Is Microsoft Making a Blunder With Its Newest Xbox?

It was supposed to be the biggest console unveiling since... the Xbox. Gamers anticipated the new console, waiting for the latest installment from a company that helped transform the console gaming industry into what it is today.

Then Microsoft revealed the Xbox One -- and the claws came out.

The post-unveiling online chatter shows gamers are still confused about gaming digital rights and backward compatibility. Non-gamers -- whom Microsoft would like to lure in with the Xbox One ­-- are left wondering how something with the name "Xbox" could be anything but a gaming console.

Microsoft has made the mistake in trying to please everyone, and so far it seems no one is happy.

Gaming the system
Microsoft made a crucial error with the Xbox One launch: It failed to target its core customer base. As Ars Technica pointed out, the Redmond company talked for 10 minutes about how the system could connect to live TV, yet only showed three short, lackluster gaming clips. Microsoft tried to woo consumers in the vast streaming market instead of focusing on the people who have made the Xbox brand as successful.

While Microsoft could patch things up with gamers at the E3 gaming conference later this month, they've already left a bitter taste in the mouths of their customers. More importantly, they did it without creating a splash with the average consumer.

Let's step back and think about this for a minute. How likely is it for the average consumer who wants a streaming video unit to buy a $400 Xbox One? I'd say ridiculously unlikely. Not when that same consumer can buy a $50 Roku player or a $100 Apple TV. Those systems offer an amazing amount of content, are much smaller, and arguably less complicated to set up and use for beginners.

Apple sold 5 million Apple TVs in 2012 ­­-- not bad for a "hobby" -- but it's the amount of content the company streams that's impressive. Apple takes up 35% of all home network video streaming data in North America on its iPod, iPad, iPhone, Macs and Apple TV. iPad streaming alone is credited with 10% of all entertainment traffic streamed in North American homes. Although the Xbox One comes with a long list of streaming capabilities, grabbing streaming time away from Apple and other competitors won't be a slam dunk.

But will it sell?
Despite its marketing face-plant, the only thing that really matters for Microsoft and its investors is if the Xbox One actually sells. Gamers may be balking at the new system now, but if they're satisfied with the company's E3 presentation and Microsoft quells fears about digital rights management, then it's possible for Microsoft to turn the tide on this.

The Xbox has been the best-selling console every month for over two years and any change with that trend could mean gamers have cooled on the system. Investors need to see how Xbox One sales are out of the gate, especially against the new Sony Playstation. Although it's obviously too early to tell how the One will do, Microsoft surely hasn't helped its chances of success.

Though Microsoft's future doesn't hinge solely on the Xbox One, the gaming console has been a bright spot for the company -- and investors need it to stay that way. The company is struggling in mobile and its latest Windows OS has been highly criticized. Continuing strong demand for Xboxes would be a welcomed sight. In a new premium report on Microsoft, a Motley Fool analyst explains that while the opportunity is huge for the company, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

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Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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