Microsoft and the Xbox 360

Your potential. Our passion.

Microsoft; established on April 4, 1975 is an American multinational corporation develops, manufactures, authorizations, and provisions a wide range of products and services related to computing and networking. It is the biggest software corporation in the world stately by revenues. They offer Microsoft Windows line of operating systems. Microsoft is dominating the market now in both the PC operating system and office suite markets with Microsoft Office. Microsoft, a software company had long been the most popular operating system for playing computer games also, but later on Microsoft concerned about being the market leader in video game industry market with their XBOX 360 console in 2005. The Xbox 360 was released on November 22, 2005; designed to be a high-defination entertainment hub that comprised games, movies and music. Microsoft offered two models of Xbox 360: Premium package: a hard drive and headphones for $399. Core version: with no hard drive priced at $299. Also they comprised that high definition movie playback will be supported through Xbox live store for downloadable content and concluded an HD-DVD add-on drive capable of playing high-definition video discs.

Competitors:
Sony's PlayStation 3 Nintendo's Wii Sega Microsoft and The Xbox 360 Ring of Death

Executive summary:

Microsoft and The Xbox 360 Ring of Death

Key problems Of Xbox 360:

Technical Design and production defects:
X-Box 360 has certain technical design and product defects. More than 59% of registered members experienced at least one Xbox 360 system failure. One of the main problems was console malfunction, means stopped working after displaying three flashing red lights around the power button. And other investigation result showed that there were components missing in the drive mechanism and gamers also found scratched discs while using the Xbox 360. Poor quality control problem was also encountered by engineers at Microsoft. The possible reasons behind technical defects of Xbox 360 are: Poor thermal design causing the overheating caused the Red Ring of Death and also the scratched discs. Missing components needed which are necessary to stabilize discs while they are spinning. poor quality control at the companys Chinese manufacturing sites ( Celestica, Flextronics and Wistron)

Lack of customer confidence:

Repeated Hardware failure increased by 2007. Because of high system failure rate consumers were ultimately losing their confidence on Xbox 360. Consumers were complaining against dead consoles, red ding of death and overheating. By time high system failure rate have caused increased rate of customers dissatisfaction.

Microsoft and The Xbox 360 Ring of Death

High repair cost was another issue. As this technological devices takes a lot to get repaired so that every consumers cant afford to repair their Xbox 360 repeatedly because that time general hardware failure was too much to handle by consumers. Putting it all together consumer confidence was decreasing day by day for Xbox 360.

Supply Shortages
On beginning Microsoft faces a significant supply shortage during the consoles first few months on the market. They had the customers waiting in front and a number of preorders went unfulfilled too. Microsoft appealed it as the inflexible process of manufacturing complex product by how supply shortage was there for Xbox 360. Though despite all Microsoft claimed launch of Xbox 36o was a great success

Environment Analysis:
Analysis of the Internal Environment:

Strength:
Findings of the internal strengths and weaknesses of the Xbox 360 from the case: Strong brand image of Microsoft Providing online support. Significant market share. World leader in video gaming industry. Owned some most valuable brands within market

Weaknesses:
Design and production defect Poor quality control on Chinese manufacturing sites Using poor thermal design High production cost Microsoft and The Xbox 360 Ring of Death

 Alarming system failure

Analysis of external environment:

Opportunities:
More than five million customer base Usage as entertainment hub for games, movies and music. Grossing revenue through software sales & third party licenses Gathering live information about the consumers Expending own low cost processors.

Threats:
Competitors (Sony and Nintendo ) are doping their console price High warranty repair cost Competitors are always improving their technology Users are lacking confidence. Unwilling relationship with the subcontractors

Internal environmental scanning:

Loss from Design and production defect: Xbox 360 video game console is matter to a number of technical complications and failures that can render it unworkable. Design flaws of Xbox 360 have resulted more than US$1 billion in warranty repair cost and contributed to a nearly $2billion loss for the 2006-07 fiscal year. Even Microsoft has faced supply shortage in the very beginning of launching Xbox 360. Alarming system failure: Xbox 360 console malfunction was one of the major issue for Microsoft. The Xbox 360 has faced several system failure. More than 59% of registered members experienced at least one Xbox 360 system failure ,

