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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 Donkey2008 on 2/8/2013 2:48:18 AM , Rating: 2
If it were Apple they would make it stupid simple to use and bank a couple of billion dollars in profits.

Although I am confused about the reliability portion of your comment. Does Apple have a bad track record with reliability that the general public does not know about? I still have an Apple IIc in my closet that boots up and plays Bards Tale and Hard Hat Mack. My iPhone 3G still cranks out tunes when I am at work almost 5 years after I bought it. Did I miss something?

RE: Happy Tony
By menting on 2/8/2013 9:12:05 AM , Rating: 2
he means the brains of the people using it will suffer catastrophic failure.

As far as hardware goes, you're either very lucky, or most of the people I know around me that use Apple hardware are all very unlucky. All of them have had some sort of hardware failure on their iphones (3, 4, 4s) soon after the warranty was up, and a couple had problems with their macbooks. None of them have the iPad, so don't have any information on that.

RE: Happy Tony
By jabber on 2/10/2013 10:02:47 AM , Rating: 2

I have two friends I know that run Apple repair businesses and they are plenty busy. Plenty of failed Macbooks and tablets going out there. The issue is that they do fail just as much if not more than standard Windows kit.

Remember the cases may be bespoke but the guts are pure generic Foxconn quality. Just like all the rest.

However, the parts (with the Apple part no. tag on them) and disassembly are just far more costly and complicated. Spill a coffee over you Macbook and its a $1000 fix. In fact one of my friends said to me in about two years he'll have to shut down his business as Apple gear is becoming un-servicable. Basically if it fails outside of the years warranty it just gets thrown away.

Not very green is it?

"Well, there may be a reason why they call them 'Mac' trucks! Windows machines will not be trucks." -- Microsoft CEO Steve Ballmer

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