X Marks The Box
Microsoft’s XBox woes continue this week with further allegations that the failure rate for XBoxes are significantly higher than the competition. While Microsoft is claiming that the industry average is 3-5%, but:
The billion-dollar figure also indicates that Microsoft’s repeated insistence that the failure rate was about average for such hardware — that is, between 3 percent and 5 percent — cannot have been true. The real failure rate is probably about five times greater than the company has admitted, which would put repair costs at between US$330 and US$660 per console. At that upper limit, it would be cheaper for Microsoft simply to send a cheque for a brand new console.
That is correct, if the failure rate is no more than usual then there was no need to take the $1B write off, or is there?
Another possible argument is that they did this to move costs for future repairs into the previous year so as to allow for the potential for profits in the future. By writing off $1B in the past year it means that they have cleaned ship over potential costs so they can claim huge progress in profitability in the current year forward making the XBox more profitable and successful than it really is.
Another reason could be that Microsoft is learning the lessons that Dell and Apple among others have learnt and that is hardware design and manufacturing is very difficult. Other than making mice and keyboards as well as the failed networkin g foray, Microsoft does not have great experience in hardware design and manufacturing which leads us to what I believe is the biggest Achilles heal that Microsoft has:
The world is moving towards integrated and consistent experiences where consumers crave simplicity and form just as much as function. Microsoft is really bad at making integrated experiences
Where Microsoft has made their money as the platform for delivery of Windows APIs. A Personal computer is a Windows delivery mechanism. The fact that it has a Dell or Lenovo label on it is arbitrary, they both do exactly the same thing pretty much exactly the same way.
What Microsoft does not control is how to complete the experience for the consumer. They rely on the Dells and Lenovos of the world to finish the experience, and so it is not integrated. This is really the inherent failure of the Zune, a poor facsimile of the iPod that offers significantly less than the alternatives.
When they do try to create the complete experience they lack the fundamental understanding of what that experience is and how it translates, a skill that Apple is strikingly good at.
Will Microsoft be able to change it’s stripes and really understand the nature of design?. That I am not sure mostly because they fervently believe that the experience is all about the software they have and pay less attention to the combined offering and how people experience products.
I am not holding my breath….
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I think Microsoft should outsource hardware designs and focus on the software bit that they have earned all the major stripes on.
The investment in the Xbox should not be gambled over some hardware design expectations.
Microsoft is better for software and I think they should concentrate on that alone