Forbes: Xbox lost Microsoft $4 billion (and counting)
by Vladimir Cole 
{ Sep 26th 2005 at 9:15PM }
Forbes takes stock of Microsoft and asks what the behemoth is gonna do about some of its woes.
The biggest problem facing Microsoft is its size. At 60,000 employees and $40 billion in revenues, the company isn't as
nimble as it once was, and newer products are not yet earning the company much money. The Xbox division in particular
has lost Microsoft $4 billion in four years according to Forbes.
Forbes also says that the Xbox division isn't yet in the black, but we've seen evidence to the contrary. Well, one thing's for sure, the launch of the Xbox 360 is going to cost Microsoft dearly. If the Xbox division managed to eke out a profit in a previous quarter, it's certainly not in the black now, what with the cost of hiring fly booth babes and all.
Reader Comments (Page 1 of 1)
Mark @ Dec 18th 2005 9:07PM
They will probably lose twice that competing against the PS3 and the Revolution, but you gotta give 'em credit for trying.
billy @ Dec 18th 2005 9:07PM
Microsoft is a software company not a hardware company, I think they should stick to just making software.
PB @ Dec 18th 2005 9:07PM
Indeedy. I still don't understand how they expect regular people to afford such an expensive console. 360 = teh poopies
DArc @ Dec 18th 2005 9:07PM
Microsoft does too make good hardware, like mice and keyboards.
The1 @ Dec 18th 2005 9:07PM
This is not exactly, the MS Home division lost $4 Billion which includes the MSN and services like that. Also, MS gave over 20 billion to shareholders so they are not hurting that much. Sony made millions off the PS2 and they are still laying off 10000 people, you do the math.
OTAM @ Dec 18th 2005 9:07PM
Well,I have a 360 on preorder,that'll put some cash back into Microsoft's pockets.
I honestly hope Microsoft doesnt stop making consoles. To be honest,when the Xbox first came out I hated the thing with a passion,I wouldnt even touch an Xbox controller,I had money all saved up for a Gamecube and a copy of Metroid Prime.
All that changed when I stopped being an ignorant douche and played Amped on my friend's Xbox he got at launch. The games on it had me playing nonstop. I played Halo and Amped for about 4 hours straight one day at my friend's house. Once I saw the ability to put your own music on the harddrive and not needing any memory cards,I was sold.
I did though eventually buy my Gamecube with Metroid Prime the same Christmas I bought my Xbox. The excitement I had driving home holding my Xbox and Gamecube consoles with copies of Metroid Prime and Splinter Cell was off the chart. I saved up for those badboys and I was happy that Christmas.
Sadly,about the same time I got those,my SECOND ps2 died on me,so I pretty much didnt even need it with the Cube and Xbox.
Honestly though,hate MS or not,they deserve the credit for at least trying. I still remember thinking it was a sham that Sony put out a console when they were making stereos and such and now look where they are. I still wish Sony would drop out of making consoles and Sega would come back to putting out hardware.
*sigh* A man could wish.
Andrew @ Dec 18th 2005 9:07PM
Release dates.
I think this plays a big role in the cost of the hardware and the console for MS.
For example, MS should wait at least another year before releasing their console. This way, the hardware is far far cheaper for MS and they can release the console at a lower price.
The problem is, MS got off to a bad start. They hadn't advertised their original console all that much and the way people were talking about it on release, they were really skeptical. Let's just say this is because M$ has a few serious image problems.
There are many problems associated with the Xbox and MS's bad decision making. Sadly, I think this will be Microsoft's last stab at the market.
darryl @ Dec 18th 2005 9:07PM
"This is not exactly, the MS Home division lost $4 Billion which includes the MSN and services like that. Also, ... you do the math."
Actually, if you read the article, you would see that m$ lost 7 billion on MSN and xbox + services (home division) and out of that, 4 billion was just the xbox. Maybe you should be doing the math?
jason @ Dec 18th 2005 9:07PM
Sony has lost its ass in the home video, audio and computer market. THe only part of their company in the black is the PS part. Sony has alot more ridding on the next gen than Microsoft does. Lets hope they both do well. We need a good healthy comp in the video game market.
