Chittagong
Gold Member
This will be controversial topic, but then again, so were suggesting we could see an expensive Ps3, an underpowered Nintendo Revolution, early release of a 360-level Wii successor or that we might soon see a PS4 revision with integrated VR hardware.
Now, from a strategic point of view, I believe we are at a point in time where suddenly it makes sense for Microsoft to sell its Xbox business to Nintendo. I'll explore both points of view, Nintendo's and Microsofts.
Why Microsoft is motivated to sell Xbox
Xbox failed to help Microsoft to 'own the living room', and now it doesn't even want to
For long, the idea was that Xbox would help Microsoft 'own the living room'. From failed TV features to the promise of 'one Windows platform', Xbox has not really created a strategic benefit for Microsoft. Microsoft doesn't own the living room, and Xbox won't ever capture it for them.
- Xbox will never own the living room
- Xbox Media ambitions have gradually been phased out (e.g. Studios)
- Microsoft hasn't expressed any interest in living room in a while
One Windows wasn't the end all it was meant to be
A few years back Microsoft figured that if they'd simply build an unified Windows, developers would see the draw of the platform and create UWPs that work across desktop/tablet, phone and Xbox
- There are much fewer synergies of the single Windows 10 platform than Microsoft anticipated
- This is demonstrated by the failure of Windows Phone platform
- Developers don't seem any more drawn to the platform, so no virtuous cycle is born
Microsoft's future strategy no place for hardware
Microsoft's future is in a completely different direction that owning the living room, or being the 'devices & services' company Ballmer dreamed up. It will be a profitable, advanced, even if a bit boring enterprise company, with a touch of consumer through Windows desktop/tablet
- Satya Nadella has repeatedly emphasised that Microsoft's focus is on cloud and productivity
- Azure, Windows desktop/tablet and Office are clear priorities
- Cloud is the current battleground, AI is the next battleground, not hardware
- Windows Phone, Xbox and even Surface to some extent are distractions
- Hardware business is much lower margin than the rest, even negative
Why Nintendo would benefit of acquiring Xbox
The games market struggles to support three consoles
Since the PS2 / Xbox / GCN generation, there has always been three main players in the market. Inevitably, one of them has been a breakaway success, and the others have shared the rest of the market. By acquiring Xbox, Nintendo would take out one competitor, giving it a much larger shot at the market.
- In the PS2 generation Sony's early dominance meant very modest sales for Xbox and Nintendo
- In the PS3 generation the market expanded with explosive, but one-time-only, Wii sales to casuals. PS3 and Xbox 360 split the rest, which I believe is reflective the actual, non-anomaly console market
- In the PS4 generation Sony has shared the shrunken market with Xbox One, and Wii U has seen incredibly modest sales
Nintendo has a poor marketing team in America, Xbox has a great marketing team
Nintendo of America has only had good marketing in the late 80s to mid 90s, and early Wii years. Ever since their competence has evaporated. On the other hand, Microsoft has an amazing marketing team who have been able to create significant launches and phenomena in the west.
- NOA marketing team is really very poor
- Xbox marketing team in USA is fantastic
Nintendo has a weak western first party studio lineup, Xbox has a great western first party lineup
In the 90s Nintendo had a great lineup of western studios on 1st and 2nd party basis, managed by NOA. After early GameCube days this has gradually dried up, and today they pretty much only have Retro and NLG. Xbox, on the other hand,, has a fantastic lineup of 1st and 2nd party studios capable of producing hits catering the west - Halo, Gears of War, Forza, Quantum Break, Halo Wars, just to mention a few.
- Nintendo's western 1st and 2nd party lineup is weak
- Xbox western 1st and 2nd party lineup is amazing
Nintendo has poor western third party support, Xbox has great western third party support & tools
Nintendo has not been able to drum up proper support to its consoles since pissing everyone off with N64 Dream Team. At the heyday of Wii developers begrudgingly created games for the console, but never first rate efforts. Xbox is the complete opposite, they are a developers platform and from console to console they have seen some of the best 3rd party exclusives and ports.
- Nintendo's western 3rd party support is poor, as are their developer tools and support
- Microsoft's western 3rd party support is phenomenal, as are their developer tools and support
Nintendo has failed to capture the more mature crowd, Xbox is a more mature brand
Nintendo had a good run in the mid-90s in capturing the teenage crowd looking for darker, more aggressive games. Nintendo's 'Play It Loud' approach resonated with the youth. Since Xbox launched Nintendo has gradually lost that. Xbox became the cool console to own, with many mature franchises to cater the older demographic.
- Nintendo is not cool for teenagers or young adults
- Xbox is cool for teenagers and young adults
Nintendo has failed to build cloud services, Xbox has amazing cloud services
Nintendo hasn't been able to execute even an account-based game ownership model to its current consoles, in 2016. It's cloud services are clunky and archaic. Clearly the team has very little competence with the cloud and services thinking. Xbox, on the other hand, is built around the cloud and account, everything works like it should. Xbox has set benchmarks for cloud services.
