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I s consumer really the King?

Abstract:
he case study outlines the history of Microsofts video gaming brand, the Xbox. It
talks about the series of video game consoles created by Microsoft, how they came
into being and their competitor, Sony. It also talks about Microsofts strategy of
making the second iteration of the Xbox, the Xbox 360 more than just a video game console and
taking over the living room to cater to a lager audience. It also sketches out their ideology and
touches upon the controversy surrounding the launch of their latest console, the Xbox One and
Microsofts infamous U-turn. It truly captures the power of the consumer today and narrates how
with the help of the social media, the consumers could make a company as big as Microsoft bow
down to their wishes. It is a lesson for all the companies in the marketplace today as their
customers enjoy the power to pick and choose as never before.

Keywords:
hanging Lifestyle, Consumer Culture, Perception, Positioning, Consumption
Pattern, Adaptability, Consumer Psychology, Product Lifecycle, Competitive
Advantage, Market Share.

Introduction:
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icrosoft is an American multinational corporation with their headquarter
situated in Redmond, Washington. They develop, manufacture, license,
support & sell computer software, consumer electronic and personal
computer & services. They are best known for their software products such as the Microsoft
Windows line of operating system, Microsoft Office productivity suite, and the Internet
Explorer web browser. Their flagship hardware products are the Xbox game console and
the Microsoft Surface series of tablets. Theyre the world's largest software maker measured by
revenues. They are also one of the world's most valuable companies.

Microsoft was founded by Bill Gates and Paul Allen on April 4, 1975 to develop and
sell BASIC interpreters for Altair 8800. It was considered one of the first personal computer for
enthusiasts who wanted to build their own computer. Later on, they went on to dominate
the personal computer operating system market with MS-DOS in the mid-1980s, shortly followed
by their other successful product, Microsoft Windows. Over the years, the personal computer
changed from an enthusiasts hobby to an essential tool which continues to change our world
today. The company's 1986 initial public offering, and subsequent rise in its share price, created
an estimated three billionaires and twelve thousand millionaires from within their own
employees. Theyre one of the most successful startup company of all time. Since the 1990s, it
has increasingly diversified from the operating system market and has made a number of
corporate acquisitions. In May 2011, Microsoft acquired Skype Technologies for a price of $8.5
billion which is its largest acquisition to date.

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As of 2013, Microsoft is market dominant in both the IBM PC-compatible operating system
and office software suite markets with the Microsoft Office. The company also produces a wide
range of other softwares for personal computers, and is active in other segments including
an internet search engine Bing, the video game industry with the Xbox, Xbox 360 and Xbox
One consoles, the digital services market through MSN, Outlook and mobile phones via
the Windows Phone OS and later with the acquisition of Nokia. In June 2012, Microsoft
ventured into the personal computer production market for the first time, with the launch of
the Microsoft Surface, a line of tablets which could only receive a lukewarm reception from the
public and was running their proprietary OS i.e. Windows and Windows RT.

The Xbox:
icrosoft introduced the Xbox in 2001 to venture into a space they had never
been into. With every upgrade Microsoft has tried to position the Xbox not
only as a video game console but as a complete media center. It has always
been in Microsofts plan to take over the living room so that they can cater to a larger audience.

Another reason for them to venture into this space was Sony. Joachim Kempin, who was VP of
Windows Sales at Microsoft for 20 years (1983 - 2003), said in an interview, The main reason
was to stop Sony. You see, Sony and Microsoftthey never had a very friendly relationship,
okay? And this wasnt because Microsoft didnt want that.

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Sony was always at an arms length with Microsoft. Yeah, they bought Windows for their PCs
but when you really take a hard look at that, they were never Microsofts friend. And Microsoft
in a way wanted them to be a friend because they knew they had a lot of things we could have
co-operated on because they are, in a way, an entertainment company, you know? I mean, at
least a portion of Sony is and they had some really good things going there, but as soon as they
came out with a video console, Microsoft just looked at that and said 'well, we have to beat them,
so lets do our own.

It was Bill Gates along with former CEO Steve Ballmer, who were instrumental in making Xbox
a reality. Bill Gates formally announced the Xbox at the Game Developers Conference in 2000.
The original Xbox could be best described as a personal computer for the living room.