ROG27 @ Dec 18th 2005 9:07PM
Yeah, and he should also look into the Sony Layoffs a little closer...
All of the layoffs were in consumer electronics divisions, such as those responsible for stereos, CRT tvs, etc. Sony laid off 10,000 people in this area because they no longer have a competitive advantage in this area and it's no longer profitable for them. Their cash cow is now in the PlayStation brand, which has been banking like crazy for the past 10 years. Having 10,000 people extra when there is no need for them is just stupid from a business standpoint, especially when you plan on condensing the product line and focusing more on one area.
kuroshi @ Dec 18th 2005 9:07PM
4 billion or 7 billion is not alot of money for a company the size of MS. The problem MS has is that for any venture to matter to it's bottm line, it would have to be the size of the 3rd largest software company in the US. The xbox is the culmination of MS attempt to get onto the home TV. Much of the losses from the xbox came from the inability to cut cost. A problem they feel that they have solved with this generation. Nintendo lost record amounts of money on the gamecube but made it back on the handhelds for a breakeven. Sony is posting record losses. Forbes has overexaggerated the xbox situation and failed to recognize the potential of the video game market. It has passed the movie industry and show no real signs of slowing. MS shouldn't ignore this market. "I am willing to lose money on the Xbox for the forseable future". This is a quote from bill gates. As the worlds rchest person at over 50 billion I think he can afford a temporary setback of a measly 4. Maybe you should all do the math. In a money losing race my money would be on MS, then Sony, and unfortunatel nintendo last.
Rare Hare @ Dec 18th 2005 9:07PM
OTAM: "I still remember thinking it was a sham that Sony put out a console when they were making stereos and such and now look where they are. I still wish Sony would drop out of making consoles and Sega would come back to putting out hardware.
*sigh* A man could wish."
excuse me.. "making stereos and such"? apparently you know nothing about the history of sony..
do you enjoy your dvd player? well, sony created and produced its precursor, the vcr. like your portable music? guess who invented the walkman?..
i hate blind ideas about companies, based on the criticisms you've heard from other people who may or may not have any idea what they're talking about.
Nintendo Gal @ Dec 18th 2005 9:07PM
I love having Sony and Microsoft around. It keeps the competition levels up between the two and obviously somewhat towards Nintendo. Competition drives bigger and better things.
ill trooper @ Dec 18th 2005 9:07PM
And how does this affect us as gamers? Well it doesn't really. Maybe they won't keep pumping money into it next time, but they're doing it now and we have games and hardware coming.The machine comes out, it's good for about three years, yay, we have fun, we buy the next.
Otam, you are usually pretty on point, but acting like Sony should stop making consoles? Sounds crazy to me. PS1=great, PS2=great (yeah I know your's broke - mine launch model hasn't yet, (knock on wood) but that makes the entire platform wack?) and the PS3 is shaping up well... I mean, my first Xbox is dead in the water but I still bought a second one. I hate Microsoft but I still enjoy my Xbox - if you're mad at Sony for making Playstations while making stereos, that anger would logically carry over to Microsoft for making spreadsheet programs while they lose money on Xboxes...
OTAM @ Dec 18th 2005 9:07PM
Rare Hare,it's not that I thought they just made some stereo equipment every now and then and they just put out some random console. If that's how it came off,it wasnt my intention.I know (to a limit,I don't exactly work product development for the company) the products they put out.
ill trooper,I don't want Sony to just go crawl into a hole and die somewhere.It's just that this last console generation I had to buy 2 PS2s and neither work and there hasnt been really any exclusives out for the PS2 that I cared for,so the Xbox and Gamecube have been my choice this generation (except for Mario and Zelda.There that sentence is again,you love it people,don't lie).
So out of the 3 consoles,I could do without Sony,to make way for Sega making hardware again (and seeing what happened with the Dreamcast,it makes sense in a way).That's the only reason I mentioned Sony.
