The Cost of Owning Up

Yesterday afternoon Peter Moore and the Xbox team at Microsoft announced they would be extending the Xbox 360's already extended warranty to a full 3 year term and retroactively repaying all customers that paid for repairs outside of warranty. Coupled with the improved repair system it seems like Microsoft is finally taking charge of their biggest problem. There are a few things to note about the new warranty extension, not everything is covered across all 3 years.

Within the first 90 days of your initial system purchase you will receive coverage for any manufacture defects or other problems with the system barring physical or chemical damage. Shipping is paid to and from by Microsoft and all you need to do is call 1-800-4MY-XBOX. After the first 90 days (but within the 1 year) all the same things are covered, but shipping is paid for by the user. Microsoft will provide you with a mailing address and leave it up to you how it arrives via post. They will pay for return shipping. After the 1 year (but within the new 3 year) only the "ring of death" issue will be serviced for free. Any other issues with the console will not be covered, this includes other combinations of flashing red lights or various freezing, disc scratching or A/V issues. After the first year you may only get free service if red lights show in the first, third and fourth quadrants of the 360's power button.

The extended warranty policy Microsoft offers has not been changed however. Customers that purchase this coverage will receive three years of coverage, just like everyone else, except that they are fully covered for the three years, not just the limited issue. Likewise, customers that purchase extended service plans from retailers like Futureshop or BestBuy still have much value to their coverage as it too blankets all issues and not just the "ring of death".

When it was reported that Microsoft was improving system repairs by increasing the heat sink, I asked what took so long. Along with a letter from Peter Moore, owning up to the console's magic in a perfectly executed PR coup de grace, Microsoft announced that this extended service, coupled with the retroactive payments would cost the entertainment division approximately $1 billion. That is a lot of money to have ripped from your profits, something very few companies can do. With the retroactive payments Microsoft could have done it anytime, however, it has already been said that this will not be a profitable year for the Xbox division and their plans are to gain in 2008. A deduction of this size would have seriously put the goals in jeopardy, and would have made it very difficult to meet investor expectations. Fixing the problems now rather than later is a no brainer at this point, it clears up the forecast for 2008 and gives more peace of mind for the upcoming holiday shopping frenzy.

It takes a lot for a company to bite a bullet that big. Not only financially, but to literally tell your customers that you knew there was an issue for so long. I think the retroactive payment system will do a lot for disserviced customers, and this extension will satisfy most expectations. I still hope that some fundamental changes happen to the production process so we may see a day with near infallible retail units but for the existing fanbase this will have to do.