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Bach Interview: Microsoft Poised to Rule Entertainment, Devices World
>> From eweek.com:
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Q&A: Robbie Bach, president of Microsoft's Entertainment and Devices Division, discusses the Xbox, Zune and the competition in a three-part eWEEK interview.
* When do you think Xbox will be able to contribute a billion dollars to Microsoft's bottom line, and how?
* Yeah, that's a good question. So, there's a couple different ways to think about the question. One, we tend to think of the Xbox P&L as a life-cycle P&L. It's the only way to actually think about it. Because I could make a billion dollars in one year, and you can legitimately say, well, you didn't contribute a billion dollars to the company because you lost 200 million in the first year.
So, we think of our P&L as a life-cycle P&L. And in the early phases you lose some money, you try to keep that as low as you can, and then in the later phases you try to harvest as much as you can.
There are three ways to make money on an Xbox. Generally it's not on the hardware itself; we'll probably be gross margin neutral on that over the life cycle of the product and try to break even on that.
The second thing you try to do is you make money on the games themselves, and there are two models there. One is first-party games that Microsoft produces. The other is games that Electronic Arts or an Activision produces, and we get paid a royalty on those games.
The third place you make money is on Live, and where we actually have a very nice service that's scaling very well, and that is a business model that's subscription, ad-based, and download-based. It kind of has the full gamut of business models associated with it, and I think you're going to continue to see that grow.
And then the final place you make money is on peripherals, so game controllers, cameras, steering wheels, a whole other set of things.
Right now we're doing a pretty good job. We're humming pretty well in the business. Our costs are a little higher than we'd like, [but] we're pushing those down; there are good initiatives underway to drive that. Game attach rate [is at the] highest level in history for a game console at this stage in the life cycle. The same with our peripheral attach rate. Xbox Live has over 6 million members.
The pieces are in place to drive the proverbial billion dollars. Specific date--oh, that's going to depend on what happens in pricing, which partly we control, partly we don't. You know what happens in component costs--mostly we have pretty good influence over that, but there are places where we don't. Pricing on memory goes up and down seemingly like a yo-yo, so [we have to manage] through that.
So, it's a business that will be profitable next year--we'll make money next year and that will be the first time, which is pretty exciting. And then the next two or three years are the place where you need to make tracks, and the next two or three years are where you have to make money.
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Full Interview: eweek.com (2 pages)
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