Plus,if Sega could re-create the experience they did with Phantasy Star Online on the Dreamcast,I would be on board in a second. That game took literally my entire summer a few years back. That game was like crack.
Google Nazi @ Dec 18th 2005 9:07PM
x360 will loose this console battle. It might not seem that way at first but look at it this way... The next generation (x360,rev,ps3) will last possibly 2 or 3 years more than normal next gen consoles and possibly even more than that. Therefor in a lifespan at about 7-8 years for next gen, it is most probable that people will own a revolution or ps3 than a xbox 360.
Pretty Obvious @ Dec 18th 2005 9:07PM
Microsoft could afford to lose out on the first Xbox, they have the money and from doing so they made a name for themselves and came in a solid second place. Not to shabby for a first console release.
Next-gen we are gonna see a takeover, Microsoft will have first place in this next console race with the PS3 being a pretty close second and as for Nintendo... Well, we really dont have to mention them anymore.
All the preorders for the 360's first shipment in the NYC area are sold out, Ive checked and im assed out. Second shipment is selling out quickly as well. Judging from that alone I dont think Microsoft is in any danger.
Joel @ Dec 18th 2005 9:07PM
OTAM wrote: "there hasnt been really any exclusives out for the PS2 that I cared for so the Xbox and Gamecube have been my choice this generation."
Boy I feel sorry for you. You didn't enjoy:
Katamari
Ico
Kingdom Hearts
God of War
Xenosaga I
Frequency
Amplitude
Rez
SSX
Suikoden III
Zone of Enders 2
Shadow Hearts Covenant
Dark Cloud 2
or any of:
The Devil May Cry Games
The Final Fantasy exclusives
The Time Crisis Games
The Jak and Dax games
The Sly games
The Rachet and Clank Games
The Ace Combat Games
The Silent Hill Games
The SOCOM games
The Onimusha games
The Twisted Metal Games
The Tekken Games
???
Those are just the PS2 exclusives I can think of off the top of my head. There are probably 20 more that I'm not thinking of right now. You didn't enjoy any of those? Are you sure you are a gamer? Do you actually PLAY video games?
I can think of quite a few Gamecube games and a handful of must-have XBox games, and I've only had those systems for two years and one year respectively. PS2 had five solid years of gaming. And its got a few tricks left with the Katamari sequel, another Ace Combat, the next Soul Calibur (exclusive, I think) and Shadow of the Colossus to name a few.
I think all the consoles this last gen did a good job. Sony probably did the best, but that's due in large part to their third-party relationships they brought with them from the PSX. Microsoft screwed up and yanked the plug on the XBox too fast, or it would have had killer games than it did. That's the only thing that irks me about the last gen...Microsoft's lack of commitment to giving the XBox a proper lifespan.
kuroshi @ Dec 18th 2005 9:07PM
WOW, the delusions just keep getting deeper. Sony didn't make the VCR. Sony actually made the failed Betamax. MS might not win the next gen war, but no reasonably unbiased person with any comprehesion of the industry or basic business principle would expect them to fall behind nintendo. I enjoyed your list of exclusves but the problem sony has is that most of those are not sony made games and the companies will not be exclusive in the next gen. A quote from square-enix "FF12 on the PS2 will be the last exclusive title from square". MS didn't pull the plug too early. they were caught in a race that by the time they joined it was already too late to catch up. The only way to catch up is to start the race over. Planning for the 360 started as early as 2002. They are all companies trying to make money from various market segments. Don't trade your dislike for MS for probability. All stats. point to a close battle between MS and sony with nintendo being a distant 3rd. However if nintendo plays it's cards right they may be a very profitable 3rd. and by not fighting for that top spot and choosing a different approach they may initially have some of the highest profits, but certinaly not a lead in unit.
Stephen @ Dec 18th 2005 9:07PM
I think MS has a chance to turn the tide to them in the long term if they look at the market globally. They have way more cash and resources. I think they are creating some healthy competition for Sony, which is a good thing.
