Microsoft is making a ton off of Xbox Live subscriptions. So much that it has made their entire entertainment division profitable (even though they lost money on xbox and xbox360 hardware sales).
Let's not forget that Microsoft was the first to build the modern comprehensive online console gaming experience. In addition to being a big revenue stream, monthly subscriptions also have the advantage of being very sticky: there are no sudden movements in this stream of revenue, but gradual trends.
@metamemetics - I agree. With the Xbox - though seemingly unprofitable for years (in the beginning) - Microsoft has deployed a successful strategy (or at least the product turned successful). I decided to not venture into that area of MS business (and have left many other sides of their business undiscussed as well).
Even in the entertainment area though - casual gaming and handheld gaming (two very important businesses) have been largely left untouched by MS.
I also agree. The XBOX and newest generation of Zune/Windows Phone 7 are probably the most innovative things to be -released- (Courier is therefore discounted) from Microsoft in quite some time. You can also argue that they are the Microsoft platforms with the best user experiences. Even MS haters are hard pressed to say that they outright suck.
Where MS has stumbled, in my minds and of my colleagues' minds, is the dumbing down of Windows and Office products. In terms of usability, Windows XP and Office 2003 were a good balance of function and learning curve.
I'm of the view that Windows and Office have been around long enough to be quite pervasive, at least in the first world. With such high PC penetration in the marketplace, excessive tweaking to the Office and Windows GUI to make it more palatable to non-computer users was probably unnecessary effort, but I'll also concede that the new chrome probably sold a lot of upgrades.
They might have a good chance of breaking through to handheld gaming with windows phone 7. I would wager a bet that XNA is the only thing that gives it any chance of surviving.
Now would be a great time to spin off the entertainment division to let it grow without undue interference and focus on being a good, boring, corporate-centric company.
Let's not forget that Microsoft was the first to build the modern comprehensive online console gaming experience. In addition to being a big revenue stream, monthly subscriptions also have the advantage of being very sticky: there are no sudden movements in this stream of revenue, but gradual trends.