Is Microsoft Making a Blunder With Its Newest Xbox?

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It was supposed to be the biggest console unveiling since... the Xbox. Gamers anticipated the new console, waiting for the latest installment from a company that helped transform the console gaming industry into what it is today.

Then Microsoft (NASDAQ: MSFT  ) revealed the Xbox One -- and the claws came out.

The post-unveiling online chatter shows gamers are still confused about gaming digital rights and backward compatibility. Non-gamers -- whom Microsoft would like to lure in with the Xbox One ­-- are left wondering how something with the name "Xbox" could be anything but a gaming console.

Microsoft has made the mistake in trying to please everyone, and so far it seems no one is happy.

Gaming the system
Microsoft made a crucial error with the Xbox One launch: It failed to target its core customer base. As Ars Technica pointed out, the Redmond company talked for 10 minutes about how the system could connect to live TV, yet only showed three short, lackluster gaming clips. Microsoft tried to woo consumers in the vast streaming market instead of focusing on the people who have made the Xbox brand as successful.

While Microsoft could patch things up with gamers at the E3 gaming conference later this month, they've already left a bitter taste in the mouths of their customers. More importantly, they did it without creating a splash with the average consumer.

Let's step back and think about this for a minute. How likely is it for the average consumer who wants a streaming video unit to buy a $400 Xbox One? I'd say ridiculously unlikely. Not when that same consumer can buy a $50 Roku player or a $100 Apple (NASDAQ: AAPL  ) TV. Those systems offer an amazing amount of content, are much smaller, and arguably less complicated to set up and use for beginners.

Apple sold 5 million Apple TVs in 2012 ­­-- not bad for a "hobby" -- but it's the amount of content the company streams that's impressive. Apple takes up 35% of all home network video streaming data in North America on its iPod, iPad, iPhone, Macs and Apple TV. iPad streaming alone is credited with 10% of all entertainment traffic streamed in North American homes. Although the Xbox One comes with a long list of streaming capabilities, grabbing streaming time away from Apple and other competitors won't be a slam dunk. 

But will it sell?
Despite its marketing face-plant, the only thing that really matters for Microsoft and its investors is if the Xbox One actually sells. Gamers may be balking at the new system now, but if they're satisfied with the company's E3 presentation and Microsoft quells fears about digital rights management, then it's possible for Microsoft to turn the tide on this.

The Xbox has been the best-selling console every month for over two years and any change with that trend could mean gamers have cooled on the system. Investors need to see how Xbox One sales are out of the gate, especially against the new Sony Playstation. Although it's obviously too early to tell how the One will do, Microsoft surely hasn't helped its chances of success.

Though Microsoft's future doesn't hinge solely on the Xbox One, the gaming console has been a bright spot for the company -- and investors need it to stay that way. The company is struggling in mobile and its latest Windows OS has been highly criticized. Continuing strong demand for Xboxes would be a welcomed sight. In a new premium report on Microsoft, a Motley Fool analyst explains that while the opportunity is huge for the company, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Read/Post Comments (16) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 06, 2013, at 10:30 PM, UnknownInfidel69 wrote:

    Microsoft is truly shooting itself in the head on the xbox 1. No gamer wants to pay for a used game then pay to play it once they get it home. And they don't want to waste more money if they bring it with them to a friend's house to pay for a game they own yet again. This is what corporate greed looks like. Many gamers are going to abandon microsoft for sony. I wouldn't buy misrosoft stocks. They are going to take a hit for being greedy in the gaming console market.

  • Report this Comment On June 06, 2013, at 10:30 PM, riker54 wrote:

    Yes they are making so many mistakes that it will fail. The ignored the gamers questions because it wont play old games, it spies on you, and so many more things that's wrong. Xbox did the one thing no company should do, ignore the people that might buy your product. They should be ashamed of themselves

  • Report this Comment On June 06, 2013, at 10:33 PM, klm82006 wrote:

    Micro$soft has already lost the next gen. console war before it even got started.

