GM on XBox:
Gang,
In my view this is an important but high-risk investment for MSFT the
following reasons.
First, the game category, as a category, is a terrible investment. Each generation has one winner only, and the winner in any one generation has never been the winner in the next one. Ugh! The problem is that there have never been any switching costs since no one really wanted to play their old games on the new console. In short, you get astronomical GAPs with crummy CAPs leading to phenomenal spikes -- not the sort of thing the gorilla game likes.
Second, to get into the category you have to subsidize the console. Sega has damn near gone under trying to subsidise its latest machine, and MSFT will not find it any cheaper. Sony crippled itself by being unable to get yields on its key chipset, and so has outsourced its future chipsets to IBM. This is an ugly, ugly business.
The reason that MSFT, nonetheless, should enter the business is in order to get a foothold in the fight for the living room. Because it is not well positioned at the outset, it must make some kind of high-risk move to change the playing field. The Xbox has the potential to be such a move, if -- AND ONLY IF -- MSFT can create some sort of switching costs. It is not obvious to me how you do this, but that is what we should be watching for.
Geoff |
