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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 6:43:06 PM , Rating: -1
Interesting that you mentioned Skype because one reason cited for the lack of carrier support for Windows 8 is Skype, for obvious reasons carriers don't want voice over IP, they hate it.

Microsoft seems to have spent a lot of money to do something that doesn't seem to make a lot of sense strategically. I am not saying that Skype is bad technology just that strategically, with Microsoft desperately needing every ounce of carrier goodwill to enable them to kick start Windows 8 phone as a viable phone platform, Skype seems to be mistake.


RE: Happy Tony
By Pirks on 2/7/2013 7:03:49 PM , Rating: 2
quote:
Microsoft desperately needing every ounce of carrier goodwill to enable them to kick start Windows 8 phone as a viable phone platform
Apple kickstarted iPhone without any carrier support or carrier promotion whatsoever, so why MS can't do the same?


RE: Happy Tony
By Tony Swash on 2/7/13, Rating: -1
RE: Happy Tony
By Pirks on 2/7/2013 8:57:59 PM , Rating: 2
Huge iPhone demand? Really? Then why they sold only 270,000 in the first quarter of its availability, huh? Are you just fantasizing about "huge demand" or what?

Skype is an actual disincentive to carriers, and FaceTime is not? How so? I can see through your double standard Tony :P Don't even try to push your BS on me man, won't work.


RE: Happy Tony
By SPOOFE on 2/8/2013 5:10:37 PM , Rating: 2
quote:
Then why they sold only 270,000 in the first quarter of its availability, huh?

Supply?


RE: Happy Tony
By tayb on 2/7/2013 7:27:27 PM , Rating: 2
quote:
Interesting that you mentioned Skype because one reason cited for the lack of carrier support for Windows 8 is Skype, for obvious reasons carriers don't want voice over IP, they hate it.


Carriers hated VOIP a few years ago but not anymore. Verizon and AT&T charge by the GB for data and throw in voice and texting for free. Their biggest moneymaker by far is data. With the new data plans offered by Verizon and AT&T they would probably actually prefer that you talk on Skype and buy more data.

The real reason Microsoft is having trouble getting carrier support from Verizon (AT&T isn't an issue) is because Microsoft is refusing to allow Verizon to pre-install spyware as they do on every Android phone.

Also, Skype is available as a free download on every available smartphone so I don't know what makes you believe bundling it with Windows Phone would make carriers angry.


“So far we have not seen a single Android device that does not infringe on our patents." -- Microsoft General Counsel Brad Smith














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