Killing Off the Original Xbox: A Big Microsoft Mistake

The so-called console cycle sees new generations of machines released approximately every five to six years, but having a production life of around 10 years, the generations overlap. This enables the platform holder to have a two model range at different price points; an older, less expensive, model and a newer, more expensive, model.

Sony (SNE) launched the original Playstation in December 1994 and followed it with the Playstation 2 in March 2000, yet they kept the original Playstation in production until March 2006. So for six years they were selling both machines. A few months after stopping production of the original Playstation they launched the Playstation 3, in November 2006, and they were back to having a two model range. The Playstation 2 is still selling massively well worldwide, and so it should, it has about 4 years of production left to run.

Now Microsoft (MSFT) introduced the Xbox in November 2001 and deliberately brought out their next machine, the 360, just four years later, in November 2005, so as to be first to market with the next generation. They kept the two models as a range for just one year, killing off the original Xbox in November 2006 when it was just five years old.

To me it looks like they killed off the original Xbox half way through its life. They could have re-engineered it to make it far cheaper to manufacture (just as Sony did with the PSOne) and kept on selling it for another five years as part of a two product line. They would have sold tens of millions of additional units if the continuing success of the Playstation 2 is anything to go by.

Now imagine the benefits if they has kept the original Xbox alive. It would have given them market presence in the massive developing countries of China and India were lower incomes favor a cheaper machine. It would have brought millions of new people to Xbox live, helping to lock them into buying future generations of Microsoft consoles. And it would have made enormous profits from the continuing sale of the Xbox game back catalogue.

To me it looks like a very big mistake. Obviously Microsoft are not stupid and must have their reasons, but surely the potential upside of keeping it going would have made it worthwhile to work round any problems.

So do you think this was a big mistake? Or do you have good reasons for them to kill it off so soon?

Comments

[RogerEnright]

The original Xbox games run on the Xbox360, but not vice versa. New games, specifically Halo 3 and several other very popular titles, cannot be played on the original Xbox. The demand for the consoles are driven by the demand for the games, and demand for the original Xbox is all but non-existent. I think it was the right choice for them.

And the PS2/PS3 comparison really is not comparable to the Xbox/360 genre. PS3 is largely been considered a flop in the gaming industry, while the PS2 was revolutionary and is still considered one of the best consoles out there today - arguably better than the original Xbox, save for the Halo series.

Halo 3 will drive sales of the 360 through the roof. MSFT is one you will want to own come next earnings season.

[User 121463]

*Sigh*...here we go again. Every couple of months some blogger posts basically this exact same opinion and ends up getting hammered by fanboys from all sides. Hey, a least your site hits will go up, huh?
Basically, the issue came down to this...MS does not own the technology rights to the main components of the original xbox. They were NEVER going to be able to re-engineer the inners of the box. They continued to lose money on every xbox they sold right until the very end and MS had no way to change that situation. So, from a business standpoint it was obvious...

[BrokenClipboards]

PS2 is selling well due to

a) Guitar Hero and it's variants
b) EA Sports games that are still viable on the PS2, with next generation versions not being much better then the old.

Being a fan of both a) and b) on PS2, it seems that the newest versions (GH3 and EA Sports games this year) seem to be lacking the focus of the software companies.

And btw, whole genres being pushed into the forefront don't happen THAT often.

[User 121571]

While the decision to discontinue the Xbox may have been premature it was critical to the success of the Xbox 360. Microsoft could place all its efforts in supporting the 360. PS3 sales are suffering because of the PS2. Sony and third party developers continue to deliver the games people want to play for the PS2. People have made it clear that they are not interested in paying a premium for a PS3 especially since there are very few must have titles for the system. By supporting two systems Sony has effectively painted themselves into a corner; trying to convince people who love the old platform to move to the new one and making the decision to give up the "free" money they are getting selling software to the 100 million or so PS2 owners worldwide.

