It seems no one is immune to the economy. Earlier today Microsoft released their 2Q earnings, and although it was in the green, it wasn’t as high as they would have liked; 16.63 billion vs the over 17 billion expected (which was low to begin with). However, their Entertainment and Devices revenue grew by 3% due to the high Xbox 360 sales. Microsoft has come out and said they are going to cut spending by 1.5 billion, and over 5000 jobs in the next 18 months; this is the first time in the company’s history they are going to cut jobs.
But this begs the question, what sectors of the company are going to be hit the hardest? It seems that since the Xbox 360 has increased in sales, they probably will not cut jobs and spending in the gaming sector. It also asks the question, what will Microsoft do with the Xbox 360 over the next 18 months when, as they said last week, they will not be creating a new console or instituting a Blu-Ray addition. It’s obvious, from companies like Apple and Nintendo, that innovation succeeds so Microsoft must begin thinking about how best to innovate and make, not only the Xbox 360 better, but the company overall. But from what I have heard around the news, “the future is so opaque it’s not going to be able to provide a forecast for the coming year.”
[Microsoft stock chart courtesy of Yahoo Finance]
I don’t doubt that many or even most Zune owners are satisfied with what they have. Here’s my thing: Apple dove into the MP3 market when that market was already well on its way to maturity. The iPod quickly made a big splash, and iTunes has played no small part in helping the iPod acuire a 70% market share. Apple did not engage in illegal, monopolistic business practices in order to achieve that level of prominence; nor did Steve Jobs hypnotize buyers, steering them towards the iPhone.
When the iPhone was released in October of 2001, it succeeded during a recession caused by the terrorist attacks of 9/11. If the current economic climate adversely affected the Zune and other consumer products, then it stands to reason that it also adversely affected iPod sales. Yet, Apple reported a growth in iPod sales for the most recent quarter, versus a 54% drop in Zune revenues. How much better would the iPod have faired this quarter without the deepening recession?
I believe that Microsoft and its investors need to re-evaluate the Zune with regard to how it affects other products, and how it affects shareholder interests. If I’m a Microsoft competitor — and I don’t believe that Apple and Microsoft compete in the sense that they appeal to very different groups of customers — then I truly hope that Microsoft continues to throw money and other resources at the Zune.
I bet the cuts will come from Microsoft’s hardware sector, and they will just prolong the lifespan of the 360. Instead of a new console in 2012, it may be 2013 or 2014.
Most of the first round of cuts came from the Entertainment and Gaming divisions. The entire Gamerscore Blog team was let go. From what I hear from a few inside sources, most everyone was let go via email, which is a total douche move.