I only have PS2 and Gamecube this generation. I got PS2 the second year it came out and got a Gamecube when the price drop quite a bit. Got PS2 because of the many third party exclusive it has (My first games were MGS2, ZOE and Dynasty Warrior 2). Gamecube because of the First party games (Mario Kart is just too fun to play with friends!).
XBOX is a great console from a hardware stand point, but to me the software is just not attractive enough for me to get it. I guess you can call me an Asian style gamer. The majority of my games collection are made by the Japanese/Asian developer. Their games just suit my taste more for some reason.
If 360 can get some excellent unique exclusive from Konami, Namco, Square, Gamearts...etc. I think MS has a pretty good chance to out run Sony in the long term. Maybe not the 360 generation, but MS can win the next one if they can get the Asia and Japan market.
That's just my 2 cents
S @ Dec 18th 2005 9:07PM
"Nintendo lost record amounts of money on the gamecube but made it back on the handhelds for a breakeven."
Um... wrong. While the company's overall profits were on decline due to a lack of Gamecube sales over the last quarters, the Gamecube itself was a profitable venture. There's a difference between losing money (i.e. Microsoft's Xbox) and not making a lot of money, but still making a profit. The decrease in Gamecube revenue was offset by the upswing in handheld sales. They may not have posted lower earnings than the year before, but it's not "breaking even".
Also, while some might think a $4 billion dollar loss is OK for a company with great cash reserves, they still need to answer to stock holders. Microsoft is a publicly traded company, and share holders cannot be too pleased with any losses.
OTAM @ Dec 18th 2005 9:07PM
Joel,since when did I say I didnt play any of the PS2 games?It was more in the later age of the PS2 that I quit using my console because there wasnt anything that jumped out at me that I needed to get immediately.
-Any multiplatform game I buy on the Xbox.
-I LOATHE rpgs and the only fighting games I care for is Dead or Alive,Soul Calibur,and Mortal Kombat Trilogy,so that knocks off a decent stack of PS2 games.
-I started to play Metal Gear Solid 2 and found myself watching a damned movie basically,so I didnt bother to finish it. I assumed the 3rd was the same so didnt bother with that either.I loved MGS on the PS1 though.
-I already own Kingdom Hearts and ICO.
-The Silent Hill series is my all time favorite games so the only one not on the Xbox was part 3 (which I obviously played,too short though IMO.)
-I bought Twisted Metal Black with my PS2 and hated it,it just didnt have the same feel that the other Twisted Metal games had.
-Rachet and Clank was always a game series I wanted to play (especially the 2nd),but can't exactly afford to buy em with owning an Xbox,Gamecube,and DS. I want the games,but there's others I want more,which means Rachet and Clank go on hold.
-SOCOM bores the shit out of me,the last squad based game I actually bought was Rainbow Six Rogue Spear like 5 years ago on the PC.
-Rented Devil May Cry,liked it,and finished it.The second and third never even popped into my head to buy.
-Played Jak and Daxter Part 2 on a day off I had and just didnt find it fun at all.I played as far as where you goto some fat guy and he gives you a gun to use in the game.
Gaming is very expensive,not eveyone can afford a $50 dollar game every week,which means I basically only get to play games I REALLY want or if someone else I know has them.It's $7.99 to rent a damned game at the Blockbuster here too so that's pretty much has found it's way out of the equation.
I have a list of about 32 games I have written down of Xbox games I want to still buy later.I enjoy games but just don't have the money to pump out for all of them. The last game I actually went to the store and bought for $50 was Dead to Rights II (I love 3rd person shooters like Max Payne,Dead to Rights,the Punisher,ect).
So it's not that I don't like the PS2's exclusives,it's just that there was games I wanted more on my Xbox or Gamecube that pretty much put the PS2 on the backburner until I basically forgot about it.
The good thing about the next generation of gaming is that all the games I want to buy will drop in price dramatically and I will finally get to play em.
fnord @ Dec 18th 2005 9:07PM
"Sony made millions off the PS2 and they are still laying off 10000 people, you do the math."
