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Analyst: Xbox 360 'Clearly On The  Downside Of Its Lifecycle'
Analyst: Xbox 360 'Clearly On The Downside Of Its Lifecycle'
June 30, 2010 | By Kris Graft

June 30, 2010 | By Kris Graft
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    26 comments
More: Console/PC



Microsoft's Xbox 360 remains a strong player in the current console generation with strong third-party support, over 40 million units sold, a new recently-launched hardware revision and lots of buzz around the Kinect body- and voice-recognizing peripheral.

But despite its efforts to move beyond its core gamer demographic, Microsoft will struggle to make its console relevant to the mass market, as the Xbox 360 moves into its fifth year, according to one analyst.

"In terms of changing the overall video game hardware platform market share we see [Kinect] having a negligible impact," explained DFC Intelligence in a monthly brief. "The Xbox 360 has some good years left, but the platform is clearly on the downside of its lifecycle."

DFC brought up a number of hurdles that Microsoft faces going forward with the Kinect, from a "lack of complex control options" (not a big issue for the target casual audience, DFC noted) to the broader theory that Microsoft, with its roots in business software, is not well-equipped to take the Xbox 360 business to the mass market level.

DFC said that Microsoft's strategy appears to be to take the most popular, commercially-proven casual-friendly genres -- virtual pets, dancing games, fitness games -- and put them on Kinect.

"There are numerous problems with this approach, but the biggest problem is Microsoft, at its core, is simply not an entertainment company," DFC said. "Almost every time Microsoft has tried to emulate successful entertainment products they have failed. ... [with the exception of] PC gaming prior to the Xbox and then the Xbox platform itself."

DFC noted how the Zune failed to overtake the iPod in the media player category and the purchase of formerly Nintendo-exclusive Rare failed to bring the wider Nintendo demographic to Xbox 360. Rare's Viva Pinata, despite a TV and merchandising deal, didn't gain traction as a successful property.

"In its business software, Microsoft has been successful in analyzing what works for users of other products and incrementally incorporating those features into Microsoft products," DFC said. "The problem is developing hit entertainment products simply does not follow that model."

"...Microsoft is putting almost all its eggs into the Kinect as a way to appeal to the 'casual' consumer and expand its user base," explained DFC. "... Unfortunately, based on what we have seen, DFC continues to feel that Microsoft is going to struggle to expand beyond its core audience."

DFC also said that while Xbox 360 and Wii will continue a downward sales trend in the years ahead, PlayStation 3 will see a "pickup in sales" this year and in 2011. Despite an expected year-on-year sales decline, DFC expects Wii to still have the highest overall sales.

The hurdle for Nintendo, Sony and Microsoft at this point in the lifecycle is how to push through console mid-life, and make up for the costs incurred from massive amounts of investment in their respective platforms.

"Products like Kinect and PlayStation Move are an attempt to get around this dilemma. Unfortunately, we think they are at best a temporary attempt to tackle a much larger strategic issue," DFC said.


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Comments


Jay Lee
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DFC who would have guessed it. Same old crap different day. They've been saying these same kind things with all the wacky charts to go with it since the start of this generation, and when have they been right. Haha, have a long way to go before anyone puts any stock in these predictions. Especially so considering the 360 just came off the best first quarter per NPD after five years in. Now they got the new model plus a very good looking holiday season ahead so no I donít think so yet anyways. And for once you guys have been saying they cannot expand beyond their core audience for years. 10 million and now look itís 40 million. But then again these are the same folks who said the PS3 would take over the world. Right.

Mark Morrison
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MSFT's biggest problem is not being an entertainment company? I wonder if the DFC has told Jobs the same thing ;)



I believe each console has a specific demographic and will perform depending on how they exploit their existing market places. All three consoles have great opportunities as long as they cater to their core audience. I do think the PS3 has the biggest potential for the widest spectrum of users because it caters to young and old, as well as core gamers.

Marco Devarez
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It would seem that SONY and MS went into a little bit of role-reversal (perhaps pointing to the fact that no one ever learns)

The 360 was by some accounts simple and not overly ambitious (technology wise), the PS3 full of new unproven tech (not necessarily better just new) and therefore expensive.

