Home Gaming Steve Ballmer defends the Xbox investment

Steve Ballmer defends the Xbox investment

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So yesterday we posted a community news piece on how Goldman Sachs had dropped their rating of Microsoft and had singled out the Entertainment division which houses the Xbox as an example of a division that Microsoft should offload.

However today Steve Ballmer has been chatting to the London School of Economics about cloud computing and has raised the Xbox as a prime example of diversifying a companies content. Saying that originally people panned Microsoft for throwing money at the Xbox but now they are the ones with egg on their faces as it’s now very profitable.

He was using this as a justification for continually throwing money at Bing which is still a long way behind Google in the searching industry and a lot of people are now wondering if Microsoft should just give up on that and possibly just partner with Google.

But that’s for another site to discuss, the other thing Ballmer mentioned was that out of all the products that Microsoft is currently developing he is most excited about Kinect, in his words.

“You control everything on your television screen, and content interaction with friends is happening in the cloud.”

then he goes on to say

“It is a smart device that is processing me, It gives us the ability to have a natural user interface. And you can participate in games with friends across the globe.”

Only time will tell if Microsoft’s confidence in Bing and Kinect will pay off though.

Source: Techradar

Last Updated: October 6, 2010


  1. easy

    October 6, 2010 at 10:37

    “It gives us the ability to have a natural user interface.”

    anyway, i don’t think ms’ woes should be directed at the xbox directly, it’s a machine that prints money. but i do think ms should focus on its strengths and not try find (conjure up) markets; it’s the keeping up with the jones’ mentality that seems to trap ms all the time.
    for example, telkom has over the last few years have been trying to consolidate their core business’ to stream line revenue as well as keep shareholders happy. it seems to be paying off.
    very few companies succeed at mass diversification, and all that try end up getting short changed. stick to your core principles and you should be able to weather most storms, spread your front too wide and your defence will fail.

    different take on kaizen philosophy, but the fundamentals still apply


  2. Steve Hofmeyr

    October 6, 2010 at 11:41

    That’s why I think it will be crazy for MS to drop the Xbox, it’s printing money!


  3. James Kotick

    October 6, 2010 at 12:29

    Of course, Balmer must try to mitigate and do as much damage control as possible. This is after all what is required of him as a CEO. It would be dereliction of duty if he wasn’t defending policy, however I still believe as gamers we’re overestimating the value the xbox brand has to Microsoft. I’m not being in the least bit a fanboi, but merely arguing the merits. I did some calculations last night (and covered the last 8 years), and Microsoft would actually be fine without their entertainment division, the amount that was originally invested into their entertainment division (and that includes the xbox, phones etc.) outweighed the quarterly and annual profits they’ve been posting (including profits from xbox live). When you consider the numbers in context, you can understand where Goldman Sachs are coming from, and definitely why investors are grumbling.

    In any case, I’ll see if I can summarise the numbers and do a follow-up article at a later stage.

    Formerly, Bobby Kotick, Sir James and Captain Spanky


  4. Steve Hofmeyr

    October 6, 2010 at 13:00

    I think Msoft should step to the Wu.


  5. James Kotick

    October 6, 2010 at 13:11

    @Steve – their entire entertainment division (E&D) lost almost $200 million in the last quarter, and has been in the red for a very long time. Even if the xbox and xbox live are finally making them money (prior to 2007 it was deeply in the red as well), that profit is offset by a general loss on the whole division.


  6. Aussious aka Xbox advocate

    October 6, 2010 at 13:29

    You’le can already guess were I stand on this one so I won’t even comment.


  7. James Kotick

    October 6, 2010 at 13:42

    You really should, because since the xbox was first launched 8 years ago, during that period the E&D and their OSD divisions were in the red for a total of $20 billion, all of which had to be absorbed by the rest of Microsoft. This is why the investors are grumbling.


