There are seven stages of grief: shock, denial, anger, bargaining depression, testing and acceptance. But with the Xbox 360, which has been giving a significant number of its owners grief, Microsoft last week moved directly from the first stages to the last -- from denying any problems with it to admitting a US$1 billion problem that potentially affects all 11.6 million consoles sold so far.
Three weeks ago Todd Holmdahl, vice president of the gaming and Xbox products group, said repeated problems where people had to take back up to 11 consoles came from "a vocal minority" (tinyurl.com/yqtm4w) and dismissed suggestion of endemic problems.
Then last week Microsoft abruptly announced that it would set aside between US$1.05 billion and US$1.15 billion, charged against the just-finished 2007 fiscal year, to cover the costs of extending the warranty for every machine from one to three years, and to fix the many which show the "red ring of death" -- three red lights on the front panel control ring, indicating a general hardware failure.
How many? Unfortunately, Microsoft still isn't ready to deal with that issue.
"When you look at the financial implication, obviously it's not a small number," said Robbie Bach, president of its entertainment and devices unit.
Sony, which last week had denied it would cut the price of its struggling PlayStation 3, saw an opening and snipped US$100 off the US retail price, prompting a surge in sales there.
Microsoft repeatedly declined to talk to me about precisely what problems the failed consoles suffer from. However, Peter Moore, head of the Xbox division, told Gamesindustry.biz: "There are a lot of different issues that eventually could all combine to create the three flashing red rings that appear on the power button on the console; no [one] specific issue."
He was repeatedly evasive in interviews, leaving the impression that the problems were either profound -- or embarrassingly simple.
The financial problems, though, are stark. The sum being set aside amounts to between US$90 and US$99 for every console sold -- extra loss on machines that are already sold at a loss. On its launch, analysts reckoned that each Xbox contained US$525 worth of components; but the machine sold for, at most, US$499, and more price cuts are rumored to be on the way to keep ahead of Sony. On average, Microsoft took a US$126 loss on each console sold at its starting price -- US$1.4 billion so far.
The billion-dollar figure also indicates that Microsoft's repeated insistence that the failure rate was about average for such hardware -- that is, between 3 percent and 5 percent -- cannot have been true. The real failure rate is probably about five times greater than the company has admitted, which would put repair costs at between US$330 and US$660 per console. At that upper limit, it would be cheaper for Microsoft simply to send a cheque for a brand new console. So what are the causes?
Owners and analysts have made their own investigations. The most obvious suggestion is that parts overheat; the Xbox 360 draws 160 watts, which has to be dissipated via two large heatsinks and two fans. One suggestion is that when the machine gets hot, the motherboard warps and pushes the graphics processing unit (GPU) off its board. Another is that some of the soldering is imperfect and so cracks at high temperature. A Microsoft support document (tinyurl.com/2qnefa) also suggests, improbably, that surge protectors and extension strips contribute to the problem by preventing the current surge needed for the fans to turn on; this seems unlikely, since that surge would be too small to trip them.