Microsoft and The Xbox 360 Ring of Death

which turned into savior technical fault ever by Microsoft. Consumers were consistently reporting about brand-new 360s,from game crashes to hard drives that dont work and the three flashing red light known as red ring of death, overheating. The overall situation of system failure caused customer dissatisfaction and other major issues for Microsoft. Poor quality control on Chinese manufacturing sites: Microsoft subcontracted production of the Xbox 360 to three Chinese manufacturers, Celestica, Flextronics and Wistron. Flextronics and Wistron also produced the original Xbox but Celestica was a new partner for Microsoft. When the Microsoft design issue came up sits multiple things which were causing Xbox 360 failures but Microsoft engineers believed that the problems were the result of design flaws and poor quality control at the companys Chinese manufacturing site.

PEST Analysis:
Political: Microsoft provides third party licenses. Consoles are covered by warranty program. Economical: Selling product on Won significant market share Social: Lack of consumer confidence. It designed to be entertainment hub Direct Information sharing with the customers Technological: After sale repairmen facility Downloadable content Online gaming service

Microsoft and The Xbox 360 Ring of Death

External Environmental Scanning:

Competitors (Sony and Nintendo): Microsoft launched its console in 2005, one year before the rivals Sony and Nintendo wii. They have established their customer base already within one year. Despite this positive plan, Xbox 360 made a wrong move, by time Nintendo wii quickly captured lead of monthly sales in major market and Sony slowly started gaining around the market. Microsoft underestimated the competitors by overseeing the development and launch of Microsofts next generation consoles. The launce of the Nintendo wii and Sony PlayStation 3 in November 2006 had a major impact on Xbox 360 sales. In 2007, Microsoft sold 250000 Xbox 360 consoles in japan, third most important market for video games after North America and Europe compared to 3.6 million Nintendo Wiis and 1.2 million Sony PS3s. Xbox 360s high failure rate played a role in the consoles declining market share.

Users are lacking confidence: Repeated Hardware failure, overheating, three flashing light, scratched discs, design flaws, missing components etc. a vast list of problems customers faced from Xbox 360.In 2005 Xbox was loved by consumers, it was a huge demand in consumers. But by 2006 customer satisfaction rate started to fall because of console malfunction. In 2007, it got worse when consumers had repeatedly failed unit frequently. They started to give up on consumers. 2111 people experienced at least one Xbox 360 failure. By comparison, the failure rates for the Nintendo Wii and the Sony PlayStation 3 were estimated to be 2.7 percent and 10 percent respectively whereas Xbox 360 had failure rates of between 16 and 33 percent. Consumers were dissatisfied crucially on Xbox 360.

Microsoft and The Xbox 360 Ring of Death

Strategic Group Maps:

Porters five forces analysis:

Bargaining power of Buyers: Manufacturers of Xbox 360 depended on Buyers to stay in business, for those buyers were a significant portion of the industries revenue. Because of low switching cost buyers easily could switch to the competitors. And it was logical because customers confidence over Xbox were lost by then of console malfunction. Threat of Potential entrants: Industry of video game console is very mature. Manufacture must be able to achieve economies of scale. The upscale technological product like Xbox 360 consoles takes an incredible amount of capital to manufacture. Top manufactures have huge amount of loyal customers which may shrink the market share for new entrant. Competitors: Major competitors like PS 1, 2 & 3, Nintendo Wii and GameCube are so closely balanced that it increases the rivalry inside the industry. Lack of differentiation opportunities also caused the close competition. Competitors are compared to one another constantly because of same product. And each and every Competitors are improving themselves frequently with new technology. Bargaining power of suppliers: There are so many parts that are used to produce an gaming device. Microsoft outsourced their product to three Chinese electronics manufacturers. Manufacturers and subcontractors can easily switch to another supplier or manufacturers if it is necessary. Threat of Substitute: There are too many same kind of substitute product in the market Peoples have a chance to choose between the blue-ray, personal computer, HD TV and other lower priced gaming device as a entertainment tool. Substitutes products all depend on the geographic location and the economic condition of the consumer.