  8. Steve Hofmeyr

    October 6, 2010 at 14:08

    Sure but it’s turning a profit now so maybe the momentum is building. Who knows?
    Sony already erased all PS2 profits and no sign of PS3 making profit so IMO they should be worried as well.


  9. James Kotick

    October 6, 2010 at 14:42

    Why bring Sony into the discussion, whether or not they have been posting in the black with the PS3 (which they have since last year), has no bearing on Steve Balmer’s inability to steer Microsoft into favourable waters.

    The only reason to bring up Sony would be to discuss the global impact of the recession on both companies, and even that point would be moot since most companies are struggling due to the financial crisis. But let’s look at Sony too, so that Steve Hofmeyer can feel better about himself.

    Sony has yet to reach the share price highs of 2000 and 2001 and I doubt they ever will. In fact, Sony in general is still running in the red, regardless of posting high profits for PS3 and Bravia (earlier this year). However, Sony’s long-term security hinges very much on the stability of the Yen and the Asian markets. Don’t forget that Nintendo’s profits were wiped out by the Yen, slow sales on the DS, and consumer fatigue on the Wii (earlier this year)… and they currently find themselves in the red.

    As I’ve mentioned before Sony and many other Asian companies are sailing in familiar waters given the not so recent Asian markets crash, from which very few have ever recovered. American companies, like Microsoft have yet to find their sea legs, and this is where they’ll need a skilful CEO. Whether they have that in Balmer really depends on how well he handles the Goldman Sachs affair..

    Are you satisfied Steve and Aussious? Now forget about Sony for a moment and let’s reconsider Microsoft.


  10. Fox1

    October 6, 2010 at 16:01

    Ok, so now by the comments from both of you we could expect both consoles to be given up on thus leaving us with only the Wii :blink:


  11. James Kotick

    October 6, 2010 at 16:16

    @Fox, Nintendo is in the red as well, their profits were wiped away early this year after the Yen took a nose dive.
    Yes, I’m actually an agent provocateur for the PC crowd.

    SIMS 3 SIMS 3 SIMS 3!


  12. Aussious aka Xbox advocate

    October 6, 2010 at 16:32

    Okay then James if you insist, if I was a shareholder sure I would be concerned coz yes the Xbox brand has had huge losses since inception but that being said it is also the most successful brand within MS’s E&d devision I can even go as far as saying aside from Windows its their most successful brand to date. As far as the 20 billion is cocerned a majority of that can be attributed to the failiar of the KIN mobile phones and unprofitable devises such as Zune. If you look at products such as Xbox live, Kinect and Halo these are bankable invenstments that wil for MS and dure to time.


  13. Steve Hofmeyr

    October 6, 2010 at 16:33

    Jeez James, sorry that I had to bring sony into this and hurt your feelings. Well, at least I feel better about myself 😉


  14. James Kotick

    October 6, 2010 at 16:37

    Au contraire, I thought you might need the pick-me-up 😛


  15. James Kotick

    October 6, 2010 at 16:52

    Actually you’re thinking of Windows 7 OS and Win Office as the most successful brands. In fact, they (and the dev tools) are pretty much carrying Microsoft at the moment (which isn’t surprising, considering that Microsoft was/is primarily a software company). Their foray into hardware is what hasn’t been that successful,as you’ve pointed out with KIN, Zune and Xbox. Xbox has been marginally successful, especially since it’s finally become profitable, but still not at the level that will allay investor fears, which is why Balmer is practically banking on Kinect. If Kinect fails, Balmer is out. It’s that simple.


  16. James Kotick

    October 6, 2010 at 16:56

    Edit: yes, you’re right xbox is the most successful in the E&D division (I misread your post), but as I pointed out earlier, they either need to separate xbox from E&D in their investors minds or cut the fat in the E&D stable (why they haven’t axed Zune is a mystery).


  17. Aussious aka Xbox advocate

    October 6, 2010 at 18:04

    Thank you.


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