Microsoft Xbox 360

When Microsoft rushed its video game console, Xbox, to market in November 2005 it had a one year advantage over Sony and Nintendo. By 2007 they had sold over 11.6 million units at prices between $279 and $479 … depending on the configuration.

Unresolved issues plagued the project from the beginning. When Journalists and reviewers were invited to try the game in 2005, before it became available on store shelves, they encountered problems when connecting it to the internet (N’Gai, 2007). Shortly after the game was introduced to the public, users complained that that the console damaged game disks and that these disks could no longer be used (Cliff, 2007). In 2005 Microsoft recalled the power cords concerned that they posed a fire hazard (Wolverton and Takanashi, 2007). Then in December 2006, in an apparent response to these and other issues, Microsoft extended the warranty from 90 days to one year.

But problems persisted. Blogs and forums complained about the “Red Ring of Death” referring to a string of three lights that illuminate on the console when a serious problem is detected. One survey found that the return rate was 33 percent (Cliff, E, 2007)

Then in July 2007, Robbie Bach, president of Microsoft’s Entertainment and Device Division, said that “In the past few months, we have been having to make Xbox 360 console repairs at a rate too high for our liking” (Associated Press, 2007) (Mintz, 2007). Shortly thereafter, Microsoft announced an extension of the warranty from one to three years at an expected cost of $1 billion. This represented about $100 for every Xbox sold since its introduction in 2005.

Later in the same month Microsoft announced that its top gaming executive, Peter Moore, was leaving the company, but they denied that his departure was related to the Xbox’s engineering problems (Wingfield, 2007)).

Lessons Learned

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Perhaps the dominant lesson here is the trap called “conservatism” in which new data is largely ignored to protect the status quo. Here, in the face of a continuous stream of product returns and customer complaints, those who were responsible for the project were unwilling to acknowledge that the problem was serious; that customer satisfaction and loyalty was deteriorating rapidly; that the product needed to be redesigned; and that customer satisfaction needed to be addressed.

The sunk cost trap also played its part. In the sunk cost trap, a course of action is not abandoned because considerable time or money has already been spent on the project, and those in charge are reluctant to abandon the project or take steps to delay the project in any way. For the Xbox, considerable investment in the product had already been made, sales were strong, and since the division had yet to turn a profit, there was pressure to continue at any cost. Returning to earlier stages of design, issuing a recall for the defective units, and replacing them with new units was apparently not a realistic option.

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