Microsoft and the XBOX 360 Ring of Death1

7/31/2019 Microsoft and the XBOX 360 Ring of Death1

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Microsoft and The Xbox 360 Ring of Death 1

Microsoft and the Xbox 360

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 forplaying 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


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Executive summary:


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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 afterdisplaying three flashing red lights around the power button.

And other investigation result showed that there were components missing in thedrive 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 andalso the scratched discs.

Missing components needed which are necessary to stabilize discs while they arespinning.

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.


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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 pre-

orders 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:

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

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


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Alarming system failureAnalysis of externalenvironment:

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.

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 ismatter 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 majorissue for Microsoft. The Xbox 360 has faced several system failure. More than

59% of registered members experienced at least one Xbox 360 system failure ,


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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: Microsoftsubcontracted 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 qualitycontrol 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


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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, threeflashing 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.


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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 themarket 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.


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SITUATIONAL ANALYSIS:

EFAS Matrixes for Xbox 360:

Key External Factors Weight RatingWeighted

Score

Opportunities Comments

More than five million customer

base

0.15 5 0.75

Strong network ofconsumer bringsmaximum profitfor the company.

Usage as entertainment hub forgames, movies and music.

0.11 3 0.33

Introducedexclusive & uniquetechnology ongaming industry.

Grossing revenue throughsoftware sales & third party

licenses.

0.08 4 0.32

Engaging in profitmaximization.

Gathering live information aboutthe consumers

0.12 1 0.12

Maintainingconsumerrelationship.

Expending own low costprocessors

0.05 2 0.1

Generating Costcutting process butnot losing sales.

Threats


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Competitors are decreasing priceand improving technology. 0.15 3 0.45

Caused toughcompetition facedfor video gamingconsole.

High warranty repair cost 0.07 1 0.07

Caused customers

unwillingness torepeat purchase.

Users are lacking confidence. 0.18 4 0.72

Caused customerdissatisfactionabout the product

Unwilling relationship with thesubcontractors 0.09 2 0.18

Caused poorquality products

with technical flaws

Total 1.00 3.04

IFAS Matrixes for Xbox 360

Key Internal Factors Weight RatingWeighted

ScoreComments

Strengths

Strong brand image of Microsoft.

0.15 5 0.75

Key to success.

Providing online support. 0.08 2 0.16

Increasingprofitmaximizationthrough usingtechnology

Significant market share. 0.10 3 0.3

Increasing

Productivity.

Owned some most valuable brandswithin market. 0.04 1 0.04

Diversifiedbusiness area.

World leader in video gaming industry0.10 4 0.4

Competitiveadvantage.


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Weaknesses

Design and production defect

0.18 4 0.72

Reducingextra wages

Poor quality control on Chinesemanufacturing sites

0.13 2 0.26

High pensionandretirement

benefits

Using poor thermal design

0.15 3 0.45

Introducingnew routes

High production cost

0.07 1 0.07

Increase intraining and

recruiting cost

Total 1.00 3.15


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Internal Factors

External factors

Strengths (S) Weakness (W)

Strong brand image ofMicrosoft

Providing online support.

Significant market share. World leader in video

gaming industry.

Owned some most valuablebrands within market

Design and productiondefect

Poor quality control onChinese manufacturing sites

Using poor thermal design High production cost

Opportunities (O) SO Strategies WO Strategies

More than five millioncustomer base Usage as

entertainment hub

Grossing revenuethrough software sales& third party licenses

Gathering liveinformation about theconsumers

Expending own lowcost processors.

Using brand image toexpand new customer

base

Improve game consolewith new feature byaccording to customersframe of mind

Marketing valuablebrands as a alternativeentertainment

Lowering the productioncost by using customized lowcost quality processors

Introduce proper qualitycontrol on all manufacturingsites

Make the consoles moreattractive and reliable byeusing high-tech technology

Threat (T) ST Strategies WT Strategies

Competitors (Sonyand Nintendo ) aredoping their consoleprice

High warranty repaircost

Competitors arealways improvingtheir technology

Users are lackingconfidence.

Unwilling relationshipwith thesubcontractors

Using brand image to makeenough loyal customergroup

Introduce long term planwith technologicaladvancement to protect andexpand market share

Reducing system failure rateand providing quality aftersale service

Partnering with anothermanufacturer who are moreexperience in designingcomplex computer hardware


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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 systemimproving production machineries

Microsoft and the XBOX 360 Ring of Death1

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