Microsoft Spanks its Customers: Good Idea?

Microsoft just gave its Xbox customer base a major spanking. Turns out that about million Xbox users had modified their game consoles so that they could play pirated software. Apparently Microsoft finally got sick of being ripped off and yanked out the Xbox Live accounts, so that the game consoles won't work online any more.

Needless to say, it takes a fair amount of corporate cojones to completely alienate a million customers, even if those customers were acting in a questionable manner. I understand the logic; Microsoft loses money on the Xbox hardware, which it regains through license fees for (non-pirated) gaming software.

Microsoft's willingness to spank away is, in my view, part of a larger tendency that's developing in the B2B world, of separating customers into two piles: good (i.e. profitable) and bad (i.e. not profitable). Once that takes place, the "good" customers get all the attention and perks, while the bad ones are told to take a hike.

There are two problems with that approach.

First, today's bad customer could become tomorrow's good customer, either because their business changes to make them a better customer, or your business changes so that what was bad is now good. For example, if Microsoft started making money downloading movies to Xboxes, it might be better off with a million more units in the field.

Second, when you spank a customer, that customer generally spends the next ten years telling his friends, family and colleague that your company sucks. Now, in Microsoft's case, they're probably so thick-skinned by this time that nobody in Redmond cares all that much.

Anyway, I'm curious what you think. Here's a poll: