For the last decade, Microsoft has been on a quest to control your living room. The company’s Home Entertainment division has launched a number of high profile products in order to capture a slice of the consumer entertainment pie, including WebTV, Zune and the Xbox family of products.
However, after 10 years investors have started to become apathetic towards Microsoft’s consumer entertainment ambitions. An article coming from Bloomberg’s Businessweek magazine this week brings up some cold, hard facts about the division’s failure. Over the last 10 years, Microsoft Home Entertainment has raised $US49 billion in sales, but the division has yet to make a profit. In fact, it’s $US8.6 billion dollars in the red.
The operating margin for the Home Entertainment division is 10%, a far cry from the 72% of the Windows division. The future is not looking rosy either – the plug was pulled on Courier, the tablet project, Zune is a dud, the Windows7 phone is losing marketshare and a recent survey of gamers suggests that interest in Natal is very low. Granted, Natal has not been shown off in all of its glory just yet but it’s Microsoft’s big hope for reinvigorating the Xbox 360, now in its fifth year on the market.
Businessweek’s article suggests that investor confidence in the Home Entertainment division is low. Success of new product launches is not expected – in fact, investors would be happy if the losses are contained. Some analysts suggest that Home Entertainment is a waste of capital, and that Microsoft should invest more heavily in its much more successful Windows and other software divisions. Microsoft is still a hugely profitable company, but the share price is down more than 50% since Steve Ballmer took over in 2000 – in that time, Apple has gone from about $US7 to over $US200 per share.
Natal is set to make its big debut on Sunday in a private press event, with more information to come at Microsoft’s Pre-E3 conference on Monday. Microsoft is getting behind Natal in a big way – far more than anyone would have expected. With a mass exodus of Home Entertainment executives and divestment of all but three first party developers, one cannot help but wonder if the continuance of the Xbox family is reliant on the success of Natal. If Natal fails, could we see the beginning of the end of the Xbox? Only time will tell.