If I go by that flawed logic of yours it would mean that MS will lay off 90% of their workforce next week.
thies @ Dec 18th 2005 9:07PM
From articles which were published around the time the first xbox came out I recall that these losses were expected with their brute force approach of getting into this market. The expectation was that only the second generation, the 360, will break even. Real revenue was only being expected with the 3rd xbox generation. Seems as if they are on track so far.
Joel @ Dec 18th 2005 9:07PM
OTAM:
That's cool. I knew you couldn't be serious when you said that.
You've got to play God of War. Give Katamari a try, too. Rachet and Clank is great if you are a fan of absolute gun mayhem like me. You might wanna also give the Jak and Daxter stuff a try again. I liked it. It reminds me of a game you always knew Sega could make, but they never quite did.
Sounds like you did for the PS2 what I did with the Xbox. My XBox sat around too much over the last 16 mo. and I know I missed a lot of games. Now that Ninja Gaiden Black is out, that situation is being fixed.
OTAM @ Dec 18th 2005 9:07PM
I wanted to play God of War,it looks like an extremely good game. Katamari looks iffy though.It's not that i'm saying it looks stupid or anything,but it looks like it could get really boring by just rolling around picking up stuff if that's the object of the whole game. My girlfriend plans on buying Katamari so i'll most likely play it when she buys it.
I've wanted to play Rachet and Clank from when the first one was released,but I think I ended up buying Star Wars KOTOR instead. R&C 1 and 2 are 2 games I will play come hell or high water.
Jak and Daxter just didnt do it for me,I don't know what it was but it just seemed really odd paced and inconsistent with what you're supposed to be doing in the game. I've only played the 2nd one so i'll give the first one a shot once,maybe it'll be a little different.
metal_gear_jello @ Dec 18th 2005 9:07PM
There was an old saying. If you want Microsoft to lose money, just buy 2 Xboxes. The have totally mismanaged this generation. Even if they make a profit off the XBOX 360 they'd just be breaking even. Assuming they make that 4 billion dollars back. They will have to look towards next-next generation before the games division makes money.
MS needs killer franchises, literally, titles that make people want to buy an Xbox. Right now, nothing on that platform interests me one bit. Both on the xbox and 360. There's really no killer app for the xbox. Almost every fourth game is a FPS.
They need to diversify their titles. Provide something for everyone.
Sadly, the only time MS can get an exclusive is if it's made in house. Sony has the luxury of getting exclusives from third parties. That's what really sets apart the two platforms.
And final fantasy 13, supposedly, will be a PS3 game. There is no mention of it being on 360. I don't have the link but if i can find it i'll post it.
ROG27 @ Dec 18th 2005 9:07PM
thies said:
"From articles which were published around the time the first xbox came out I recall that these losses were expected with their brute force approach of getting into this market. The expectation was that only the second generation, the 360, will break even. Real revenue was only being expected with the 3rd xbox generation. Seems as if they are on track so far."
Wow...Sony entered brute force with PS1 and they made a profit almost immediately...
3 generations my ass. That is the most idiotic business logic I have every seen. What you really wanted to say is that it will take MS 3 generations to clean up or completely reinvent their shitty brand image. Everyone knows Microsoft has a tendency (and a track record to boot) to infiltrate markets with copycat products, pull some slick, yet unethical, moves cornering out all the competition, and basically force monopolizing with release of sub-par products based on the subscription/update model which has their customers constantly shelling out more cash to fix the shitty/unfinished product that they dished out originally. Bill Gates is an evil fuck as much as you think otherwise. Sure other companies are business-savy and want money, but MS is a little too extreme to the point where they will sink really low to basically eliminate competition by unfair means. It is my opinion that anyone who is worth billions of dollars has major greed issues. Yes, they should just give it away. I would. And no, they shouldn't wait until they die. He could give all of it away except a billion and live comfortably-ever-after.
