Is This Microsoft's Dumbest Move Ever?

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The latest update to Microsoft's (Nasdaq: MSFT) Xbox Live kicked in yesterday, and with it comes a nod to social networking. The new interface integrates Twitter and Facebook into the Xbox Live gamer experience.

With Twitter and limited Facebook functionality available, the Xbox 360 just became that much more essential as home entertainment's centerpiece. Just as Microsoft beat Sony (NYSE: SNE) by a year in offering Netflix (Nasdaq: NFLX) streaming, the Xbox 360 has also landed the pole position when it comes to social networking. Sony's PS3 promises Facebook and Twitter access with its next firmware update.

This may all sound great for Microsoft, but there are two things royally wrong with this scenario.

  • It is widely assumed that Microsoft sells Xbox 360s at a loss, seeking to more than make up the difference in title royalties from software sales. If Xbox Live users find themselves spending more time browsing through Twitter feeds or posting Facebook status updates, won't that leave less time for gaming? Isn't that going to translate into fewer games being purchased?
  • Now that the Xbox 360 can do a lot of the browsing and multimedia streaming that a computer or laptop can do, isn't that going to soften demand for Windows-powered desktops and portable devices?

There are logical counterarguments, of course. If folks are spending more time on their Xbox Live accounts, it will improve the $50-a-year gold memberships. This will also allow Microsoft to more effectively monetize ad-supported initiatives in the future.

As for axing computers, obviously a video game console isn't going to be a perfect replacement. You don't see word processing applications on Xbox Live, though one can argue that keyboard attachments and Internet access will eventually segue to free Web-based word processing apps by Adobe Systems (Nasdaq: ADBE) and Google (Nasdaq: GOOG). Even before then, though, it may still kill off the need for a spare netbook or entry-level laptop around the house.

Microsoft is taking an evolutionary step with its Xbox 360. Unfortunately for Mr. Softy, every evolutionary step forward threatens to take its very fundamentals backward.

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Google is a Motley Fool Rule Breakers pick. Adobe Systems and Netflix are Motley Fool Stock Advisor recommendations. Microsoft is a Motley Fool Inside Value recommendation. Motley Fool Options has recommended a diagonal call on Microsoft. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz is a fan of all three consoles but finds himself spending way too much time with the family on the Wii at the moment. He does not own shares in any of the companies mentioned in this story, except for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy, always there to make sure that Fools don't overheat like first generation Xbox 360 consoles.

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 November 18, 2009, at 3:41 PM, alexinlax wrote:

    This article titled "Is This Microsoft's Dumbest Move Ever?" should be titled "Is this Fool's Dumbest article Ever?

    More time on Facebook, twitter = Less Microsoft time/$

    Thats like saying that is was dumb for Apple to put a phone and camera in the IPOD.... because people will listen to less apple downloaded music... and spend more time making calls and photos... duh.......

  • Report this Comment On November 18, 2009, at 4:03 PM, peteschl wrote:

    I think you seem to be missing some important information here - if Microsoft doesn't take that next step with the platform, someone else will do it. If someone else has a better platform people will leave. Hopefully this will explain why in technology it's never the best strategy to sit still, progress is a good business move. Sometimes that means evolving your business.

    The XBox 360 is still not a replacement to a netbook or a laptop, and isn't going to be - it's not portable, which is THE major draw of a netbook or a laptop. It's not necessarily true that the console is being sold at a loss, so I'm not sure your assumption should even be mentioned.

    Computing trends larger than a couple more features on XBox 360 are occurring which ARE real threats to the Windows OS (open source/web-centric trends/more powerful mobile devices), and this particular thing is hardly a drop in the bucket.

    I generally like the Fool's articles, but this one seems especially not thought out.

  • Report this Comment On November 18, 2009, at 4:16 PM, supsnipe wrote:

    I would Say Smart Move.. Microsft wants to stay competitive and this is a move in that direction. Per Microsoft Mantra if you want to do something do it on my platform. So Ok instead of making dollars on the PC they make it on the console or vice versa. Like bill gates Once said about pirating software " let them pirate my software and get hooked on it rather than them go to Linux or some other vendor. We will figureout how to make the money on it eventually".

  • Report this Comment On November 18, 2009, at 5:53 PM, WoodyDog1400 wrote:

    Rick,

    You write these same articles about SIRI also. I realize you are trying to bring ppl in to the website with a dramatic title and article to create debate. But dang, this was stupid.

    Microsoft is trying to compete with Apple. I agree with the post above, does the camera on a phone deter phone calls, does the game app on an ipod prevent music downloads??

    Or does the internet stop the journalist from writing a good article??

    hmmm....

  • Report this Comment On November 18, 2009, at 8:29 PM, TyrantBone wrote:

    In my opinion, value was added to Xbox Live by integrating these sites into it. I think it's exaggerated a bit to say this would translate to less games. I mean gamers already have an internet connection if they're on Xbox Live...meaning they have all the access to Facebook/Twitter already.

    The 95% siding with neutral/positive speaks to the touch of exaggeration in the article.

  • Report this Comment On November 18, 2009, at 10:12 PM, kedo76 wrote:

    Both bullet points are wrong. The exact opposite is true; the Xbox will only be good for a quick facebook update or a quick "tweet" (have you ever tried to "type" using your Xbox controller?) so if someone gets on for that reason they will play more games. In other words, people will not get on their Xbox only to update facebook or twitter. This will not take at all away from the laptop for longer updates or to respond to people, so will actually make a laptop more important.

    Spreaking of which, my wife is right now playing a movie for my sons using Netflix through my Xbox; man, the uses! That's why I am long MSFT.

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