In an interview with Troy Wolverton, from San Mercury News, Robbie Bach talks about Xbox 360 price cuts, about the console’s rivalry with Sony PlayStation 3 and when is Zune going to be profitable.
The main subject of the interview was of course the Xbox 360, whose competition with Nintendo Wii and Sony PlayStation got all the attention recently, obnubilating even the launch of MS’s famous iPod-killer, Zune.
Concerning Zune, Bach says the MP3 player is either not yet fully developed, or it’s not like those people at Entertainment and Devices Division expected it to be: “the way these things work, they aren't as definitive as you might want to think they are.”
Robbie Bach also refers to Microsoft’s decision to build an iPod killer, instead of a Nintendo DS-killer or a PSP-killer. According to him, building Zune was a matter of prioritizing resources and of interference: “we always have to prioritize our resources, whether they are people or financial or marketing spend or just consumer focus and attention. And when we looked at it, we said, "Hey, this is something that's a significant marketplace. It's a high priority, given the momentum that Apple has. And this is something that we need to get after right away." And, you know, you compare it to other things, and you say, "Well, gosh, maybe you should have done, as you say, a handheld gaming device," and we look at that and say, "Gosh, I need the people who are focused on gaming to focus on Xbox 360." Right? And the priority there is making sure, you know, the second holiday for Xbox 360 is set up right, that we've got the quantities we need, that we've got the games we need, and anything I do to distract those guys is probably a bad thing. And it's not just about one or two people. It's not just about a Greg Gibson. But you have to distract a whole group of people that are doing content and the Live service and a whole bunch of other things to do that.”
The president of the Entertainment and Devices Division is also referring to the problems Sony encountered with PlayStation 3, which have been the cause for which Xbox 360 did not yet get a price cut yet: “I think Sony, frankly, suffers a little bit from this problem, which is they're spread really thin across all these areas. And trying to do PSP, competing with Nintendo, PSP to DS; competing with us, 360 to PS3, I think it does strain -- it would naturally strain any organization.” “When your competitor is supply constrained, it’s not clear what price buys you. Let’s be clear, Sony is going to sell as many units as they can ship in the U.S. I think that’s true. Given the quantities we are talking about, I’m confident they will sell all of them. I don’t know that a lower price would make a difference in the outcome. As you go out into later years, cost and price are both important issues.”
It's perhaps more telling that Bach doesn't consider the Nintendo Wii as a serious rival in this equation, or at any point during the extensive interview. He is also confident that Xbox 360 will reach the 10 million-pieces-sold landmark, thanks to…logic: “The second thing is frankly our value proposition is just better. Our console is at $299 and $399. Sony is going to have a pretty limited supply of consoles at $499 and $599. Consumers want to buy during the holiday. We're going to be a great logical choice for them.”
Despite the impressive number of consoles that Bach wants to see in our living rooms by the end of this year, the Xbox platform is still lagging and it is still producing losses. And, according to the high ranked official from Redmond, it will still be a financial black hole until 2008. “To be clear, we have said that in fiscal 08, entertainment and devices makes money. That’s not exactly Xbox. We don’t break profit down by business. And there are parts of entertainment and devices that make money. Xbox doesn’t. Xbox has to make significant progress to enable E&D to get there. We feel we are on track.”
Concerning Zune, Robbie Bach thinks (of course…) that “it's a really nice device.” Secondly, we’ll definitely see some sort of Zune almost every year, unlike Xbox, who has a multi-year life cycle. Which makes Zune a long time bet for Microsoft: “the business works differently. There's new hardware every year. It cycles in a model that's very different from the video game model, where you're sort of in for five or six or seven years and then you've got the next version of the product, and you have the chance to make the next incremental leap. So, by nature, I think the investment horizons and investment cycles are different. On the other hand, I'll say our competitor in the music space has 80% market share. Sony only had 60. So, that's a little different dynamic. I think that's also true. But, yes, (Zune is) multi-years (…). It's definitely multi-year (investment).”
The entire interview can be read here.
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