That's why people hate Microsoft. They are sneaky, evil, and coniving...and they evade the law because of their money.
ROG27 @ Dec 18th 2005 9:07PM
Oh yeah, and if anyone is thinking of countering by adding that Bill Gates donnates more money to charity than anyone else, he does but there is a good reason for it.
He donnates not a penny more than what counts towards tax exemptions. So, basically he donnates instead of paying the majority of his taxes. That is F'd up, sneaky bullshit to try to clean up his image, not real charity.
Yet another example of why people hate the evil, uber-dork. He's like darth vader gone horribly wrong.
mike @ Dec 18th 2005 9:07PM
Microsoft is a software company not a hardware company, I think they should stick to just making software.
--
Uh, you dont get it.. people dont care about upgrading to new PCs because Word 98 is good enough.. MS knows the biggest thing on PCs is gaming, so they made a dedicated device... the problem is they havent illegally tapped into the WIndows monopoly.. just wait a few months.. youll see
recklessgemini @ Dec 18th 2005 9:07PM
kuroshi (17)
"FF12 on the PS2 will be the last exclusive title from square"?
Please provide us all with a link to that quote. Im most certain that FFXIII is a PS3 exclusive. Yea, theyre releasing FFXI on XBOX, but this is because it didnt do all that great on the PS2. When Sony released it new slim line version and completely removed HDD support. It was a slap to Squares face for FFXI, as bald man Allard criticized Sony by saying its terrible they re-released a new console version to make more money but leaving a loyal 3rd party company out of the loop. At least something like that.
Square-enix did say it would make some 360 exclusives. But Im thinking something like FF:CC for the gamecube. Depending on how well it does of course more to come. But I follow Square like my religion. If they ever decide to make more exclusives on the 360 then on the PS3.Im sold.
metal_gear_jello @ Dec 18th 2005 9:07PM
#29, FF13 is a PS3 exclusive. Game sites has it listed as a "Final Fantasy Title" but I remember reading that it would be the next iteration of Final Fantasy. I would guess that SE would be releasing online offerings that are inline with MS's philosophy. I think that's what they mean about their support.
1337Thespian @ Dec 18th 2005 9:07PM
It's fun listening to ravenous fanboys arguing about an article from a magazine that they otherwise wouldn't touch.
kuroshi: Yes, $4 billion IS a lot of money. Even for a company the size of Microsoft.
Shareholders do not like seeing their money being thrown into an (thus far) unprofitable venture. Even still, the Xbox is only a footnote in the article. Forbes is mainly concerened about Microsoft's hold on the internet market.
What Microsoft seems to be doing is emulating our friend John D. Rockefeller. He sold his product (oil) at a loss for so long, he sent every competetor into bankruptcy. Once gone, he immediately jacked up his oil prices to make up for that loss.
We all know that the Xbox was sold at a loss as well.
The problem here is that oil is a controlled substance; technology is not. The only way for Microsoft's gaming division to turn a profit is for them to win the console wars.
However, Microsoft has an uphill battle; it's up against two companies with far more experience. It can be done, though, they were able to defeat IBM.
The prospects for victory in this round are slim. I doubt Microsoft will become the forerunner of the video game industry or culture. It's only hope is to instead become more profitable.
The obvious question is how? Will the 360 do what needs to be done?
Michel @ Dec 18th 2005 9:07PM
but..
but..
Why does nobody ever mention Gran Turismo?
truf @ Dec 18th 2005 9:07PM
Its amazing, how blind people are. We think that more competition has made things better in the videogames industry cos that what happens in other industries well your wrong more competition has made things worse.
To those counting out nintendo i say dont speak to soon. Nintendo really has the best business plan (on paper) going into the next generation.
It also helps that brand doesnt count for much in the videogames industry. If it did microsoft wouldnt have been able to get a larger marketshare, Nintendo would still have the largests marketshare and sega would still be making consoles. Oh and PSP would have killed off the DS by now
Marko @ Dec 18th 2005 9:07PM
i say go and buy a Atari 2600 the best console ever made.