- Nintendo has terrible cloud and account services
- Xbox has amazing cloud and account services
Xbox has continuously failed in Japan, Nintendo knows how to market in Japan
Generation after generation, Xbox has tried to break into Japan without much success. Even moneyhatting some of the best studios to do amazing exclusives hasn't done much good. Japanese crowds like Nintendo, who knows what they like and how they want to be marketed to.
- Xbox has constantly failed in Japan
- Nintendo is strong in Japan
Bottomline
Microsoft has a huge range of reasons why it doesn't make sense to keep Xbox around. Nintendo, on the other hand, would have a huge number of reasons to acquire Xbox off Microsoft.
The new Nintendo, boosted by the Xbox team and IP, could have a real shot in becoming the market leader. The new Nintendo would have
Product
- Best in industry hardware innovation (Nintendo)
- Best in industry cloud and account services (Xbox)
Games
- Fantastic western 1st and 2nd party - Halo, Gears of War, Forza, DKC, Metroid, Rare, Remedy
- Fantastic Japanese 1st and 2nd party - EAD, EAD Tokyo, Monolith, HAL
- Fantastic 3rd party support and tools from the Xbox team
Merchandise
- Amiibo with Master Chief, Gears etc.
- Nintendo classics merchandising
- Halo merchandising, films and universe
Marketing
- Top tier marketing team for American market (Xbox team)
- Top tier marketing team for Japanese market (Nintendo team)
- Decent marketing team for EU market (Xbox team)
F&C
- Substantially reduced costs of just having one console
- Substantially reduced costs of local marketing by removing duplication
- Substantially reduced costs of having just one cloud
As a venture capitalist, I have rarely seen a match more fitting, where the seller has great motivation to sell, and they buyer acquired exactly what it's lacking.
Main unknowns
Naturally there would be many unknowns. Biggest of them is the upcoming console transition to NX and Xbox 1.5.
- Which console would the company market? NX or Xbox One / 1.5?
- How much the Xbox team has leaned or larger Microsoft infrastructure, and could Nintendo do the same?
- Would Nintendo be able to give the Xbox team the freedom run the west and cloud for them, and not make them a puppet to NCL?
- What would the brand architecture look like ? Nintendo Xbox?
Personally, I the event Nintendo would acquire the Xbox team in the near future, I believe they would be smart to cancel the NX plans and support a 'Nintendo Xbox One' and a 'Nintendo Xbox 1.5'. Nintendo's industrial designers could design a miniaturised 'Nintendo Xbox One' catering to Japanese sensibilities.
This will be a minor inconvenience for developers already invested into NX development, assuming what we hear about the architecture is true. First party titles such as the new Zelda, Splatoon, Smash Brothers and Pikmin 4 could be quickly ported to a 'Nintendo Xbox One', giving the platform a huge boost against PS4.
Now, from a strategic point of view, I believe we are at a point in time where suddenly it makes sense for Microsoft to sell its Xbox business to Nintendo. I'll explore both points of view, Nintendo's and Microsofts.
Why Microsoft is motivated to sell Xbox
Xbox failed to help Microsoft to 'own the living room', and now it doesn't even want to
For long, the idea was that Xbox would help Microsoft 'own the living room'. From failed TV features to the promise of 'one Windows platform', Xbox has not really created a strategic benefit for Microsoft. Microsoft doesn't own the living room, and Xbox won't ever capture it for them.
- Xbox will never own the living room
- Xbox Media ambitions have gradually been phased out (e.g. Studios)
- Microsoft hasn't expressed any interest in living room in a while
One Windows wasn't the end all it was meant to be
A few years back Microsoft figured that if they'd simply build an unified Windows, developers would see the draw of the platform and create UWPs that work across desktop/tablet, phone and Xbox
- There are much fewer synergies of the single Windows 10 platform than Microsoft anticipated
- This is demonstrated by the failure of Windows Phone platform
- Developers don't seem any more drawn to the platform, so no virtuous cycle is born
Microsoft's future strategy no place for hardware
Microsoft's future is in a completely different direction that owning the living room, or being the 'devices & services' company Ballmer dreamed up. It will be a profitable, advanced, even if a bit boring enterprise company, with a touch of consumer through Windows desktop/tablet
- Satya Nadella has repeatedly emphasised that Microsoft's focus is on cloud and productivity
- Azure, Windows desktop/tablet and Office are clear priorities
- Cloud is the current battleground, AI is the next battleground, not hardware
- Windows Phone, Xbox and even Surface to some extent are distractions
- Hardware business is much lower margin than the rest, even negative
Why Nintendo would benefit of acquiring Xbox
The games market struggles to support three consoles
Since the PS2 / Xbox / GCN generation, there has always been three main players in the market. Inevitably, one of them has been a breakaway success, and the others have shared the rest of the market. By acquiring Xbox, Nintendo would take out one competitor, giving it a much larger shot at the market.
- In the PS2 generation Sony's early dominance meant very modest sales for Xbox and Nintendo
- In the PS3 generation the market expanded with explosive, but one-time-only, Wii sales to casuals. PS3 and Xbox 360 split the rest, which I believe is reflective the actual, non-anomaly console market
- In the PS4 generation Sony has shared the shrunken market with Xbox One, and Wii U has seen incredibly modest sales
Nintendo has a poor marketing team in America, Xbox has a great marketing team
Nintendo of America has only had good marketing in the late 80s to mid 90s, and early Wii years. Ever since their competence has evaporated. On the other hand, Microsoft has an amazing marketing team who have been able to create significant launches and phenomena in the west.
