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The original purpose of the XBox was to kill the profit margins on Sony's cash cow, the playstation. It succeeded in that, and Sony is no longer threatening Mic

The original purpose of the XBox was to kill the profit margins on Sony's cash cow, the playstation. It succeeded in that, and Sony is no longer threatening Microsoft across a range of areas. This was a wise strategic move, and profit was not the main motive. If you think that btilly is not describing and then praising wealth destruction in that quote about Microsoft's Xbox business, please downvote this comment. Thanks. HOW TO DESTROY WEALTH: When I spend $100 on materials and labor, and I can -- at best -- sell the result to you for $80, $20 of wealth is destroyed. Why? Because the original $100 came from the creation of wealth equal to that, and I transformed that $100 into something that is now only worth $80. Literally, wealth was destroyed. If you'd like a more concrete analogy, what Microsoft did is a lot like taking a a 1 carat diamond and smashing it into diamond dust. Only the arrangement of matter has changed, but in terms of wealth, the diamond dust is worth far less than the sparkling 1 carat diamond. It's the same with the $100. As a $100 bill, it is worth exactly $100. Microsoft took that $100 and spend it on labor and materials. The matter in the world stayed the same. But the new arrangement of matter (an Xbox) was only worth $80 to the world. Microsoft destroyed $20 in wealth to the world. This, in a nutshell, is what Microsoft did with the Xbox. Sony was doing something the world wanted with the Playstation. They were literally spending $100 and getting $120 in value out of it. That's what wealth creation looks like. Microsoft did the opposite. Even worse, they did so in order to make it impossible for Sony to create wealth, too. In my book, reducing the wealth of the world for something so stupid, so small, as to "eliminate competition" is about the worst sin a business can do. The literally billions of dollars of wealth destroyed at both Sony and Microsoft by the behavior of Microsoft has hurt the world in enumerable ways. For all we know, had the money been returned to shareholders, we may have made more progress on green energy. Or food production. Or water purification. Or cancer research. Or any of the other things we could have done instead of destroying wealth. That is why the OP is so off base. And why the rest of you should upvote my comment like crazy. Wealth destruction is bad, full stop.

