Microsoft’s Biggest Mistake?
Thursday, September 6th, 2007Bruce from bruceongames.com has an op-ed on how Microsoft has really missed out on an opportunity to make money by cutting the life of the original Xbox short. He cites Sony’s numerous redesigns of the original Playstation and how they were able to keep manufacturing PSOne until March 2006, just a few months before the launch of the Playstation 3. Bruce also gives the example of the Playstation 2 and states the fact that it is still outselling the PS3.
He summarizes his point by saying:
To me it looks like they killed off the original Xbox half way through it’s life. They could have re-engineered it to make it far cheaper to manufacture (just as Sony did with the PSOne) and kept on selling it for another 5 years as part of a two product line. They would have sold tens of millions of additional units if the continuing success of the Playstation 2 is anything to go by.
This is a great theory and has been implemented by nearly every successful console manufacturer to date. Even Nintendo redesigned the NES and sold the cheaper top loading NES 2.
Reduced cost of manufacturing means that the console can sell for less money and the company can still make a profit. That means Sony or Nintendo can tap into a different market, what I like to call the $99 crowd. This group may think $300 is much too high for a game console but would gladly pay $99. Microsoft on the other hand only manufactured and sold the original Xbox from November 2001 to November 2006. By mid 2006 they wee only exhausting supplies and had no games is serious development.
Why would Microsoft bail on the Xbox so soon and miss out on all of the potential to make money as Bruce has suggested? The reason is simple. Microsoft’s big mistake wasn’t that they quit selling the original Xbox too soon, but rather that they started selling it so soon. To rush the console to market they licensed many preexisting parts rather than have parts designed specifically for them, as most console manufacturers do. Microsoft licensed Nvidia chipsets rather than have custom chipsets manufactured. Microsoft tried to negotiate with NVIDIA to lower the price, but NVIDIA refused to do so. As a result, Microsoft lost money on every Xbox sold, and was unable to re-manufacture the console at a significantly cheaper price. Microsoft lost more than $4 million on the original Xbox and wanted to get away from it as quickly as possible. Had Microsoft taken the time to design a custom chip that they owned, they may have been able to recoop some of that massive loss.
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