Killing Off the Original Xbox: A Big Microsoft Mistake

| About: Microsoft Corporation (MSFT)

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 (NYSE: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 (NASDAQ: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?