Xbox 360 to Appeal to the Masses, So What the Heck Have They Been Doing?

Last Updated Jul 15, 2008 2:57 PM EDT

Red Ring of DeathI got a good chuckle when I read that "in a significant shift for the company," Microsoft unfurled a "new" strategy of letting the Xbox 360 appeal to the mainstream.
"For the last few years we have consciously and continuously fed the core gamer audience, and now we are reaching that inflection point where we have to reach out to the mainstream consumer and bring them into the Xbox 360," David Hufford, Microsoft's director for Xbox product management, said in an interview."Everyone plays video games now or has an interest in playing video games," he said. "So we have to appeal to the mainstream more than ever now. And what really is appealing to that mainstream consumer is that social experience, in the living room or online. Whether it's the older consumer or the Facebook generation, they see games not as a solitary experience but as something you do with friends and family, and that's what we want to deliver this fall."
What claptrap. Sure, they want people to use Netflix from the Xbox and to interact with other users via avatars and they've even cut the price of one model. But Microsoft has been losing billions annually -- billions -- as it chased market share. The whole idea was that it was trading money for popularity. Or is this just an excuse for continuing to lag, and even fall behind, as the Washington Post suggests?
A recent report by research firm NPD Group showed that Sony sold more units of the PlayStation 3 in the first five months of 2008 than Microsoft sold units of the Xbox 360. Previously, the PlayStation 3 had regularly trailed the Xbox 360.
And then there is another analyst on how the Xbox 360 is doing:
Signal Hill analyst Todd Greenwald has said that, "We think the 360 has lost significant momentum to both the [Nintendo] Wii and PS3, especially in Europe, and is in need of both a price cut and new features to bring in mainstream gamers beyond the Halo/Call of Duty/GTA crowd."

Greenwald believes that if Microsoft is to compete with the Wii, then they need to unveil a motion-sensing controller similar to the Wiimote. For their part, Microsoft has repeatedly denied rumors that such a device exists, meaning that it's either the worst-kept secret in the industry, or an avenue they are legitimately uninterested in pursuing.

So why is Microsoft continuing to put on a brave face and march half a league, half a league, half a league onward? Something in the Times story gave me pause to think:
Microsoft already offers some films and TV shows for download and on Monday the company announced that its Xbox Live service had generated more than $1 billion in revenue since the Xbox 360's debut in 2005.
Oh? And in what revenue segment does this get booked? Games and entertainment? Or as part of online business? The answer, in either case, is interesting. If the money gets parked with the gaming hardware and royalties from software vendors, then I'd argue that the division is doing even worse than it would appear, underscoring the question of why they would keep it. It would explain why the executives in charge might want to spin reality.

But the other answer could raise even more eyebrows. Could it be that the Xbox is helping to subsidize the online services business, which lost only $745 million last year? That would be an even bleaker image for a company trying to stake its future on competing with the likes of Yahoo and Google.

Xbox 360 Red Ring of Death image via Flickr user AchimH, CC 2.0 And now a message from our sponsor: Like what you've read here? Hate it? Think BNET can be better? Let us know! Email us directly, or take the Help Us Build a Better BNET poll on BNET Intercom.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.