Microsoft and The Xbox 360 Ring of Death

SITUATIONAL ANALYSIS:
EFAS Matrixes for Xbox 360:

Key External Factors Opportunities

More than five million customer base

Weight

Weighted Rating Score

Comments Strong network of consumer brings maximum profit for the company. Introduced exclusive & unique technology on gaming industry.

0.15

0.75

Usage as entertainment hub for games, movies and music. 0.11 Grossing revenue through software sales & third party licenses. 0.08 Gathering live information about the consumers 0.12 Expending own low cost processors 0.05 2 0.1 1 0.12 4 0.32 3 0.33

Engaging in profit maximization.

Maintaining consumer relationship. Generating Cost cutting process but not losing sales.

Threats

Microsoft and The Xbox 360 Ring of Death

Competitors are decreasing price and improving technology.

0.15

0.45

Caused tough competition faced for video gaming console. Caused customers unwillingness to repeat purchase. Caused customer dissatisfaction about the product Caused poor quality products with technical flaws

High warranty repair cost

0.07

0.07

Users are lacking confidence. Unwilling relationship with the subcontractors Total

0.18

0.72

0.09 1.00

0.18 3.04

IFAS Matrixes for Xbox 360

Weighted Score Comments

Key Internal Factors

Weight

Rating

Strengths
Strong brand image of Microsoft. 0.15 5 0.75 Increasing profit maximization through using technology Increasing Productivity. Diversified business area. Competitive advantage. Key to success.

Providing online support. Significant market share. Owned some most valuable brands within market.

0.08 0.10 0.04 0.10

2 3 1 4

0.16 0.3 0.04 0.4

World leader in video gaming industry

Microsoft and The Xbox 360 Ring of Death

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Weaknesses Design and production defect 0.18 Poor quality control on Chinese manufacturing sites 0.13 Using poor thermal design 0.15 High production cost 0.07 Total 1.00 1 0.07 3.15 3 0.45 2 0.26 4 0.72 Reducing extra wages High pension and retirement benefits Introducing new routes Increase in training and recruiting cost

Microsoft and The Xbox 360 Ring of Death

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Internal Factors

Strengths (S) Strong brand image of Microsoft Providing online support. Significant market share. World leader in video gaming industry. Owned some most valuable brands within market

Weakness (W) Design and production defect Poor quality control on Chinese manufacturing sites Using poor thermal design High production cost

External factors

Opportunities (O) More than five million customer base Usage as entertainment hub Grossing revenue through software sales & third party licenses Gathering live information about the consumers Expending own low cost processors. Threat (T) Competitors (Sony and Nintendo ) are doping their console price High warranty repair cost Competitors are always improving their technology Users are lacking confidence. Unwilling relationship with the subcontractors

SO Strategies Using brand image to expand new customer base Improve game console with new feature by according to customers frame of mind Marketing valuable brands as a alternative entertainment

WO Strategies Lowering the production cost by using customized low cost quality processors Introduce proper quality control on all manufacturing sites Make the consoles more attractive and reliable bye using high-tech technology

ST Strategies Using brand image to make enough loyal customer group Introduce long term plan with technological advancement to protect and expand market share

WT Strategies Reducing system failure rate and providing quality after sale service Partnering with another manufacturer who are more experience in designing complex computer hardware

Microsoft and The Xbox 360 Ring of Death

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Possible solution for the problems:

Technical Design and production defects: Technical design and production defects can be avoided by reducing system failure rate and providing quality product. Lead proper quality control on all manufacturing sites can help to avoid as much as flaws. As the Chinese manufacturing is poor then partnering with alternative manufacturer who are experienced in designing complex computer hardware will help to make quality products. After sale service for technical difficulties also can be a good way. Experienced human resource needed for this kind of complex designed product. Rather than focusing on rapid growth in market share making quality product should get more attention; evaluating every console produced by skilled people, re-checking the devices is needed. Lack of customer confidence: Using brand image to expand new customer base can help to regain the confidence. Make the consoles more attractive and reliable bye using high-tech technology. Introduce long term plan with technological advancement to protect and expand market share Supply Shortages

using good material and deploying more research bodies mproving testing system improving production machineries

Microsoft and The Xbox 360 Ring of Death

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