Dvorak: The Xbox Quagmire

The Xbox Quagmire

June 17, 2003
By John C. Dvorak

For those who haven’t noticed, the reason Microsoft got into the game console business was to “pull a Sony,” meaning it intended to take over the console scene and trivialize the competition. The company believed that by using less exotic but state-of-the-art PC parts, along with an online strategy and sheer muscle, it could turn the Microsoft Xbox into the dominant console. That hasn’t happened.

When Microsoft first announced that it was going to enter this business, much of the gaming community immediately assumed that the company’s cash and power would let it easily oust Nintendo, Sega, and Sony. Sega got scared and abandoned its nifty Dreamcast, and Sony countered with the powerful but expensive PlayStation 2. Nintendo came out with the GameCube, targeted little kids, and further exploited Mario.

Just before the Xbox shipped, gamers began to moan about its inadequacies—mainly the lack of compelling games. Despite the promise of better games to come, we’ve seen no platform-carrying games. Halo came the closest, but one hit does not make a business. I was told to expect a flurry of games, including a better version of the runaway hit Grand Theft Auto. But Sony pulled the rug out by making the console version of the game exclusive to the PlayStation platform. Sony has also managed to get most of its third-party developers to work for it exclusively. Microsoft is left dangling.

Bleeding money. Microsoft might lose close to $1 billion a year on the Xbox, with no end in sight. Is this an example of a company going into the wrong business accidentally, or is it just hubris? The situation has worsened as the hacker community targets the Xbox as a possible cheap computer on which to run Linux or play tricked-out versions of online games. Microsoft is completely freaked out about this. Its entire online-gaming strategy assumes a level playing field, with the goal of attracting the broadest number of players in a distributed scene that has to be fair to everyone. A simple software hack could kill the entire strategy.

Merchandising versus marketing. The joke is that the basic hope of building a better mousetrap was not enough. Microsoft has often built a better mousetrap, but from MSX to Microsoft At Work, the mousetrap was good but the marketing was bad. Microsoft provides excellent merchandising for the Xbox but almost no marketing.

In fact, there seems to be confusion at the company as to the exact definition of marketing. Making a fancy box, creating a PR buzz, and selling at the lowest price are elements of merchandising. Stealing all the Sony game developers and putting all the great games on the Xbox exclusively is an element of marketing. Microsoft has all the money it needs to buy the third-party designers. But instead, it lets Sony steal everyone.

Microsoft’s problem is that it has never been a marketing company. It is a merchandising company. It doesn’t develop or create new markets; it has tried over and over and failed miserably. I’ve pointed out before that the company cannot even manage to sell its superior keyboards. But Microsoft is masterful at exploiting already developed markets. The mistake it made with the Xbox is that there is no game console market per se; there are PlayStation, GameCube, and Xbox markets. The markets affect each other but only because developer talent is scarce. That talent pool itself constitutes a market, which is the tricky part.

No-confidence vote. To develop its market effectively, Microsoft should have co-opted the developer community, many members of which would be happy to get out from under Sony’s demanding thumb. What went wrong? Perhaps Microsoft’s reputation for double-dealing with its partners didn’t help; we hear too many stories about how Microsoft gets someone in the office and then steals his ideas. True or not, this is not the reputation you need to do business with fickle and paranoid developers. Reputations matter.

Microsoft could buy its way out of this hole, and now its pride is at stake. Looking at Sony’s books, you can see that the PlayStation 2 is carrying the company in a big way. The Xbox is America’s last, best hope to wrestle the cash flow away from Sony. I don’t want to tell Microsoft what to do, but in my view it can’t turn back now. It will never be taken seriously as an innovative force if it can’t turn the corner with the Xbox. What’s money, anyway?

I like a lot of Dvorak 's stuff, but like any writer who has to bang out material on a regular basis, he occasionally says crazy things:

Microsoft’s problem is that it has never been a marketing company.

Pure nonsense. This is the company that got everyday, non-technical people excited about a freaking OS upgrade. They pushed Windows 95 to the point where it was treated as a legitimate news item, even for general interest magazines and newspapers.

As for Xbox, Dvorak’s point seems to be that Microsoft should be willing to stay involved and lose money if need be, which is already the case. He also says they should aggressively acquire 3rd party products and/or developers with compelling products, which has been Microsoft’s approach since buying QDOS from some company back in - what? - 1979 or so?

June 17, 2003?

Can he send me the Lottery numbers for that week?

It’s probably just the date of the PC Mag issue it will appear in.

I’m not quite grasping his point of distinction between merchandising and marketing and how it applies to X-Box.