zoomzoom 16y ago
It is not praising wealth destruction, it is praising competition. The market is not a zero-sum game where Sony's loss is everyone's loss.
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  - Hoff 16y ago
    Your position appears to be one of tactical and not of strategic thinking. Per the article, Xbox itself wasn't itself intended to be a large revenue stream. It was (again, per the article) intended to protect other existing revenue streams of Microsoft from a competitor (Sony) that had been enjoying increasing success with gaming products, and a competitor that was then likely to use that success and that revenue to start competing against Microsoft in other arenas and other products. And yes, Xbox does look to have been a wise move. There have been more than a few comments over the years of companies having used press releases and roadmaps and deliberate leaks to freeze a market; to effectively remove the wind from a potential competitor's sails. Steps taken to change the business environment that the competitor is operating in. BTW: the difference between tactics and strategy is analogous to the differences between sales and marketing. Confuse the two at your corporate peril.
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endtime 16y ago
btilly's not praising anything, and (s)he's not describing wealth destruction. You may want to take your own advice.
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- vitaminj 16y ago
  "When I spend $100 on materials and labor, and I can -- at best -- sell the result to you for $80, $20 of wealth is destroyed. Why? Because the original $100 came from the creation of wealth equal to that, and I transformed that $100 into something that is now only worth $80. Literally, wealth was destroyed." In your example, no wealth is actually destroyed in the global sense, only relative to your bank balance (where you lost $20). Most people would call this a negative return on investment rather than wealth destruction. The $100 you spent on labour and materials doesn't disappear into the ether - it is transferred to the people who worked for you and manufactured your materials. They could well do much more productive things with the cash than you and raise the wealth of the society accordingly. Granted, Microsoft may not have used their resources particularly efficiently and there are indeed opportunity costs with their strategy, but who's to say that these resources would've been optimally used?
  - foobarbazoo 16y ago
    Without getting into it too deeply, money is not wealth. It is a wealth transfer mechanism. When wealth is converted into $100 for trade with someone (e.g. Microsoft, by buying Windows and Office products) and Microsoft takes that $100 and converts it into something that can only be traded for $80, it has destroyed wealth, even though the original $100 of money is still around (it paid for materials and labor after all). The "world" still has the $100 that Microsoft used to have, but instead of having $100 worth of wealth to trade it for, Microsoft has stupidly destroyed wealth and now there is only $80 of wealth to trade for. So yes, the money is the same, but the wealth actually did decrease, by $20. Someone, somewhere is stuck with $20 and nothing to buy after the Xbox is sold for $80, thanks to Microsoft. Global wealth was destroyed; the amount of $100 bills stayed the same.
    - btilly 16y ago
      You clearly do not understand economics. When I enter into a trade, the amount of wealth I gain is my utility for the item I am purchasing. The amount of wealth I lose is my utility for what I'm giving away. This is true whether we are trading money for goods, or baseball cards for other baseball cards. Money is just a convenient item that people want which can easily be used to keep score. But since we each value the item at a different price than the trade, we can both become wealthier when we trade. It happens all the time. It happens every time I purchase an apple from the store that the shopkeeper was not willing to eat, but which I am. Let's go back to your example. In your example the person who spent $80 and was willing to spend $100 winds up $20 off wealthier than they were before. That $20 can be traded for some other item of sufficiently higher value, so all the money is likely to remain in circulation. There are other people for whom the item was only worth $90. They are now willing to buy it. And each one that does winds up $10 wealthier. That's new wealth spread around the world. The seller, in your example Sony, now winds up benefiting less from each trade. But they still benefit. And they get new trades that they wouldn't have made before. They might or might not wind up wealthier at the new price point. But even if they become less wealthy, the world as a whole is more wealthy. Incidentally the figures are bigger than you indicate. According to Sony's stock report for Oct-Dec 2000, they were making $175 in profit per PS2 sold. I believe that the Xbox got them to drop the retail price by over $100. At that point Sony was still making a handsome profit. Just less handsome than it had been. (And in truth they didn't have to drop it that much, I think they were trying to make the Xbox too expensive for Microsoft to stick it out. At that price point they made money and Microsoft lost money on every single console sold.)
foobarbazoo 16y ago
Anyone know why I'm not getting more downvotes? Lots of people have upvoted replies to my comment that disagree with me, and I'm assuming they also downvoted my comment. Is the downvoting on some kind of logarithmic scale? I've lost something like 27 karma points, so clearly something is happening. Any ideas? UDPATE: I suppose it could be that people can't read it anymore, and so the downvotes have stopped. Hard to say. My karma has started creeping back up though.
- endtime 16y ago
  However many downvotes something gets, the lowest score that will be shown is -4. The goal of this is to mitigate bandwagon downvoting. I'm not sure it actually works, because when I see -4 I just assume it's something significantly lower, but there you go.
  - foobarbazoo 16y ago
    That explains a lot then. Thanks for the info.

zoomzoom 16y ago

It is not praising wealth destruction, it is praising competition. The market is not a zero-sum game where Sony's loss is everyone's loss.

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- Hoff 16y ago
  Your position appears to be one of tactical and not of strategic thinking. Per the article, Xbox itself wasn't itself intended to be a large revenue stream. It was (again, per the article) intended to protect other existing revenue streams of Microsoft from a competitor (Sony) that had been enjoying increasing success with gaming products, and a competitor that was then likely to use that success and that revenue to start competing against Microsoft in other arenas and other products. And yes, Xbox does look to have been a wise move. There have been more than a few comments over the years of companies having used press releases and roadmaps and deliberate leaks to freeze a market; to effectively remove the wind from a potential competitor's sails. Steps taken to change the business environment that the competitor is operating in. BTW: the difference between tactics and strategy is analogous to the differences between sales and marketing. Confuse the two at your corporate peril.
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endtime 16y ago

btilly's not praising anything, and (s)he's not describing wealth destruction. You may want to take your own advice.

