction to avoid the losses).

I conclude that these Xbox One numbers in the 10k report are not the real threat to the prosperity or the survival of the Xbox brand (so people shouldn’t be concerned). It is common to see losses early in a console's life (just look at the 360 [20]) but the survival of the brand is going to be down to how much Microsoft can afford to lose, and for how long before things turn around, on its other ventures . Without them Microsoft is solely a software company, and would need a radical new direction. It would be more out of place. With the Surface and other products Microsoft is a perfect home for the Xbox.

Sources:
[1] http://api.viglink.com/api/...
[2] https://www.youtube.com/wat...
[3] http://bgr.com/2012/09/12/m...
[4] http://theweek.com/article/...
[5] http://upload.wikimedia.org...
[6] http://www.theverge.com/201...
[7] http://www.forbes.com/sites...
[8] http://www.cnet.com/uk/news...
[9] http://www.extremetech.com/...
[10] http://www.extremetech.com/...
[11] http://www.extremetech.com/...
[12] http://www.bloomberg.com/ne...
[13] http://www.microsoft.com/en...
[14] http://www.eurogamer.net/ar...
[15] http://www.beyonddevic.es/2...
[16] http://www.beyonddevic.es/w...
[17] http://tabtimes.com/resourc...
[18] http://marketshare.hitslink...
[19] http://www.microsoft.com/en...
[20] http://www.dailytech.com/Xb...