  • Report this Comment On June 06, 2013, at 10:39 PM, cubbiesfan50 wrote:

    Sounds like they're pulling some old Standard Oil tricks trying to monopolize the system into playing their own corporate game. It's cute, but do they not learn from their mistakes?

  • Report this Comment On June 06, 2013, at 10:53 PM, YoungStone wrote:

    I have been a loyal Xbox customer since the Xbox has released and now that I see they have completely lost their brainiac minds and for one don't remember what brought them so much success which is the gamers...and two don't understand they are still in a battle with competitors that will use this against them...they are so stupid to think this wont hurt their sales...well I can tell you've already for sure lost one customer. I will definitely purchase my first Playstation when the PS4 comes out and don't intend on looking back even if Microsoft realizes its mistake and tries to send out some update to change its system. Thanks Microsoft...thanks Mr. Gates for all the memories and great games but I will no longer support Microsoft .

  • Report this Comment On June 06, 2013, at 11:08 PM, hairyfeet wrote:

    How can they say MSFT doesn't have their future riding on this when they haven't had a single hit since Win 7 and have lost a good 30 billion on one flop after another?

    Win 8 FLOP, WinPhone FLOP, WinTab FLOP,MSFT stores FLOP, all they have left is Xbox and MS Office and those two aren't enough to sustain the amount of cash Ballmer is blowing through trying to be Apple.

    I predict that unless they practically give it away, we are talking $25 or less as Win 8 was $40 and they couldn't give it away Win 8.1 will be a flop and it looks like the gamers are gonna avoid Xbox S (S for stupid name, I'm not calling the third version the "one") what does that leave them with?

  • Report this Comment On June 07, 2013, at 12:06 AM, Bunnyking77 wrote:

    Microsoft could have handled this many ways and they chose the wrong way.

    Microsoft has gotten a lot of feedback over the last few months over their "always online" DRM checking policy during EA's Simcity launch problems.

    Many polls have shown the XBOXone to be the least popular of the systems by a landslide because of their twisted policies but the chose to stick with their guns even though there are better ways to solve their problem.

    If MS wanted to protect their content or control their content, why not just sell it digitally at a lower price and avoid a hard copy all together?

    Microsoft chose the wrong path and not even Michael Pachter's rose colored sunglasses for XBOXone can fix that.

  • Report this Comment On June 07, 2013, at 12:17 AM, ipinsao wrote:

    The people who complain about used games are just a bunch of whiners. If you love playing video games then you should respect what goes behind developing video games. Video game publishers don't make games to they can sell one new game for $65 only to get resold over and over for half the price without making a single cent and making businesses like gamestop richer. If I was Activision, EA or THQ, I would develop all my games for the Xbox to get fair value for the games I create. Why would they even make games for the Play station if their games just get resold for nothing.

  • Report this Comment On June 07, 2013, at 12:20 AM, SmoothDouglas wrote:

    Let me add some rational perspective to these comments. If you're not a MS fanboy or MS hater I'll give you a quick synopsys of what's realistic and not wild speculation. I'd expect that Sony will have nearly an identical model for game resale and purchasing as MS. Why? The Publishers are playing their cards to force MS and Sony to help them fight piracy and lost sales because of reselling games. If you think the PS4 is going to be dramatically different than the XB1 then expect publishers to give the PS4 the cold shoulder.

    Sony wants to portray themselves as "the" gaming console. In reality, both will be great gaming consoles. Sony wants to deflect and bemoan all the TV and other nongaming services the XB1 has. Why? Because simply the PS4 doesn't have those features. It's really the only strategy they got. They used to have blue ray over the XBox 360, but that differentiator will be gone.

    MS is going to be slowly leaking information out. The initial reveal was about the entire console. E3 will be about games. I expect the PS4 and XB1 to have comparable games. What I did find desperate is that Sony decided to reveal the PS4 before the XB1. They weren't even ready and had the PS4 reveal without the actual PS4 console. Odd?

    Both will be great gaming consoles. I'm leaning towards the XB1 because it's a gaming console plus much more. XBox Live is sooo much better than Sony's offering. I'll wait until all is on the table, but the XB1 is definitely looking great.