What Shawn said. Maybe the Xbox doesn’t have the market share MS envisioned by this point, but it at least has credibility. Should losing 1B in an attempt to get a foothold scare MS off?

I haven’t heard a lot of problems with hacked chars on Xbox Live, either. Maybe it’s in the future, though.

My friends, we should all be concerned about the future Xbox, for the future is where we will spend the rest of our lives.

And remember - future events such as these, will affect you - in the future.

That’s heavy Doc.

Merchandising is putting the right make-up on your product so that it appeals to buyers - it’s a tactical thing. Getting the right shelf space in the right stores, putting it in cool colors, picking the best price point, etc.

Marketing is the more strategic piece of how to gain market share, how to change the market trends (or take advantage of them,) typically longer range strategies. Dvorak’s example would be a good one - steal all the great developers so that suddenly the XBox had all of the great games as exclusives. Create an online environment that is so attractive and easy to use and non-intimidating that kids are playing with their grandparents in another state, the whole family eschews TV night to gather around the XBox and play online together. One marketing approach (without judging how good of an idea it is) would be the much discussed strategy of the XBox being the center of a home’s entertainment - a combo of TIVO, gaming system, online gaming system, MP3 player, etc.

As for the person who said that MS was a master of marketing as witnessed by the Windows versions roll-outs, I’d disagree. There certainly was a lot of press - you can buy that. But I don’t think the general public was nearly as excited as the picture that MS tried to paint with their advertising. Look at the overall PC owner population - was the average PC owner lined up to make sure they got their XP upgrade the day it was released? The “average” PC owners that I know, the folks that bought their PC from Dell or Gateway or Best Buy, who just pointed at “that one” because it was a good price and seemed like a good deal, had no intent of upgrading from 98SE or ME just because of the ads, and most probably only upgraded when they bought a new computer.

While I disagree with Dvorak on a lot of stuff, IMO he’s on the nose with the XBox being a marketing failure to date.

Yeah, I agree Jeff. I’m really surprised that Microsoft didn’t do what Dvorak suggested – buy the hot developers and studios. I expected it from the start, back when there were rumors of MS buying Square.

The one advantage MS has is its deep pockets. They haven’t really leveraged that much, other than in showing a willingness to lose money on the Xbox.

The entire article can be summed up to:

“Its the games, stupid.”

"As for the person who said that MS was a master of marketing as witnessed by the Windows versions roll-outs, I’d disagree. There certainly was a lot of press - you can buy that. But I don’t think the general public was nearly as excited as the picture that MS tried to paint with their advertising. "

Why not? They kept allot of people upgrading through the 9x/Me line. How much diffrence for 99.9% of users is there between Office 2000 and Office XP? Yet they are selling upgrades by the truckload. They seem to do a pretty good job of keeping people upgrading. Dvorak dosn’t say the one diffrence between Xbox and everything else they have done though. The console market was a well developed one when they entered and two their going against large companies well developed companies. They arn’t fiesty starups like Netscape, in a new and emerging arena like the web.

A complete newbie on the game industry could have written a better article.

Microsoft is where it is today not by making better mouse traps but because of marketing. OS/2 anyone? OS/2 was far better than Windows but Microsoft did to IBM what Sony has done to Microsoft.

Microsoft is a good at marketing – for a software company. But now it’s in the big leagues where its compeitors aren’t full of arrogant yet naive nerdlings. It’s playing against people who have had to (gasp) actually compete for decades.

The Xbox getting creamed is more a demonstration that Microsoft’s marketing, which was enough to let its mediocre technology dominate on the PC, is not ready for prime time yet.

I can think of nothing compelling about the Xbox.

There’s no doubt in my mind that X-Box had a great showing at E3. Their titles were good looking and well designed. Almost every booth that had an X-Box compatible game was demoing primarily with the X-Box version, and Halo 2 easily was the top console game of the show.

Still, I get the nagging feeling that Microsoft isn’t going to be able to turn all that buzz into sales, and I’m honestly not sure why.

I think the article is right when it points out that M$'s tactics may be coming back to haunt them. It’s fairly obvious that right from the start the X-Box has been a means to an end, and not an end in itself. Having pulled the trojan horse trick so many times, everyone involved is a little nervous about what might happen should the X-Box actually win the console wars. It’s also made the marketing a little unfocused.

Sure things are “better on X-Box”, but is that message getting out to the consumers? If I already own a PS2, and I’m not a hardcore gamer, where am I getting the info on X-Box from? There’s no big launches, or branded advertising campaigns. There’s no big announcements that developers are switching sides, and making X-Box exclusives. (It’s nice to have Rare on your side, but was an update of Conker worth $350M?) I don’t even have to be looking at the TV to know that a commercial for a Sony game just came on. They bracket their exclusives with a distinctive style that helps both the publisher and the audience connect with the power of the Sony brand.