Now Kinect seems like the expensive unproven tech, and Move a tweak to the existing tech.



my comments may seem irrelevant, but i think it ties into the late-cycle conversation. Im not convinced the xbox is on the decline but thats thanks to near perfect marketting and pricing, not natural cycle dynamics.



Kinect could be a hit if well executed but somehow i cant but feel that MS is jumping the shark on this one. They are either going to sell it break even or at a loss. With move the price seems steep but the margings are probably there. (remind you of anything?)

Rob Allegretti
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I think the hardware and platform have plenty of mileage left in them. There are some high-quality games for the 360, with more released all the time, and the platform works well as a media player(networked or DVD).



It's up to us as Game Developers to extend the life of a system by coming up with creative ways to use the same technology in new ways. That is exactly what Kinect promises to be.



I certainly won't take some analyst's opinion on this as fact, especially without numbers. It would be wise to see how sales of Kinect and the console do first.



Regarding the Zune overtaking the iPod I don't think even Microsoft ever thought that would happen. The quality just wasn't there, and those little iThings have an enormous cult following.

Eric Thacker
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Interesting that there was no mention of the Kin cell phone. It also appears to be missing traction in the consumer electronics market. To be fair, I don't know anyone who owns an XBOX 360 that isn't a hard core gamer, but do know people who own a Wii (gaming) and PS3 (media server/Blu-ray player).

Zach Grant
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$150 price point has traditionally be the mass market sweet spot. Non of the consoles have even hit that price yet. Still a looong way to go.

Kevin Patterson
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Games for the 360 and PS3 haven't started to even begin to look "old hat" yet, and we are saying the console is clearly on the down-slide. This generation is very different than the generations before. The current consoles still compete with the average PC today, and games aren't made for the PC first as much as they used to be, so the graphics disparity that used to exist isn't so prevalent.



IMHO, We haven't hit the point that MS's or Sony's consoles are lacking in graphics, memory, or ability enough to warrant a new piece of hardware. If ID's rage, Doom4, or Bethesda's upcoming games look way better on the current or future GPU's, that might change.

[User Banned]
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This user violated Gamasutraís Comment Guidelines and has been banned.

Gilliard Lopes
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This has to go down as one of the worst, most counter-factual analysis article I have read in years.

John Giordano
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There was another article recently on how frustrated stockholders are with Microsoft for the amount of money they've lost in their entertainment division.



Kinect seems like a tough sell if the rumored price of 150 dollars is correct.

Robert Green
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I'm with Josh, both the 360 and PS3 still have yet to reach mass market prices, so until you can get an Xbox360 (with a hard drive) for $150US and they're still struggling to sell as many as the year before, I'll be reluctant to think MS are in trouble.

On that note, I'd be surprised if we didn't see a price drop on the 360 later this year, once the old models have been cleared out. MS has had great success in past years discounting the console around September, and given the inevitable comparisons with the PS3, they'd be wise not to enter a holiday season at the same price, even if they are hoping that everyone will be distracted by new motion controllers. Speaking of which, they definitely don't want an xbox + kinect to be more than a PS3 + Move package, especially if sony can advertise the blu ray and free online and get a two month head-start.

Evan Combs
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On the subject of the money MS has lost on the Xbox, and the stockholders not being happy. MS has a long term plan for the Xbox. They are wanting to turn it into an all in one box, and they are slowly getting to that point with the additions to Xbox Live. The problem with stockholder's is that they don't care about the long term, they don't care if you have to spend money to make money. They just want their stock to go up no matter if it hurts the company in the longer term.

Merc Hoffner
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@ Evans



On the subject of the money MS has lost on the Xbox, the quantity is so large that to recoup their losses would take two generations of the best profits Playstation consoles ever saw. It would then take a further generation to generate any actual profit. No player in the console game space has ever won 3 generations in a row (though Nintendo's done it in handhelds). Even then, turning one generation's worth of profits across 5 generations of consoles is a miserable result that could have been better served by putting all that investment in a bank. This of course assumes that consoles will continue to exist over the next 15 years. And that MS can actually win a gen, and their record still stands at 0 for 2.

