Microsoft Squanders a Golden Opportunity

 | Feb 13, 2013 | 3:06 PM EST
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Apple (AAPL) blogger Horace Dediu has retweeted a very interesting ILike.Code post about how Microsoft (MSFT) is about to cede the console gaming market to Apple in very short order.

Dediu's post explains how Microsoft has really squandered an opportunity with Xbox over the past two years. On paper, Microsoft's decision over a decade ago to get into the console gaming market looks brilliant. While Sony (SNE) and Nintendo (NTDOY) have stumbled badly, Microsoft has -- to date -- sold 76 million Xbox units worldwide.

Not only has this led to a huge profit stream to Microsoft from some amazing games, it more importantly gave Microsoft a huge advantage getting a foothold in the connected homes of the future. While Apple, Amazon (AMZN) and Google (GOOG) were dreaming about a "Connected Home" strategy, Microsoft had gotten to an enormous installed base number who had HD-compatible, Internet-connected, DVD-playing and software-update-compatible consoles. From that starting point, Microsoft could have really used that as a springboard to get into a whole host of Internet services and enhanced TV.

But Microsoft has rested on its laurels. It continues to rely on new video games coming out to juice sales and hopes that innovations like Kinect are enough to excite people to do more with their machines. Other than that, you can always run Netflix (NFLX) on Xbox. That hasn't been enough.

There are two other big problems pointed out in the blog post.

The first is complex load times reminiscent of your worst memories of Windows, with inexplicable delays and cryptic messages. Why wait when you can play a game on your iPad?

The second big problem is the fact that small developers can't easily build new games and then promote them on the Xbox platform. You would think that having 76 million Xbox consoles out there would be attractive to new developers to sell their innovative games to. But it's too bureaucratic to get games even posted to the Xbox platform, and even harder to get them in front of people so they might consider buying them. As a result, the only people producing games on the Xbox platform are the established game makers.

Dediu speculates that as soon as Apple launches its iTV later this year, any game developer will be able to follow the 30% App model to get "console-like" games running on Apple TV. Here's a great quote: "The current numbers already say a lot, even with Apple-TV not already an open console: 5.3M sold units in 2012, 90% year-over-year growth -- vs. Xbox 360 -- about 9M units in 2012, 60% YoY decline."

Maybe it's not too late for Microsoft. It just bought Blake Krikorian's "Connected Everything" startup R2 Studios. Maybe it tosses the keys to him and gives him the freedom to look at everything with new eyes.

But Microsoft is squandering a golden opportunity.

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