Digital Nerd

Friday, August 12, 2005

What's behind the Xbox money?

Via Cnet:

Microsoft has made the Xbox a centerpiece of its growth strategy as the company shifts its focus increasingly from the cubicle and desktop to the living room. Yet the software behemoth has a long way to go before the device can turn the kind of profits to which it is accustomed with Windows.

Xbox
So in the meantime, the company is trying new ways to make money with Xbox while it continues to play catch-up to Sony--most recently, through royalties from accessories such as joysticks and steering wheels sold by its partners. (Sony has its own problems with PlayStation, but we'll save that for another day.) Royalty-sharing arrangements are hardly groundbreaking. Apple is trying this tactic with iPod add-ons and, outside the computer industry, Hollywood studios typically get a sizable chunk of the revenues made through toys, clothing, video games and other products stemming from its movie titles. But even established business practices fall under extraordinary scrutiny, fairly or not, when Microsoft is involved. Critics, for example, may well point to Microsoft's history of strong-arming other business partners, such as PC hardware manufacturers. Giving further ammunition to critics is its use of technology locks to ensure that no one messes with its plans: Microsoft has created special security mechanisms on the Xbox so that it will work only with those accessories made by companies that agree to the royalty arrangement.

Blog community response:

"Are they alienating those companies by doing this? Who knows. Maybe some of them are willing to give up the cash for the opportunity to recoup some of it back and more. All I know is that this gives Sony the idea to do the same with the PS3."
--Gaming Horizon

"Besides the royalty, which will restrict many small companies from making Xbox 360 peripherals, this security feature also gives Microsoft total control over which peripherals are manufactured so if, for instance, they don't want mouse and keyboard adapters for the Xbox 360, they can simply decide not to allow them, even if a company wants to pay the royalty."
--Haloaded

"On top of all of this, Microsoft wants a certain percentage of all sales of third-party items. Opinions on this news vary widely. Some are appalled and are worried that there will be a severe lack of accessories, while others think that this policy will lead to higher-quality peripherals."
--Gaming 360

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