Microsoft's Xbotch

The Web at home
You don't have to go far on "the Internets" to find angry consumers complaining about their Xbox 360s. No, the complaints aren't the usual ones about Microsoft (Nasdaq: MSFT  ) . They're not about clunky interface, lack of design leadership, or unimaginative features.

They're mostly about the hardware. It sounds like too many Xbox 360s have suffered problems, from post-update "bricking" to scratched discs to the dreaded "red ring of death," the symptoms of which include a dead console and a variety of red LEDs around the power button. I'm always careful not to draw too many conclusions from limited samples. As an investor, I realize how easy it is to be fooled by randomness. Be that as it may, Microsoft's holiday-season move to lengthen the warranty seems to me to be a good indication that there's more trouble than Mr. Softy wants to admit.

Unfortunately, I may be fooled by randomness now too, because I'm a victim of Microsoft's Xbotch myself.

Strike one
I got my first Xbotch in December of 2006. The machine showed great potential, but it had one minor, teensy flaw: The DVD drive-bay door would not open. Well, that's not quite true. A bit of experimentation and observation allowed me to identify a couple of conditions under which the drive would open. It would open when placed horizontally -- something I had no room to do. It would also open in the preferred, vertical position, but only after the machine had run for 15-20 minutes and gotten hot.

The first Xbotch went back to Best Buy (Nasdaq: BBY  ) within a week, and it was smooth sailing with Xbotch No. 2 -- for awhile, at least.

Strike two
After a couple of months, the handy wireless-networking adapter began to drop connectivity occasionally, maybe once every two weeks. Then it became more frequent. The problem accelerated until it could no longer hold signal for more than a few seconds. Lengthy conversations with a polite but skeptical and harried offshore customer service representative didn't go well. It must be a weak signal. (The laptop 12 inches away holds signal with no problem.) It must be my ISP. (Negative.) It must be my router. (Nope, it's not only on the Xbotch.com compatible list, I installed retrograde firmware to match the firmware listed as supported on the same site.)

After a long struggle to hear my heavily accented agent who had to shout over a roomful of barking colleagues, I finally convinced them that the problem was indeed the wireless adapter, and they agreed to replace or repair it if I sent it in. I dutifully shelled out $5 to send Microsoft its faulty product and settled in to wait.                        

Strike three
A few days later, the Xbotch console No. 2 gasped its last breath under the none-too-heavy strain of a family member's brief check-in with a garden in Viva Pinata. I was treated not only to a spooky "E 74" error screen, but I also got the famous red ring of death. More phone calls to a more understandable, and more sympathetic, Xbotch representative led to a diagnosis of DOA, and I'm still waiting for the postage-paid packing materials that will whisk my Xbotch to Texas for whatever magic is in store.

Strikes 4, 5, 6 ...
This might not be nearly so annoying if not for the fact that the two Zune players at my household have also been plagued by persistent hardware and software failures, including the dreaded "skip bug" and a set of bum earbuds that required more than two hours of phone time with customer service before someone finally did the logical thing and sent me a new pair.

From living room to portfolio
As an investor, I can't help but worry that my experience with Microsoft consumer products is not out of the ordinary. Not only are repairs an expensive waste of shareholder capital, but they risk alienating potential customers and crimping future growth. In effect, it doesn't matter if the rate of Xbotch failure is as low as Microsoft reportedly contends, because the perceived rate of failure is what matters to consumers. People trust what they hear. And if they hear enough from irate Xbotch or Zune customers, they aren't going to open up the wallet.

This is vitally important as Microsoft tries to step into the living room and take over. Personally, I don't believe Dell (Nasdaq: DELL  ) , Hewlett-Packard (NYSE: HPQ  ) , or any of the computer makers have a chance against a working Xbox Live ecosystem. The online offerings, still slim, are nevertheless very good. The streaming music and photos, DVD, and HD DVD capabilities also blow Apple's (Nasdaq: AAPL  ) TV product out of the water, as do the real, high-definition downloads. And, of course, when the Xbotch isn't cooking its own innards, the gaming is first-rate.

The worst thing about Microsoft's Xbotch is that it throws the quality of the working product into sharp relief. We miss being able to stream music from the upstairs PCs, to look at our photographs on our wide-screen TV, to be able to download an HD movie when Netflix (Nasdaq: NFLX  ) is late with the discs. (By the way, if anyone should pay through the nose for Netflix, it should be Microsoft. Yesterday.)

Sans botch, the Xbox 360 is a very good home media hub and deserves a build quality that matches the feature set. Microsoft can win the living room, but it needs to pay attention to the fundamentals.

At the time of publication, Seth Jayson had shares of Microsoft but no positions in any other company mentioned. After dealing with so many hours of crummy Microsoft consumer hardware, he'd love a chance to frag Bill Gates and Xbox Czar Jay Allard on Xbox Live. But first, they need to deliver a working product. See his latest blog commentary here. View his stock holdings and Fool profile here. Microsoft and Dell are Motley Fool Inside Value recommendations. Netflix is a Stock Advisor pick. Fool rules are here.


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