It was the first console to come with a built in Hard-Disk Drive eliminating the need for the use
an external storage which was first for its generation. It was also the first console to feature
DICET (Dolby Interactive Content Encoding Technology). It featured an Intel based custom 733
Mhz processor with 64 MB of DDR SD RAM with a 233 Mhz nVidia graphic card. On
November 15, 2001, Xbox was launched in North America and quickly sold out. Its launch in
that region was successful, selling 1.53 million units three months after launch, which is higher
than its successor Xbox 360, as well as the competitors, Nintendos GameCube,
Sonys PlayStation 3,Nintendos Wii U, and even the Sony PlayStation 2 and Nintendos Wii.

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The Xbox sold twenty four million units worldwide as on May 10, 2006, according to
Microsoft. This is divided out to sixteen million units sold in North America, six million units in
Europe, and just two million units sold in Japan.

The Xbox was almost always behind the PlayStation 2 in terms of sales, although in April 2004,
the Xbox outsold the PS2 in North America. Despite lagging far behind the PlayStation 2's
worldwide sales, the Xbox was overall a success especially in North America, keeping a steady
second place in its generation.


Source: Wikipedia.com
16
6
2
0
2
4
6
8
10
12
14
16
18
North America Europe Asia & Pacific
Xbox Unit Sold
Sales (in Million)
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The Xbox did better than anticipated. Despite doing exceedingly well in North America
Microsoft couldnt come anywhere near Sony PlayStation 2s overall sales.


Source: Xbox.com and Gameinformer.com

The Xbox 360:
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0
20
40
60
80
100
120
140
160
PlayStation 2 Xbox
Total Unit Sold
Sales (in Million)
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ext in line the successor to the Xbox, The Xbox 360 was unveiled on MTV on
May 12, 2005 with a detailed launch at the Electronic Entertainment Expo (E3). It
featured a custom 3.2 Ghz PowerPC tri core Xenon processor with 512 MB of
GDDR3 RAM with a 500 Mhz ATI Xenos graphic card. The Xbox 360 was an instant hit with
Microsoft not able to meet the initial demand in Europe and North America. Sales in Japan
however were exceedingly poor for Microsoft. Barring a few initial hardware issues the Xbox
360 was very well received selling 80 million units by October, 2013 making it the 7
th
highest
selling video game console in the history.


Source: Wikipedia.com
25.4
13.7
8
1.5
1
0
5
10
15
20
25
30
US Europe,
Middle East &
Africa
UK Japan Australia & NZ
Total Unit Sold
Sales (in Millions)
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Despite the competitive advantage of a years head start, Sony PlayStation 3 caught up with the
Xbox 360 in term of sales. However, the Xbox 360 is deemed more influential not only in terms
of the video game titles from their in-house developers but also the support from the third party
developers. They emphasized on the digital distributor system, the Xbox Marketplace and their
online service the Xbox Live! This could be termed as a stroke of genius on Microsofts part as
these services continue to be very popular to date. By the end of its lifecycle, the Xbox 360
successful transitioned from a video gaming machine to living room multimedia machine, a
vision Microsoft set off to achieve from the offset.


Source: IGN.com and PRnewswire.com
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0
10
20
30
40
50
60
70
80
90
PlayStation 3 Xbox 360
Total Units Sold
Sales (in Millions)
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By the end of November, 2013 both the Xbox 360 and PlayStation 3 had very similar numbers
worldwide.

As TechRadar rightly put it, the Xbox 360 became the most influential console on the market
which was an incredible achievement considering Microsoft's first attempt at a video gaming
console: the original Xbox barely made a dent in the PlayStation's armour, and ended its short
life as the Halo-and-emulation box. Xbox 360 passes the baton as the king of the hill - a position
that puts all the more pressure on its successor, Xbox One.

The Xbox One:
n May 21, 2013, Microsoft announced the Xbox One at an event in Redmond,
Washington. The console has an increased focus on entertainment, including the
ability to pass television programming from a set-top box over HDMI and use a
built-in electronic program guide, and the ability to multitask by snapping applications such
as Skype and Internet Explorer to the side of the screen, something very similar to Windows 8.
The Xbox One also includes an updated version of Kinect with a 1080p camera and expanded
voice controls, a new controller with "Impulse Triggers" that provide force feedback, and the
ability to automatically record and save highlights from gameplay.

Moving away from the Xbox 360's PC-based architecture and back into the x86 architecture used
in the first Xbox, the console features an AMD processor built around the x86 64bit instruction
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set. Xbox One places an increased emphasis on the living room by means of entertainment
integration, offering the ability to overlay live television programming from an existing set-top
box, split-screen multitasking of applications such as Skype and Internet Explorer, and
improved second screen support. The console also included a newly upgraded Kinect motion
sensing peripheral, an upgrade on the last generation sensor.

