Saturday, July 7, 2007

How much do you pay to save your face? A cool billion.

Microsoft has been in a bit of a quandary as of late - what do you do with a 33% defective rate on a key product? And what do you do when the industry's acceptable failure rate is a single digit percentage? It wouldn't surprise me one bit if the famed red rings of death for the Xbox 360 has been the hot topic at the weekly meetings for the last few months over at the Microsoft Gaming Division in Redmond, WA.

Microsoft was placed in a difficult position with the Xbox 360 failure rate. The gaming division has yet to post a profit and in order to emerge they need to sell more software...but you can't sell software to a person with a broken console. First experiment - extend the warranty from three months to a full year. A good majority of broken 360 owners are pleased and quickly get back on the gaming highway. Quarterly results show an initial drop but then an upward trend.

A few months later the year warranty begins expiring on consoles that have now decided to stop working at no fault of the owner. At first it's a few and then a few more but the voices slowly start to get louder and Microsoft's new media center firmly establishes itself as a gamble when you buy it. The numbers are down again. Enter experiment two - create a special warranty to cover all units for 3 years that suffer from the red rings of death.

The timing of the second experiment is not a mere coincidence. The Wii is outselling the 360 as much as 6 to 1, the rumored Playstation 3 price drop is becoming less of a rumor, and E3 2007 is starting in a matter of hours. The last thing Microsoft needs is to lose ground in the current console race by either reputation or being slapped in the face with a potential class-action lawsuit. (Anyone remember the PS2 lawsuit for defective drives?) To avoid all this Microsoft has agreed to spending over a billion dollars. 

The sad conclusion that has to be drawn is while Peter Moore, head of MS gaming, states that there has been "negligence" on the company's part and generally makes you feel good what is more likely going on is a battle for numbers. Microsoft has shown they really only will support what makes money when it comes to the 360 (Lumines Live! anyone?) and having a good reputation does just that. If the market wasn't where it is right now all you happy people (myself included) would not be very thrilled with MS right now.

But who cares? Free Xbox 360 repair!

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