Your Power Pill

There’s nothing in his article that isn’t self-evident about the XBox. Hell, it seems like they’ve borrowed their marketing plan from the Autumn days of Atari.

But Microsoft simply can’t be that stupid for this long…

So I can only figure they intend to minimize their expenses and let the mousetrap sell itself and then, when they’ve squeezed the last drop out of that plan, they’ll spend their way to success.

I don’t get it. I’d have bought RockStar, Sega, and Squaresoft from the get-go or at least bid Sony into the box of desperation so that having the games from these guys would no longer be profitable. They could have done it, so the only question seems to be why didn’t they?

Speculating on the “demise” of the Xbox is getting about as old as speculating that PC games are dead. Xbox is round one of a much longer fight.

It was a great idea not to buy Sega. Sega has floundered since the collapse of the Dreamcast and their games have not sold well. MS would have paid entirely too much for the company.

Doesn’t Sony own a large stake in Squaresoft?

Before GTA3, was Rockstar that much of a name? I honestly don’t remember.

I happen to live in Lynnwood, WA, which is just a hop, skip and jump up 405 from MS Global HQ in Redmond. Anyway, there’s a big mall in Lynnwood and in that shopping district, there’s just about every game retailer you can imagine in a 2 block radius, so we get a lot of Xbox execs and managers and marketers swinging by constantly so they can gauge the retailing front line.

A few Xbox marketing managers walked in to my local EB a few months ago, and I had a heated discussion with them. They asked me what I thought, and I told them flat out what I thought they needed to do. A few of the points I made…

  1. This was at the time, but some genius decided to take the Halo 2 teaser video off the latest Xbox demo disc, which meant that it couldn’t whet appetites. They need to be pushing Halo 2 big time, even this far out.

  2. Their Xbox kiosks suck. I know it’s a cost issue, but they really should have gone with a nice sharp LCD monitor for their demo units, like Nintendo and Sony did. Whatever hardware superiority they have is lost when they display it on the shitty TV’s they use, whereas the PS2 and GC demos look sharp because their displays are much sharper and brighter. One of the managers said that this was a big cost debate at MS, and I said that you guys are in a fight to the knife with Sony and you’ve got $40 billion in the bank… use it or lose it.

  3. Games, Games, and More Games. Specifically, they seriously need to get more Halo-type hits out. They countered saying they’ll have 400-odd titles out by Xmas. Big Fuckin’ Deal, if none of those are the games anyone wants to play. Not to mention, the shelf life of games means that by Xmas, of those 400 odd titles, how many will still be actively sold on shelves? More like 40. Three year old launch titles don’t count.

They seriously seemed to think quantity negated Sony’s quality, which is bullshit. Sony has hundreds of titles on the PS2 as well, most of them are crap, but they still have a large proportion of mega hits, like GTA and MGS and FF. MS has Halo, and they need more. The slippage on major titles like Fable and Brute Force is killing them, and they need to get to lock down major exclusives.

I’m told that Ubi was offering a total exclusive for Splinter Cell, but that the asking price was gawdawful high, even for MS. So MS settled for a partial exclusive: they’d get Splinter Cell for Xbox exclusive for about 4 months, and then everyone else gets it. But I’ve met a lot of PS2 fanboys who were willing to wait for the PS2 version of Splinter Cell, so they never bothered going to the Xbox. MS should pay massive coin and lock down the entire Tom Clancy franchise if they can, that would be a start. But they seriously need to start spending bank.

My gut feeling from talking to the Xbox folks were that they think they’re doing okay following their own course, and I just didn’t seem to sense any urgency or bloodlust that you normally expect from MS folk. The entire “take no prisoners” attitude that got them into trouble with the govment. But if they really want to scare Sony, they need to spend more bank on locking up the games everyone wants. I don’t care if they blow $5 billion on Xbox Live, multiplayer isn’t the answer if people want to play Metal Gear and Final Fantasy and Grand Theft Auto on their PS2’s.

You underestimate the gravity of the situation, DaveC. I recently heard that the Xbox is [color=blue]America’s[/color] last, best hope to wrestle the cash flow away from Sony. I think this means that if everyone doesn’t buy an Xbox, Japan wins. A dollar for Microsoft is a dollar for the USA. Think about that for a moment and then let us know which side of the fence you people are on! I’m writing down all the names.

Is this a troll?