Microsoft is emphasizing the Kinect's integration with Xbox One through features such as a
built-in Skype client for video conferencing, user recognition and tracking, and the ability to
use voice commands and gestures to navigate the console's operating systems user interface.
New gaming functionality includes an expanded Xbox Live service, improved Kinect
functionality, cloud computing, the ability to automatically record and share video highlights
from gameplay, and support for live streaming gameplay online.

Following Microsofts Electronic Entertainment Expo (E3) announcement on June 10, 2013 the
company was highly criticized for some policies/decisions that the company wanted to introduce
the console with. These are:

The Xbox One needs to connect to the Internet once every 24 hours. This could be
translated to enforcing the consoles DRM policy.
Game sharing or lending limited to friends and family. This policy was extremely
confusing as it revolved around licensing rather than ownership of content (videogames).
Microsofts decision not to include a headset despite the high price at launch.
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The Xbox One wont function without Kinect. This raised serious privacy concerns
considering the recent revelations about NSAs PRISM surveillance program.
No backward compatibility. Which means the console lacks the ability to play video
games of the previous generation console.

To make things worse Don Mattrick, President of Interactive Entertainment Business at
Microsoft stated that gamers without an internet connection should just stick with Xbox 360
before the event which attracted a lot of criticism.

Sony took stage shortly after Microsofts conference and kept the ball rolling. Sony emphasized
on the following points after gauging the reaction to the Microsofts announcement:

The PlayStation 4 will not have any new restrictions on used, disc-based games. Players
will be able to resell, trade or lend their discs to anyone.
Single-player PS4 games will work entirely offline. Players wont be required to check in
periodically.
The PlayStation 4 will cost $399. $100 cheaper than the Xbox One.

Sony won the hearts and minds of the people by delivering a perfectly tuned speech, capitalizing
on the situation and giving the people exactly what they wanted. IGN conducted a poll sometime
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after both the conferences concluded and unsurprisingly with over 3,00,000 votes Sonys
conference was the clear winner.



Source: IGN.com

Shortly after this episode a manager at GameStop revealed using an AMA (Ask me Anything)
session on Reddit that his store had 150 PlayStation 4 pre-orders compared to only 30 Xbox One.
He also stated that other stores showed a similar trend. Although pre-order numbers are not
81
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30
40
50
60
70
80
90
Sony Microsoft Nintendo
Who won E3 Poll?
Vote (%)
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revealed by the company but various sources on the internet have revealed that Xbox One
preorders were extremely disappointing.

Microsoft decided to make a dramatic U-turn over its decision and policies on June 19,2013.
Don Mattrick, President of Interactive Entertainment Business at Microsoft was quoted saying,
we heard the customers loud and clear. The statement read:

"An internet connection will not be required to play offline Xbox One games - after a
one-time system set-up with a new Xbox One, you can play any disc based game without
ever connecting online again. There is no 24-hour connection requirement and you can
take your Xbox One anywhere you want and play your games, just like on Xbox 360.
"Trade-in, lend, resell, gift, and rent disc based games just like you do today - there will
be no limitations to using and sharing games, it will work just as it does today on Xbox
360."
Xbox One will now come with a bundled headset.
Xbox One will function without Kinect.

This is the second U-turn after the infamous return of the start button in Windows 8.1 in a series
of U-turns that Microsoft has taken in a span of just a few months. It can be argued that some of
the policies and decisions Microsoft took were clearly to protect revenues which clearly back
fired and allowed competitors like Sony to swoop in and benefit from the whole situation.
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Monumental decisions like these are not made overnight and to take a U-turn barely after a few
weeks after taking a stand which shows the lack of foresightedness and decisiveness on the part
of the company as big as Microsoft, something which might come back to haunt them in the near
future.

Conclusion:
icrosoft positioned the Xbox brand not only as a video game console but a
complete media center. They set off to take over the living room and ended up
controlling the living room which back fired and allowed other competitors
such as Sony to come in and take advantage of the whole situation. This portrayed a glaring gap
of foresightedness and decisiveness on the part of the company.

The consumer took on social media to display their disappointment and let Microsoft know
exactly what they thought about their new policies. In the end Microsoft had no option but to
give into the pressure. Sadly this wasnt the first time Microsoft found itself in such a situation.
Just a few months back Microsoft revised certain elements of the Windows 8 Operating system
after a lot of customer complaints and outcry. It was claimed to be one of the most prominent
admission of failure for a new mass-market consumer product line since Coca-Colas fiasco
some 30 years ago. Moving forward Microsoft really need to pull up their socks as another
similar situation could be catastrophic for the health of the company.

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