  • Report this Comment On June 07, 2013, at 1:01 AM, the101N wrote:

    I've been a loyal MS customer since the original Xbox. Also had a 360 Pro(60gb), Elite 120gb, Slim 4gb, and now the Slim 256gb. I'm not adding the Xbox One to that list w/o some refinements. I guess GameFly won't be able to supply it's members used games for the XB 1 console either. Nor am I digging the always on feature and starting price. I think I'll just stick to my 360s for now. No need to drag this junk into my house.

  • Report this Comment On June 07, 2013, at 5:11 AM, Richard233 wrote:

    One would have thought that Sony would have learned from the disaster of their download only PSP. The DRM makes the Xbox DOA.

    You make a download only platform, but only if they are cheap enough that effectively the resell value has already been rebated to the buyer.

    This nonsense of forcing users to have to play one player per system so that your friend needs to play against you in his house and you in yours is just idiotic.

    All these transparent money grabs just make people angry. The xbox would need some kind of wonder game to get people to buy it in spite of the annoyances, and that is not readily apparent to exist.

  • Report this Comment On June 07, 2013, at 7:00 AM, asameshimae wrote:

    I have yet to hear anyone mention that accessing streaming services (e.g. Netflix and Hulu) on an Xbox One will still require users to pay an additional monthly or annual fee to Microsoft. This is an additional barrier to acquiring non-gamers. A $400 device plus a $60/year fee plus Netflix/Hulu subscription fees. This is all getting pretty steep in comparison to the alternatives. The most expensive Roku is $100 and a bluray player with access to Netflix and Hulu can bought for as little as $80.

  • Report this Comment On June 07, 2013, at 8:08 AM, thai42o wrote:

    Microsofts's problem is they are catering to the video game companies instead of the people that buy the games. There is no reason to charge extra for people to play used games. I can go buy a used car and I don't have to pay extra just to drive it. It's how things are supposed to be. If I buy something it's my right to then sell that to somebody else if I want to. Just like with every other object you can buy in America. Also having to log in once every 24 hours is incredibly stupid. What about people that live in areas with bad internet? Or people that bring their systems with them when they have to travel. And then their stupid TV crap. I don't get to use most of it now because Microsoft can make an agreement with my cable company. All of these things will surely turn off a lot of people. Microsoft should worry about the people that buy their products instead of what the game companies want. Because if there isn't any customers they won't have to worry about the game companies.

    And everybody that say stuff like " I buy all my games new so it doesn't matter" or "I'm always connected to the internet so I don't care about that" are complete idiots. Because your letting the company tell you how things are going to be instead of telling them how we want it. And things will only get worse. It's a slippery slope once you start letting major companies dictate how things are made instead of the customer. We have a great impact when we all come together, so don't let MS railroad you into thinking it has to be that way. Besides hackers will always find a way to pirate games so all this is hurting is every day customers.

  • Report this Comment On June 07, 2013, at 11:22 AM, elderado62 wrote:

    Microsoft have just confirmed that you can pass a game on to a friend but only once. I have two Xbox consoles, one downstairs and one upstairs. How the hell am I supposed to be able to play my games upstairs and downstairs if the game can only be played one one other Xbox One console, but can't then be used on the original. This is Microsoft being complete dicks or just greedy bastards for more money in that they force you to buy two games for the same household.

    I do not think I will be buying the new Xbox One until they sort out that problem!

  • Report this Comment On June 07, 2013, at 11:26 AM, elderado62 wrote:

    and another thing...... This will not be a one-for-all media centre. For a start off the TV bollox won't work in the UK and it isn't even going to be available in the UK on launch. This is because it is completely incompatible with Sky and all the Sky+ features. It will only be any use as a game machine but it will fail unless it listens to what the people want.

  • Report this Comment On June 07, 2013, at 12:51 PM, LucifersHammer wrote:

    "The Xbox has been the best-selling console every month for over two years".

    I'm pretty sure that is ONLY in North America. Asia is still Sony's territory where PlayStation outsells all other gaming systems.

    I apologize if I'm wrong.

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