When Microsoft Corporation (NASDAQ:MSFT) introduced the Xbox One, the features it touted seemed completely misaligned with its core gamer customers. Sony Corporation (ADR) (NYSE:SNE), however, struck hard and aimed its new PlayStation 4 squarely at hard-core gamers. Microsoft is already in catch-up mode.
Microsoft Corporation (NASDAQ:MSFT) launched its marketing efforts for its new Xbox game system by stressing it as a living room media hub. For example, customers can use it to replace their cable box, it will play DVDs, and it will stream video over the Internet. These are all great features, but the people most interested in the new game system care more about gameplay than media capabilities.
However, the news that the Xbox would limit the ability to buy, sell, and trade physical copies of video games sent bolts of anger through the gamer ranks. Around 25% of GameStop Corp. (NYSE:GME)’s business comes from the used category. Its strength in this market is a key differentiation from competitors like Wal-Mart Stores, Inc. (NYSE:WMT). The magnitude of this segment at the leading video game chain shows just how important the used game market is to customers.
Gamers quickly started to bash Microsoft Corporation (NASDAQ:MSFT) for this decision. Sony Corporation (ADR) (NYSE:SNE), meanwhile, announced that the new PlayStation would have no such limits. According to The Wall Street Journal, after Sony announced it wouldn’t place limits on physical games, PlayStation 4 preorders rocketed the device to the top of Amazon.com, Inc. (NASDAQ:AMZN)‘s video game sales chart.
We Changed Our Mind
Microsoft Corporation (NASDAQ:MSFT) quickly reversed course, removing the limitations on physical games. While gamers can rejoice at the backpedaling, it’s a sign that Microsoft isn’t hearing its customers. The release of Windows 8 is another example. The PC operating system removed the “start” button that Microsoft had trained customers to use. So many users felt lost that Microsoft is planning updates to return something similar to the “start” button to the new OS.
Microsoft Corporation (NASDAQ:MSFT)’s Entertainment & Devices division accounts for about 13% of the top-line. While the Xbox isn’t a make or break product, it is important to the company’s business. Moreover, the fact that Xbox overtook Sony as the top selling game machine over the last couple of years provided Microsoft with bragging rights. If this miscue undermines the Xbox One launch, Microsoft’s positive steps to build its mobile business could quickly be overshadowed.
That, however, could present a buying opportunity for long-term investors. Microsoft’s top-line has been growing strongly in recent years despite the company’s lack of mobile penetration. And with a suite of new offerings in the mobile and PC space creating a Windows ecosystem, there looks to be a light at the end of the mobile tunnel.
Yielding around 2.7%, growth and income investors should take a look. While the ship doesn’t turn as fast as it used to, don’t mistake Microsoft’s slow shift into mobile as a sign of long-term failure. Consider any Xbox related weakness a buying opportunity.
Needing a Win
Sony, of course, will be the big beneficiary of any weakness in Microsoft’s Xbox business. That’s a good thing, too, because the company could use some positive news. Sony’s struggling electronics arm has left the company posting red ink for the past four years. The current year looks likely to bring that tally up to five.