Steve Ballmer learned a painful lesson with Vista the hard way. Is Microsoft Corporation (NASDAQ:MSFT) about to repeat that mistake with the Xbox One?
Microsoft Corporation (NASDAQ:MSFT)’s disappointing Vista operating system was an easy target for Apple Inc. (NASDAQ:AAPL) attack ads several years ago, but the clunky platform was doomed even before Justin Long and John Hodgman began trading zingers about it.
Customers weren’t happy.
“Application compatibility in Vista was not as high as many of our customers would have liked,” CEO Steve Ballmer conceded five years ago, more than a year before it was relieved by Windows 7.
“What we have learned is that maybe our customers care a little bit more about compatibility and a little bit less about security,” he concluded, believing that customers would eventually come around.
They didn’t. Compatibility was too important. Apple Inc. (NASDAQ:AAPL) was able to take plenty of shots with its attack ads, but Vista’s demise was self-inflicted. It was an island.
This brings us to the Xbox One’s lack of compatibility with earlier gaming consoles.
Despite packing plenty of bar-raising features, the one thing that could keep buyers back initially is the inability to play Xbox and Xbox 360 games. Sure, there are often obscure titles that don’t make the upgrade cut, but by switching to a brand-new Advanced Micro Devices, Inc. (NYSE:AMD) chip architecture we’re talking about Xbox and Xbox 360 discs being worthless on the Xbox One. The Wii U and the upcoming PlayStation 4 will all be powered by AMD now.
For now, the big loser here is GameStop Corp. (NYSE:GME). The shares tumbled 19% last week, weighed down by the Xbox One news and a ho-hum quarterly report. The video game retailer score juicy margins in its resale business, and Xbox One owners won’t be buying a lot of older secondhand games anymore. They will probably be selling their discs, and that will create an inventory glut at your local GameStop that will likely drive prices lower.
However, the lack of backward compatibility will naturally also sting Microsoft Corporation (NASDAQ:MSFT) — just as it did with Vista. Microsoft argued that time would heal the dissent. Developers would upgrade their applications for Vista, but customers don’t usually crave the hassle or additional costs to make something that used to work just fine work again on a new operating system.