BobbyK Richardson
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this "Analyst" sounds like an angry blog post. how can anyone take this seriously with wordage like "Almost every time Microsoft has tried to emulate successful entertainment products they have failed"...



trying to pass off a personal opinion as 'research' is ridiculous. who are they even trying to sell this information to, to what purpose?

Chan Chun Phang
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"The hurdle for Nintendo, Sony and Microsoft at this point in the lifecycle is how to push through console mid-life, and make up for the costs incurred from massive amounts of investment in their respective platforms."



Hurdle for Nintendo? I thought Nintendo is having pure profit by this time..

Emperador Alencio
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Well, at least there will be games. No matter if PS3, Xbox or Wii disappear. Somebody will create them. On PC or some other platform i guess.

Mark Harris
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I don't have the time to play all the good games coming out for the 360 this year, so the console is certainly not on it's way out of my media room any time soon. I could easily say the same thing for the PS3 or the Wii. I know we're always waiting for the next disaster, but I'm really having a lot of fun playing games this gen.



Kinect is new and unproven, but so was the Wii and it's waggle-motes. I'm not sure MS can deliver software as well as Nintendo, but they have better 3rd party support so maybe someone can really take advantage of the tech and do something exciting. Even just using the thing to play around in menus in games or select unit groups in RTS games or something would be cool. Speech recognition is cool, maybe head tracking, who knows?



I think it's a little early to bury MS, especially with the way they have become a presence in the console space coming from nowhere late in last gen.

David Hughes
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If the 360 is on the 'downside', it's only because the PS3 is finally catching up with exclusives and price point. Add in that it's finally profitable as hardware, and we have a true full-on console war. If the battle is still so even, why would the makers invest in a new generation?



On the Kinect. . . . The tech is interesting, but the (unconfirmed) price of $150 is WAY too high. I think the 360 will get far more momentum from the console re-design (look at what the Slim did for PS3 sales) than an expensive peripheral of questionable value. The appeal of the Wii has always been BOTH its control scheme AND the fact it's always had the lowest price point.



I've seen a few articles now recently claiming that a new gen is on the way--I just don't see it. If anything, another incremental jump is in order. Both PS3 and 360 are well-designed as *platforms*. They have good gaming and multimedia functionality. What would be interesting is if Sony and MS kept the basic formula but upgraded core hardware (CPU, GPU, or both--and adding Bluray for 360). There's no need for a totally new generation, but maybe upgraded processing to keep pace with the computational demands of things like 3D and the Kinect.



This would split the install base somewhat, but still far less than the PC crowd-- with the incredibly huge numer of different CPU and GPU configurations. Devs would still just have two configs to design for, not 15 or 20-plus.

David Hughes
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If the 360 is on the 'downside', it's only because the PS3 is finally catching up with exclusives and price point. Add in that it's finally profitable as hardware, and we have a true full-on console war. If the battle is still so even, why would the makers invest in a new generation?



On the Kinect. . . . The tech is interesting, but the (unconfirmed) price of $150 is WAY too high. I think the 360 will get far more momentum from the console re-design (look at what the Slim did for PS3 sales) than an expensive peripheral of questionable value. The appeal of the Wii has always been BOTH its control scheme AND the fact it's always had the lowest price point.



I've seen a few articles now recently claiming that a new gen is on the way--I just don't see it. If anything, another incremental jump is in order. Both PS3 and 360 are well-designed as *platforms*. They have good gaming and multimedia functionality. What would be interesting is if Sony and MS kept the basic formula but upgraded core hardware (CPU, GPU, or both--and adding Bluray for 360). There's no need for a totally new generation, but maybe upgraded processing to keep pace with the computational demands of things like 3D and the Kinect.



This would split the install base somewhat, but still far less than the PC crowd-- with the incredibly huge numer of different CPU and GPU configurations. Devs would still just have two configs to design for, not 15 or 20-plus.

