Is Microsoft Struggling to Support the Devices and Services Objectives of Its July, 2013 One Microsoft Announcement?

After a string of marginally successful hardware device announcements, Microsoft seems to have fared poorly at the E3 Gaming Expo, 2014 held in Los Angeles. Given the amount of effort the XBOX team evidently put into Microsoft’s appearance at this event, (anyone who did not attend the event can watch a recording of Microsoft’s Press Conference at the E3 Gaming Conference, 2014 online) it should be a fair question to ask whether the potential return is worth it.

According to the latest 10-Q report Microsoft has filed with the US SEC, Gross Margin for the Hardware segment of its Devices and Consumer business, for the first three months of the calendar year, declined by 34%, from 2013 to 2014. Of course, during this period Microsoft announced the release of a new version of the XBOX product, which would incorporate the next generation features of the XBOX One, but would not have the Kinect® features.

Just after the end of the quarter, Microsoft also made a formal introduction for the press of the new Surface Pro 3, so some of the costs incurred during the quarter immediately prior to the announcement may likely be attributable to this tablet “designed to replace your laptop”. But, regardless of why funds were expended on these devices, at some point, sales of these hardware products have to start contributing, positively, to Gross Margin.

A number of reviewers from prominent publications — including the New York Times, and the Wall Street Journal — came away from the XBOX press conference at the E3 expo with the impression the new strategy is all about “shooter” games. Anyone reading the press lately would question whether this type of branding will really benefit Microsoft over the long term.

Further, while Phil Spencer provided a preview of what was to come for the audience for the Press Conference, in short, a presentation all about games, reviewers from the gaming community didn’t come away with the kind of “shock and awe” one would have hoped would have been the case.

Even worse, while analysts were also noting how Microsoft’s communications had de-emphasized the XBOX’s considerable feature set as a home entertainment control center, Sony, the market leader, in turn, specifically emphasized similar features on board the PlayStation 4 console.

It would seem Microsoft has a pretty clear set of objectives for the near term future of the XBOX — either get it right and, as Mr. Spencer also informed the press, take back market leadership, or carefully rethink the branding for this product, or, perhaps, spin it off.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

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