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Microsoft CEO Nadella sticks by Xbox, citing bigger opportunities
Microsoft CEO Nadella sticks by Xbox, citing bigger opportunities
July 22, 2014 | By Christian Nutt

July 22, 2014 | By Christian Nutt
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    12 comments
More: Console/PC, Smartphone/Tablet, Business/Marketing



Gamasutra listened in on Microsoft's investor call following its fourth quarter and full-year 2014 results for insight into its games business, and found that CEO Satya Nadella plans to continue to back Xbox because of the prominence of games in today's software ecosystem.

Though he was at the time mainly referring at the time to Microsoft's tablet and phone business, Nadella said, "we're not in hardware for hardware's sake." Later he also said, "We will invest in our core console gaming and Xbox Live with a view towards the broader PC and mobile opportunity."

Nadella has been up-front about his plans to stand by Xbox for months now, puzzling some analysts who see the segment as at-odds with the company's core competencies in productivity and operating system software and cloud services.

Why? One reason is that games are the biggest app segment on phones by revenue, a fact Nadella acknowledged when he said "gaming is the largest digital life category in a mobile-first, cloud-first world." Though he admitted, as he has in the past, the the game business does not align with Microsoft's new strategy of focusing on its core businesses, he reiterated Microsoft's commitment to it.

This info helped clarify why the company recently closed its Xbox Entertainment Studios and doubled-down on games; it's not just a bet to win over consumers who are either fleeing to Sony or taking a wait-and-see approach on Xbox One. It's an acknowledgement that games are now a huge part of the global software business, which is Microsoft's business.

More on the sales of Xbox hardware

However, the Xbox One is still stumbling. Echoing her statements from last quarter, during which she said the company would draw down existing inventories of its console hardware, CFO Amy Hood said the company is making "progress" on that inventory, meaning it's still shipping already-produced boxes into the retail channel.

"With the progress we are making on channel inventory, the new markets for Xbox One and our exciting game lineup we feel well positioned heading into the holiday season," Hood said.

The company made moderate gains in console shipments and revenues in its fiscal year 2014, which ended June 30, and during which the Xbox One launched.


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Comments


Ron Dippold
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It's the one genuinely cool leverageable thing they've got in the consumer marketplace, so it'd be silly to give up on that trojan horse - which is what he said, but in MBA-speak.

( Some who've followed the whole fiasco might snicker at the idea of XB1 being 'genuinely cool' but it's got a ton of consumer cachet left over from X360. Most people weren't paying attention to that kind of industry drama. )

Christian Nutt
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I still think Xbox is "cool for Microsoft" though, when you're talking regular people. Like, it's cooler than a 45 year old dad in ironed khakis, but it's still dorky as hell compared to, say, Apple.

He did say that MS' "revered brand and passionate fan base" with Xbox opens up opportunities, though, but I really do think the confidence in Xbox is more of a recognition of what a big slice of the pie games are in the app landscape. Then again that's maybe because I expect Nadella to be pragmatic and not romantic (or naive!)

Ron Dippold
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I think it's a very different market segment. Xbox isn't going to be cool with people who follow the industry, but I live in a military town - When they talk about playing Call of Duty it's 'Let's xbox'. And a lot of people do have iPhones but don't identify that much with the brand. One of my friends despises Apple, but has an iPhone because Galaxy S was too confusing - fair enough!

Halo is huge here. Enough so you think maybe it should be the HaloBox (which is kind of how MS is trying to angle it now). A lot of people I know bought the XB1 just because it's XBox 360+ for Call of Duty and it's got Halo (at some point).

So yeah, it's not Cool with people who keep up with cool, who sneer at skeumorphic now even though they loved it to death a few years ago, but at a consumer level 'XBox' still has some serious bank. These are people they might be able to cajole into buying a HaloPhone.

Christian Nutt
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But when you say 'people', like, isn't it just 'young men'?

Ron Dippold
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It's definitely all men, but it goes up to 40s. Mostly 20s and 30s for sure.

So it is very much a segment. But it's the only one they've got!

Bob Johnson
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I can see them getting rid of it eventually. It does leverage some of their core expertise. But I doubt it made money overall last gen. And the gen before it certainly lost billions.

And then this generation they have started behind Sony even in the US market.

I'm not sure how much goodwill it has left over. Obviously some, but also obviously many have no problem switching to the other formerly cheaper console since both are similar enough.

But the CEO isn't going to say today that he plans on dumping it. IT just launched. That would hurt sales I would think. I would think he would see the X1 out this generation before a decision like that would be made.

Christian Nutt
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It seems likely to me that (as of today, with limited info) the company intends to stay the course with the console and run it as a console business, aimed at core gamers, while it mulls over how to leverage the brand across its devices in the long run. And yeah, I would guess next gen that means "no console."

Sebastien Vakerics
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"...gaming is the largest digital life category in a mobile-first, cloud-first world."

Um...what? Digital life category?

Alan Barton
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@"puzzling some analysts who see the segment as at-odds with the company's core competencies in productivity and operating system software and cloud services"

Some middle aged business suits have long looked down on games and failed to get it. Just look at the epic failure of Commodore for a historical master class in failing to read the importance of consumer focused products being a gateway to business product recognition. The fools at Commodore at first actively tried to discourage games on their machines and never got their heads around the importance of games. Palm OS had exactly the same mindset. They treated games as an after thought that even looked out of place for them as they tried to look professional and "business like". Being business only focused isn't a safe bet and overlooks a massive consumer marketplace for the operating systems.

Christian Nutt
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It seems like a fair point but the situation isn't very analogous. Creating compelling games requires a lot more investment than it did in the Commodore days. Not to mention that we're discussing a company that has lost billions on its game hardware; Commodore produced computer hardware that could also be used for games, CD-32 aside.

Anyway, Nadella obviously understands this point based on what he said.

Alan Barton
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The A500 was very popular for gamers, (i've still got mine! :) ... Its just Commodore wanted to be the next IBM and so they wanted to be seen as a serious computer company, so they actively down played games even though that's what a lot of people wanted the Amiga for.

That's exactly how these analysts sound, when they talk about a focus on business computing.

But like you say, its good that Nadella can see value in supporting XBox.

Nathan Mates
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All companies are strongly in favor of their brands/products until it's time to swing the axe. For example, what do you think would happen to sales if MS said either "1) We're throwing in the towel on DD/MM/YYYY, no new games/support after DD/MM/YYYY" or "2) We're shopping things around to see if we can find a buyer for this brand, ask us in a month to see who used the Buy It Now button"? Sales would utterly crater if they said either, and investors would call for immediate firings of whomever said such a thing.

Tech companies have learned from the Osborne effect -- see http://en.wikipedia.org/wiki/Osborne_effect -- where consumers can make rational choices based on announcements.


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