[boden11]

In re: to previous comment:

The PS3 is *NOT* suffering because of the PS2, the PS3 is suffering because of the PS3. Expensive, launched late, multiple SKUs--4 difft hard drive choices, some with no backwards compatibility, continued Sony arrogance (next gen starts when we say so). Microsoft killed off the Xbox early so it could focus on the next-generation and gain a large foothold in the next-gen (this gen) race. I guarantee you Microsoft will walk away from this Christmas a big winner while Sony continues to suck air. BTW: PS3 sales are WORSE than Gamecube sales to give you an idea.

[boden11]

In re: to previous comment:

The PS3 is *NOT* suffering because of the PS2, the PS3 is suffering because of the PS3. Expensive, launched late, multiple SKUs--4 difft hard drive choices, some with no backwards compatibility, continued Sony arrogance (next gen starts when we say so). Microsoft killed off the Xbox early so it could focus on the next-generation and gain a large foothold in the next-gen (this gen) race. I guarantee you Microsoft will walk away from this Christmas a big winner while Sony continues to suck air. BTW: PS3 sales are WORSE than Gamecube sales to give you an idea.

[TreyTable]

It was a mistake, but the bigger mistake was bundling the system with Forza Motorsport. Racing sims do not move units, as previously shown when Microsoft packed in SEGA GT 2002 and Jet Set Radio Future. When titles like MechAssault, Crimson Skies, and PGR2 came with XBOX Live starter kits, I could not understand why Microsoft would pack in non-mainstream titles with the system.

[Walshicus]

Bruce, sadly Microsoft were in no position to reduce costs on the original Xbox. Indeed it was this very inability which led them to speed up the launch of the 360. Essentially there was a falling out with nVidia over the GPU. Even today they "license" backward compatibility from nVidia from a percentage of the cost of every HDD sold.

[Reflex]

One issue here is that it really was not possible to cost reduce the original Xbox. Its price over its life was always significantly lower than its manufacturing cost. The reason for this was that MS did not own the IP and relied upon Intel and nVidia to manufacture the chips. Furthermore, Intel nor nVidia wished to continue manufacturing the chips, which would have made continued production essentially impossible.

[Tyrannical]

"They could have re-engineered it to make it far cheaper to manufacture (just as Sony did with the PSOne) and kept on selling it for another five years as part of a two product line"

No, they could not. If the author bothered to do any research, he would have realized that this is one of the reasons they did launch the 360 early.

Since they did NOT own the CPU/GPU designs (intel and Nvidia did) they could NOT do cost reduction designs like Sony did. They CAN do it with the 360, as Microsoft owns the CPU/GPU designs.

[BruceEveriss]

I think it is pretty certain that Microsoft will keep the 360 running alongside it's successor. This will give them a 2 product overlapping generations lineup, just like Sony. Thus maximising profit from a platform over a 10+ year life and having presence in world markets at two pricepoints.

[BruceEveriss]

I think it is pretty certain that Microsoft will keep the 360 running alongside it's successor. This will give them a 2 product overlapping generations lineup, just like Sony. Thus maximising profit from a platform over a 10+ year life and having presence in world markets at two pricepoints.

[Tom B]

Well, the BIG mistake is not killing the whole XBox platform. H3 notwithstanding, does ANYBODY believe the platform will ever return profits to MSFT shareholders?

[BruceEveriss]

Yes.
The 360 is simple and cheap to produce and will become substantially cheaper to build over the years.
Microsoft have a massive advantage with Live. If they increased the social networking elements this would really snowball.
They just outsold the PS3 in Japan for the first time ever.
The stream of AAA exclusives gives them growing competetive advantage. There is still no good reason to buy a PS3.
The Wii will be found out by it's lack of power, lack of HDTV support and an online network to compete with Live.
Game publishers are deserting the 360 and having problems getting sales from Wii games. The 360 has become the platform of choice to develop for.