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Can Microsoft's U-turn stop the Xbox 360 becoming another XP?

Another Lazarus product strangling its successors

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Comment It's shaping up to be a summer of U-turns for Microsoft.

In May Redmond revealed big changes to Windows 8 that increasingly look like a step-away from the all-or-nothing march into the Metro touch UI.

Microsoft's now retreating on Xbox One as Don Mattrick, president of the company's interactive entertainment business, was handed the white flag and sent into no-mans' land armed with the message that Xbox One will permit offline gaming and allow gamers to share games.

It was a major personal climb-down for Mattrick, who had previously told gamers who didn't want to be online all the time to buy an Xbox 360. It was a quick reversal, too, coming just 12 days after Microsoft said its next generation games console would require constant internet access and would restrict use of game titles not originally purchased by the console's owner. The quick change came because gamers were outraged at having to be online to play and would be prevented from swapping Xbox games or buying them secondhand.

Mattrick and the Microsoft executive running the Windows business who announced the Metro changes both cited "feedback." But tech companies generally claim to be taking customer feedback when developing products anyway - certainly Microsoft claimed it was while it developed XBox One and on Windows 8. So what's really different now, and why the sudden swerves?

Microsoft's got a Dr Jekyll and Mr Hyde personality. On the one hand it can be intensely pragmatic and rational - Windows 7 - but when it's got a new idea between its teeth that's when the beast takes over and when common sense is jettisoned - Windows 8.

When Microsoft's Hyde side is in charge, the new idea becomes everything. One example from the distant past is what happened on .NET - that was when everything got burned with the same .NET branding iron. Got a question? .NET was the answer. Got a new product? Call it Product.NET.

You might blame it on techies who can't but help but evangelize newness - or the nature of corporate politics, which turns into a Nuremburg Rally when a new idea is chosen from on high, the slideware pros hold midnight rallies and the staff start living in a new bubble.

But at Microsoft, business and numbers do matter and at some point the ideologists get overruled. In May, the Metro Maoists were spiked. Now it's the Xbox One cadres.

The common factor is that Windows and Xbox are at tipping points: while the big picture is that Microsoft itself no longer possess the kind of stature and muscle it boasted in the 1990s and which let it lead the industry by the nose.

If Microsoft had carried on down the ideological route on XBox and Windows 8, saying "the technology is right it's just the users who are wrong but - hey - they will come around", then the business of the Windows and Xbox units would have suffered and that would have infected Microsoft overall.

Xbox is both one of Microsoft's growth businesses and one that's vital strategically. The Entertainment and Devices unit, that is the home to Xbox, was Microsoft's third fastest growth unit during 2012, coming after Server and Tools and the Business Division - which includes Office.

Microsoft's vision is for a converged front-room entertainment center that includes TV, film, video and music and that combines voice and motion-based control thanks to Kinect.

Before it can get there, however, Xbox must see off Sony's Playstation. The Xbox is in a neck-and-neck race with Playstation to hold onto the world number-two spot gaming console position - Nintendo's Wii is number one. In December 2012, Microsoft surrendered that number-two slot to Sony after two years.

Since the wraps came off the Xbox One in May, meanwhile, Sony has responded with a PS4 console that undercut the Xbox One price by $100, has faster graphics, won't require an internet connection for gaming, and dropped the DRM.

If Microsoft had stuck to its guns, it risked Xbox gamers sticking to Xbox 360. Worse for the Redmond's coffers and market-share battle, it risked disgruntled new gamers picking the PS4 and being lost to Microsoft for life.

Windows 8 is in a similar bind. Growth slowed for the Windows group in 2012, falling 3.4 per cent while all other units - including the seemingly cursed Bing ads-n-search business - managed to grow. Profitability also fell for Windows, down 6.1 per cent due to development of Windows 8 and cost cutting in PC sales. Windows is also no longer Microsoft's biggest cash earner - last year it fell to number three behind Office and Server and Tools, despite the late appearance and expected boost of Windows 8 in October.

Windows 8 was supposed to position Microsoft for a segue from PCs into tablets, a high-growth market - but what the Metro Maoists and bloggers supporting Windows 8 completely forgot was that you need people to actually use the new technology. Without concessions to Windows users who are still happy with a mouse and keyboard, Microsoft risked turning Windows 7 into it's new Windows XP - an operating system that outlives its intended life and strangles its successors at birth.

Microsoft has done U-turns before. What's important is the size of this turnaround compared to previous backtracking.

It surrendered Silverlight in 2010 despite years of persuading UI programmers on the grounds HTML5 is the UI future. On Silverlight, though, Microsoft lacks a serious investment or market share to burn.

In 2012 Microsoft relented on its greyer-than-grey Visual Studio 2012 UI following an outcry from thousands of devs. They were angered by the unilateral abandonment of colour based on a design whim. Microsoft did add a little colour with light and dark themes, but the overall UI remained washed out.

But Microsoft didn't need to make real concessions as the Server and Tools business that Visual Studio belongs to is taking no prisoners, growing at 12 per cent a year with $18.3bn revenue and a fat 18 per cent profit growth. Also, Visual Studio devs - unlike gamers or PC users - are pretty much locked in by the bigger platform choices or their employers or clients.

The same cannot be said for either Xbox or Windows. Here, cooler heads are prevailing because both the numbers and the future are shakier. ®

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