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Has Microsoft priced the Xbox One too high, at $499 (U.S.) – leaving room for Sony ? Did Microsoft overplay the One's media capabilities, alienating gamers? Will the One's integration of TV and internet be smooth? Why doesn't it include digital video recorder capabilities? And on and on.
That the latest Xbox is so controversial is something of a vindication of Microsoft's surprising decision, 12 years ago, to offer a game console. As a product, the Xbox is a monster. It has sold 75 million units and its subscription service (at $50 a year) has 46 million subscribers and is growing fast. Whether the Xbox has been a success within the context of Microsoft's larger business, or whether it has been good for Microsoft investors, is a different question, though.
During the past year, Microsoft's Entertainment and Devices division, which also houses the much smaller Windows phone and Surface tablet businesses, has generated more than $10-billion in revenues and $700-million in operating profit. It contributes 7 per cent of Microsoft's profits – small, but not insignificant. But take the longer view. Since fiscal 2003, when Microsoft began reporting profits by segments, E&D has $71-billion in revenues – but an operating loss of $2.6-billion. And this does not include the losses before 2003. It is hard to know what the return on investment from Xbox has been because of the other businesses rolled into E&D. But it has been a terrible return by Microsoft's standards.
Whether Xbox has been a mistake remains a complicated question, though. The crucial issue is whether Xbox keeps users loyal to the Windows ecosystem, in whatever permutations that system takes on in the future. Little wonder Microsoft is keen to position it as an multimedia device, linked to other computing devices. If the Xbox remains only a gaming device, it has been an unambiguous financial failure.
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