Friday, May 04, 2007

There are ways to make money on an Xbox. Generally it's not on the hardware itself; we'll probably be gross margin neutral on that over the life cycle of the product and try to break even on that.

[Regarding the Zune,] people always want to say, gosh, Apple has such a big lead, what are you going to do, how do you possibly compete with that, and why would you bother? And part of my response is, you know, they've sold 100 million devices. So, let's just do some math. You and I can do this. How many people are there in the world? Five, six billion ... every single one of them has a music experience ... [some math ensues] ... you have a target audience of a 1.5 billion people. Not everyone is going to want a digital device; we can go through the yak-yak around that. But the audience is huge, and we are really early in what's going to happen in the music space. And the music industry is … in the process of reinventing itself.

And so for us, A) there's a big market; B) we think the opportunity is just beginning; and C) if you want to be in what we call connected entertainment, you have to be able to connect movies and video with music, with games, with communications technology to be able to do that. You can't not have a player.

So, early phases of this, we're about 10 percent market share in the category we're in, which is the hard disk. That's a good first step. Like Xbox was before it, the first step is what it is, it's nice, it's not perfect. People have commentary and questions and things we can improve, and we would say, yep, you're right. And we're not stupid, we see all those things, and we're good developers, and we know what we need to do. And you're going to see the product get better and better and better. You're going to see us be relentless in marketing. And you're going to see us expand into other parts of the category beyond the hard disk space. And I think we can be successful; I think we can build a nice business.

[On communities,] Zune today probably isn't a great example in the sense that community is part of the process for Zune that we believe in, and we haven't...really created the community environment.

[Regarding consumer electronics,] From a balanced perspective there are categories where we're not going to do devices. We don't do phones. We don't have plans to do phones ... There are other places like Zune where because of Apple's success, and frankly because of the uneven experience we were able to deliver just by being the platform provider, we decided we had to do it ourselves. I have no desire to do hardware ... Xbox is the hardest piece of consumer electronics hardware to produce in the world, no debate. It just taxes way more of anything you could possibly want to do. Zune technically speaking is dramatically easier. Almost any other device you could describe to me would be dramatically easier than producing what we did in Xbox.

And so by becoming experts at doing that, we are building core skill sets that we can leverage other places if we think the business requires it.

I believe people are going to want an entertainment experience that's always connected regardless of the device and the location they're in. If I want to do that, I've got to be great at video, I've got to be great in music, I've got to be great in games, and I have to be great at communications. Those are the building blocks.

Labels: Apple, Digital media, iPod, Microsoft, Zune