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Why Microsoft Must Come Clean About Xbox 360 Flaws

by: Roger Ehrenberg July 11, 2007 | about stocks: MSFT    
Roger Ehrenberg

Roger Ehrenberg

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Microsoft's Xbox 360 and three red lights: like Tylenol and cyanide? Maybe to hard-core gamers who need their fix, or for those in the midst of a multi-player fiesta that gets abruptly terminated when the console melts down. I hadn't really thought about it until I read N'Gai Croal's informative piece in yesterday's LevelUp titled "Confession is Good for the Soul", but Microsoft may have a recall on its hands. But even if it doesn't, it is in the midst of a crisis, and it needs to use the same types of techniques for handling a product defect that crisis managers recommend:

  • Take full responsibility
  • Clearly communicate that you understand the problem
  • Research and communicate the root cause of the problem
  • Do whatever it takes to fix the problem

    • Why? Because brand equity and customer relationships are at stake, the very lifeblood of a company, yet time and time again companies make the same stupid mistakes. In fact, I think N'Gai mis-titled his post: it think it should be "Confession is Good for Business".

    ...the recent announcement that the Xbox failure rate is significantly higher than the generally accepted 3-5 percent standard for consumer electronics products raises questions some important, as-yet unanswered questions. Did Microsoft's zeal to have the Xbox 360 both launch first and turn a profit--after the first Xbox launched second and lost billions of dollars--cause it to cut corners in a headlong rush to market, resulting in the current debacle? What, precisely, are the factors causing Xbox 360s to fail? What is the failure rate? How many devices have been returned thus far over the flashing three red lights? Was Microsoft aware of the magnitude of this problem before it launched the Xbox 360 Elite?

    ********************

    In our interview with Microsoft corporate vice president Peter Moore, he pointedly declined to offer specifics about what was causing the problems on the grounds that he is not a technical person, nor would he answer whether the flaws should be attributed to design or manufacturing.

    This is just inexcusable, a PR gaffe of the highest order. If you're not a technical person, Peter, then either get someone to comment who is or get someone with technical credibility to do the interview, like, say, J. Allard? This side-stepping of a fundamental question is no way to engender confidence or support from either your customer base or the media. All those hard-core gamers that have paid premium prices for your consoles and games - don't they deserve better? I'd say so.

    N'Gai makes the case for Microsoft either doing a recall or providing an offer to replace consoles from the batch numbers that are suspected to contain a high incidence of defects. His argument centers around three specific issues:

    First, it took Microsoft months to acknowledge the scope of the problem, long after afflicted Xbox 360 owners were already complaining loudly, attempting to identify the issue, and desperately inventing homegrown remedies.

    ********************

    Second, there are several highly anticipated games shipping this fall--Halo 3, Grand Theft Auto IV, Call of Duty 4: Modern Warfare, Guitar Hero III and Rock Band--whose addictive nature makes it likely that the players of these games will have their Xbox 360s fired up for hours at a time. If the amateur forensic engineers are correct that insufficient ventilation and poor placement of critical components are largely responsible for the three flashing red lights errors, there could be a slew of already-purchased--and about-to-be-purchased--Xbox 360s succumbing to the Red Ring of Death during the height of gaming season.

    ********************

    Third, absent a definitive statement from Microsoft about precisely when it identified this design flaw and rectified it, it's reasonable to assume that there are still thousands of Xbox 360s in stores with this design flaw.

    I've got to say, these are pretty good reasons, and these map pretty closely to the four crisis management points I cited at the beginning of the post. N'Gai wraps up his post with the following:

    At a six percent failure rate--just one percent more than the generally accepted 3-5 percent range for consumer electronics products--that statement would still be operative. At 30 percent, it would be unacceptable. Microsoft is saying, "Trust us," but given the sheer number of anecdotes about broken Xbox 360s and customer service horror stories, gamers ought to be able to quantify precisely how much trust Microsoft is asking of them. And the fact that Microsoft won't put a number to the failure rate and won't say which batch numbers are affected--while continuing to leave flawed machines on store shelves and in consumers' homes; while not even giving people advice on how to manage their Xbox 360's life span without resorting to Microsoft customer service--to us, that is equally unacceptable. The bottom line is that the answer to "Why would you knowingly continue to sell a defective product?" should not be "We're extending our warranty program." It is for this reason that we say that Microsoft must either be thoroughly forthcoming about the Xbox 360's flaws, or initiate a recall.

    N'Gai is right. It is all about trust. But trust is something that is earned over time, and needs to be constantly re-earned through actions. Microsoft has breached the trust of its single most important constituency, its customers, the effects of which are only beginning to be felt. Come clean, Microsoft, because confession is good for business. And it is also the best way of protecting your brand and your customers.

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    This article has 4 comments:

    •  
      Jul 11 01:18 PM
      Your articles fookin rawk. Any insight into where Nintendo is in their attempts to ramp up Wii production?

      And now, for something completely different...

      Kuwait sucks.
      Reply
    •  
      Jul 11 05:26 PM
      Microsoft's response so far to this crisis shouldn't be a surprise to anyone. It is an extension of their tactics toward competitors; by non-response to journalistic investigation of the defect problem Microsoft is maintaining uncertainty about the extent of the problem with the intent to maintain sales of the product. I think the company's people in charge of this issue think that given the PS3's problems that console buyers have nowhere else to go and so stonewalling won't be that harmful in the long run.

      N'Gai Croal asks "Did Microsoft's zeal to have the Xbox 360 both launch first and turn a profit--after the first Xbox launched second and lost billions of dollars--cause it to cut corners in a headlong rush to market, resulting in the current debacle?" I think that the answer to that question will turn out to be a resounding "yes!"
      Reply
    •  
      Jul 11 09:47 PM
      Sounds like Microsoft is facing some heat with these units.
      Reply
    •  
      Jul 12 07:16 AM
      Shameful. But not at all surprising.

      Microsoft is a company that long ago decided it was playing by its own rules and disregarded competitors, customers and authorities.

      A strategy it may yet live to repent. Severely.
      Reply
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