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  (Source: AFP)
Consoles were a second option for Microsoft

Despite the success of the Xbox, that was not Microsoft Corp.'s (MSFT) first choice plan in the gaming space, according to an IGN interview with a former Microsoft executive.  Joachim Kempin, who was VP of Windows Sales at Microsoft for 20 years starting in 1983, says his former employer only decided to build the Xbox after a falling out with Japanese gaming giant Sony Corp. (TYO:6758).

I. Sony Console Worried Gates

The original Xbox and its successor, the Xbox 360, had their low points (red rings of death, for example), but have established themselves as a popular console gaming option, selling millions of units.  The gaming unit is perceived as one of Microsoft's strong performing businesses.

Perhaps predicting both the rise of the console and tablet as replacements/challengers to the traditional PC, Bill Gates reportedly in the 1990s sounded the alarm when Sony announced the original PlayStation.  Seeing Sony jump into the market, Microsoft became determined to beat its former partner, who was turning its back on PC gaming for a non-Microsoft alternative.

Describes Mr. Kempin:

The main reason was to stop Sony. You see, Sony and Microsoft…they never had a very friendly relationship, okay? And this wasn’t because Microsoft didn’t want that.

Sony was always very arm’s length with Microsoft. Yeah, they bought Windows for their PCs but when you really take a hard look at that, they were never Microsoft’s friend... but as soon as they came out with a video console, Microsoft just looked at that and said 'well, we have to beat them, so let’s do our own.

The original PlayStation launched in 1994.  Then in 2000 Sony introduced the PlayStation 2, which added PC-like media player functionality and broader support for online gaming on third-party servers.  A year later Microsoft countered with the Xbox.

II. Crafting a Console

The payoff of consoles -- by Sony's model, at least -- has traditionally been the licensing fees paid by game publishers.  The hardware itself is often sold at-cost, or even at a modest loss.  For that reason Microsoft had trouble convincing a PC maker to hop onboard the Xbox experiment.

Joachim Kempin
Joachim Kempin, a 20 year veteran of Microsoft is spilling the dirt on the history of the Xbox. 
[Image Source: Twitter]

Recalls Mr. Kempin, "I went out to several PC manufacturers and tried to beg them to do the Xbox thing and keep the device manufacturing out of Microsoft. The guys were smart enough not to bite, because they studied the Sony model and saw that Sony could not make money on that hardware model, ever. So they supplemented it with software royalties, and Microsoft copied that model."

As for Xbox profitability, he argues that developers have always been the winners; that Microsoft has managed to break-even, but not do much better than that.  He comments, "They’re just maybe a little bit above breakeven, that’s all there is. This is not a big money-making machine for Microsoft."

Xbox 360
A former Microsoft exec. claims the Xbox is not a big money-maker for the tech giant.
[Image Source: Gamasutra]

Microsoft is currently diving into a third-generation console, which is expected to launch this holiday season.  After trumping Sony in the last generation (dubbed by some as the "seventh-generation") of consoles, there are some trouble signs for the upcoming Xbox 720.  While the spec looks somewhat similar to Sony, Sony's hardware is reportedly slightly more powerful and considerably easier to develop for.

Microsoft also may alienate customers with its stance on used games; reportedly it is tying purchases to your Xbox Live account, as a means of stopping game resale (which it earns no cut from).  Sony, while a long time support of strict digital rights management, has not yet announced a similar anti-resale provision.

Source: IGN

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RE: Happy Tony
By Tony Swash on 2/7/2013 6:30:13 PM , Rating: 0
What's so astonishing is not just that Microsoft spent billions on the Xbox to gain so little and to fight for control of yesterday's technology (in five years consoles will be dead) but that they kept talking about tablets for close to a decade and were still caught with their pants down by the iPad.

RE: Happy Tony
By Pirks on 2/7/2013 6:40:20 PM , Rating: 1
(in five years consoles will be dead
This is pure bullshit because both Sony and MS disagree with you, and I think they know stuff better than you.

RE: Happy Tony
By Netscorer on 2/11/2013 2:29:25 PM , Rating: 2
I think there is a golden medium between your two opinions. In 5 years consoles would be dead from technology curve perspective. Mobile gaming platforms would reach the necessary power levels to provide the most immersible gaming experience. Online gaming where actual processing is done in the cloud and devices only need to provide streaming and user feedback would also become more widespread. Both of these trends will collide and kill the need for consoles. This does not mean that consoles can not enjoy at least another generation of successful ride. They will just be shifted into niches where they will be more popular in certain geographies and with certain consumers. Just like PS2 has enjoyed a strong sales years after PS3 and XBOX 360 were introduced.

RE: Happy Tony
By ritualm on 2/7/2013 9:17:22 PM , Rating: 2
Your favorite iPhones and iPads have absolutely ZERO tactile feedback. Secret of Mana on iOS pales in comparison with the button mashfest on the Super Nintendo version, and that's just for starters.

Your predictions are flat out wrong, and your man, Horace Deliu, loves talking out of his butt. You, then, are no more different than a politician, where the butt and the mouth are 100% interchangeable.

"If you look at the last five years, if you look at what major innovations have occurred in computing technology, every single one of them came from AMD. Not a single innovation came from Intel." -- AMD CEO Hector Ruiz in 2007

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