Adam Bishop
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I find the financial side of our industry to be so strange. Microsoft has sold 40 million Xbox 360 consoles and it's not mass market yet? 40 million is an unfathomably large number of people. My entire country (Canada) has less people than that! I mean, I know the PS2 and the DS have both sold a lot more units than that, but it's just silly to expect every single console to hit those kinds of sales figures. If selling 40 million consoles isn't enough units, something is very, very wrong.

Douglass Perry
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Actually, Microsoft's issue is not recognizing and supporting really creative, out-of-the-box type games, which is where Sony has distinguished itself time and again. If Microsoft wants to expand in the next few years it has to be willing to take chances with Guitar Hero type games (remember when it was just a plastic guitar and a dream?), and using its imagination. Not just creating more Gears of War and Halo games.

Kevin Jones
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@ John Giordano





" There was another article recently on how frustrated stockholders are with Microsoft for the amount of money they've lost in their entertainment division. "



The E & D Division, that includes the XBOX business, has been making their highest profits ever in the last 2 years. In addition, expect high Halo Reach sales to send XBOX 360 profits to record levels in the September quarter, followed by a highly profitable December quarter.

Kevin Jones
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@ Gilliard Lopes





" This has to go down as one of the worst, most counter-factual analysis article I have read in years. "





Pretty much.

DFC Intelligence is notorious for having some of the most brain dead analysts on the planet. I think they consult a witch doctor then come up with their "analysys." Their previous analysis have turned out to be utter garbage.



DFC Intelligence : "The Xbox 360 has some good years left, but the platform is clearly on the downside of its lifecycle."





Reality: The 360 has had its best sales year ever in NPD YTD since it was launched.

In addition, the 360 as generated more revenue this year than any other platform.

NPD: As far as platform comparisons, Frazier also noted that the Xbox 360 platform, including software and hardware overall, "contributed the greatest share of revenue to industry sales for the month, and year-to-date."

http://www.gamasutra.com/view/news/29131/NPD_Industry_Sales_Down_
5_In_May_As_Red_Dead_Redemption_Tops_Chart.php

David Serrano
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"There are numerous problems with this approach, but the biggest problem is Microsoft, at its core, is simply not an entertainment company," DFC said. "Almost every time Microsoft has tried to emulate successful entertainment products they have failed".



A bit exaggerated, but for mostly true. Saying their entertainment based products have "failed" is an exaggeration. What the analyst is trying to say is all of MS's attempts at hardware manufacturing have demonstrated they lack the creative vision and technical expertise of their competitors. The hardware products have been lack luster or straight out bad. Because at its core, MS is still a software company... not a hardware manufacturer.



And let's be honest... the 360 hardware is not a success. It has been a monumental failure for MS. Xbox Live was the real success. If not for XBL, the console would have died a quick death after it's fatal flaw was exposed. The 360 hardware remains an inherently defective product and that's not going to change for the remainder of its shelf life. I still can't comprehend how MS has avoided a massive class action lawsuit for knowingly releasing a defective product on the market and then charging consumers to repair their mistakes. I guess the silver lining is XBL is the only product ever created by MS where they've actually innovated instead of copying a competitor's vision or just buying the competitor out. Maybe there is some hope.



So in a roundabout way, the analyst was right. MS has not proven they can compete in the entertainment hardware market. The hype surrounding Kinect is extremely confusing given it was developed by the same team who created one of the most defective consumer products released in the last 20 years. Why anyone would believe it will work as advertised is beyond me.

Victor Boone
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These predictions are completely ignoring a lot of data that lead the average researcher to say "Huh, uh, what". They do know that this isn't a fan site, right? I just took a sec. and popped over to vgchartz and the worldwide weekly hardware sales show the 360 being beaten only by the DS, not to mention having two titles in the top 5 software for the week. Of the HD twins PS3 owns Japan & Europe but the 360 has America and the Global lead (HD). How can this not be considered relevant to the mass market? GTF outta' here.

Luke Skywalker
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$150 for Kinect, now why wouldn't I just go buy a Wii?


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