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vitaminj 16y ago
"When I spend $100 on materials and labor, and I can -- at best -- sell the result to you for $80, $20 of wealth is destroyed. Why? Because the original $100 came from the creation of wealth equal to that, and I transformed that $100 into something that is now only worth $80. Literally, wealth was destroyed." In your example, no wealth is actually destroyed in the global sense, only relative to your bank balance (where you lost $20). Most people would call this a negative return on investment rather than wealth destruction. The $100 you spent on labour and materials doesn't disappear into the ether - it is transferred to the people who worked for you and manufactured your materials. They could well do much more productive things with the cash than you and raise the wealth of the society accordingly. Granted, Microsoft may not have used their resources particularly efficiently and there are indeed opportunity costs with their strategy, but who's to say that these resources would've been optimally used?
- foobarbazoo 16y ago
  Without getting into it too deeply, money is not wealth. It is a wealth transfer mechanism. When wealth is converted into $100 for trade with someone (e.g. Microsoft, by buying Windows and Office products) and Microsoft takes that $100 and converts it into something that can only be traded for $80, it has destroyed wealth, even though the original $100 of money is still around (it paid for materials and labor after all). The "world" still has the $100 that Microsoft used to have, but instead of having $100 worth of wealth to trade it for, Microsoft has stupidly destroyed wealth and now there is only $80 of wealth to trade for. So yes, the money is the same, but the wealth actually did decrease, by $20. Someone, somewhere is stuck with $20 and nothing to buy after the Xbox is sold for $80, thanks to Microsoft. Global wealth was destroyed; the amount of $100 bills stayed the same.
  - btilly 16y ago
    You clearly do not understand economics. When I enter into a trade, the amount of wealth I gain is my utility for the item I am purchasing. The amount of wealth I lose is my utility for what I'm giving away. This is true whether we are trading money for goods, or baseball cards for other baseball cards. Money is just a convenient item that people want which can easily be used to keep score. But since we each value the item at a different price than the trade, we can both become wealthier when we trade. It happens all the time. It happens every time I purchase an apple from the store that the shopkeeper was not willing to eat, but which I am. Let's go back to your example. In your example the person who spent $80 and was willing to spend $100 winds up $20 off wealthier than they were before. That $20 can be traded for some other item of sufficiently higher value, so all the money is likely to remain in circulation. There are other people for whom the item was only worth $90. They are now willing to buy it. And each one that does winds up $10 wealthier. That's new wealth spread around the world. The seller, in your example Sony, now winds up benefiting less from each trade. But they still benefit. And they get new trades that they wouldn't have made before. They might or might not wind up wealthier at the new price point. But even if they become less wealthy, the world as a whole is more wealthy. Incidentally the figures are bigger than you indicate. According to Sony's stock report for Oct-Dec 2000, they were making $175 in profit per PS2 sold. I believe that the Xbox got them to drop the retail price by over $100. At that point Sony was still making a handsome profit. Just less handsome than it had been. (And in truth they didn't have to drop it that much, I think they were trying to make the Xbox too expensive for Microsoft to stick it out. At that price point they made money and Microsoft lost money on every single console sold.)

foobarbazoo 16y ago

Anyone know why I'm not getting more downvotes? Lots of people have upvoted replies to my comment that disagree with me, and I'm assuming they also downvoted my comment. Is the downvoting on some kind of logarithmic scale? I've lost something like 27 karma points, so clearly something is happening. Any ideas? UDPATE: I suppose it could be that people can't read it anymore, and so the downvotes have stopped. Hard to say. My karma has started creeping back up though.

endtime 16y ago
However many downvotes something gets, the lowest score that will be shown is -4. The goal of this is to mitigate bandwagon downvoting. I'm not sure it actually works, because when I see -4 I just assume it's something significantly lower, but there you go.
- foobarbazoo 16y ago
  That explains a lot then. Thanks for the info.