- NOA marketing team is really very poor
- Xbox marketing team in USA is fantastic
Nintendo has a weak western first party studio lineup, Xbox has a great western first party lineup
In the 90s Nintendo had a great lineup of western studios on 1st and 2nd party basis, managed by NOA. After early GameCube days this has gradually dried up, and today they pretty much only have Retro and NLG. Xbox, on the other hand,, has a fantastic lineup of 1st and 2nd party studios capable of producing hits catering the west - Halo, Gears of War, Forza, Quantum Break, Halo Wars, just to mention a few.
- Nintendo's western 1st and 2nd party lineup is weak
- Xbox western 1st and 2nd party lineup is amazing
Nintendo has poor western third party support, Xbox has great western third party support & tools
Nintendo has not been able to drum up proper support to its consoles since pissing everyone off with N64 Dream Team. At the heyday of Wii developers begrudgingly created games for the console, but never first rate efforts. Xbox is the complete opposite, they are a developers platform and from console to console they have seen some of the best 3rd party exclusives and ports.
- Nintendo's western 3rd party support is poor, as are their developer tools and support
- Microsoft's western 3rd party support is phenomenal, as are their developer tools and support
Nintendo has failed to capture the more mature crowd, Xbox is a more mature brand
Nintendo had a good run in the mid-90s in capturing the teenage crowd looking for darker, more aggressive games. Nintendo's 'Play It Loud' approach resonated with the youth. Since Xbox launched Nintendo has gradually lost that. Xbox became the cool console to own, with many mature franchises to cater the older demographic.
- Nintendo is not cool for teenagers or young adults
- Xbox is cool for teenagers and young adults
Nintendo has failed to build cloud services, Xbox has amazing cloud services
Nintendo hasn't been able to execute even an account-based game ownership model to its current consoles, in 2016. It's cloud services are clunky and archaic. Clearly the team has very little competence with the cloud and services thinking. Xbox, on the other hand, is built around the cloud and account, everything works like it should. Xbox has set benchmarks for cloud services.
- Nintendo has terrible cloud and account services
- Xbox has amazing cloud and account services
Xbox has continuously failed in Japan, Nintendo knows how to market in Japan
Generation after generation, Xbox has tried to break into Japan without much success. Even moneyhatting some of the best studios to do amazing exclusives hasn't done much good. Japanese crowds like Nintendo, who knows what they like and how they want to be marketed to.
- Xbox has constantly failed in Japan
- Nintendo is strong in Japan
Bottomline
Microsoft has a huge range of reasons why it doesn't make sense to keep Xbox around. Nintendo, on the other hand, would have a huge number of reasons to acquire Xbox off Microsoft.
The new Nintendo, boosted by the Xbox team and IP, could have a real shot in becoming the market leader. The new Nintendo would have
Product
- Best in industry hardware innovation (Nintendo)
- Best in industry cloud and account services (Xbox)
Games
- Fantastic western 1st and 2nd party - Halo, Gears of War, Forza, DKC, Metroid, Rare, Remedy
- Fantastic Japanese 1st and 2nd party - EAD, EAD Tokyo, Monolith, HAL
- Fantastic 3rd party support and tools from the Xbox team
Merchandise
- Amiibo with Master Chief, Gears etc.
- Nintendo classics merchandising
- Halo merchandising, films and universe
Marketing
- Top tier marketing team for American market (Xbox team)
- Top tier marketing team for Japanese market (Nintendo team)
- Decent marketing team for EU market (Xbox team)
F&C
- Substantially reduced costs of just having one console
- Substantially reduced costs of local marketing by removing duplication
- Substantially reduced costs of having just one cloud
As a venture capitalist, I have rarely seen a match more fitting, where the seller has great motivation to sell, and they buyer acquired exactly what it's lacking.
Main unknowns
Naturally there would be many unknowns. Biggest of them is the upcoming console transition to NX and Xbox 1.5.
- Which console would the company market? NX or Xbox One / 1.5?
- How much the Xbox team has leaned or larger Microsoft infrastructure, and could Nintendo do the same?
- Would Nintendo be able to give the Xbox team the freedom run the west and cloud for them, and not make them a puppet to NCL?
- What would the brand architecture look like ? Nintendo Xbox?
Personally, I the event Nintendo would acquire the Xbox team in the near future, I believe they would be smart to cancel the NX plans and support a 'Nintendo Xbox One' and a 'Nintendo Xbox 1.5'. Nintendo's industrial designers could design a miniaturised 'Nintendo Xbox One' catering to Japanese sensibilities.
This will be a minor inconvenience for developers already invested into NX development, assuming what we hear about the architecture is true. First party titles such as the new Zelda, Splatoon, Smash Brothers and Pikmin 4 could be quickly ported to a 'Nintendo Xbox One', giving the platform a huge boost against PS4.