Every now and then (think Windows ME), Microsoft screws up. Although it’s too early to tell, Windows 8 might be another gigantic mistake. Right now, however, I’m talking about Xbox Live and the big mistake Microsoft made with it.

If you buy an Xbox 360, Microsoft asks that you pay a monthly fee to gain access to something called Xbox Live Gold. Remember that you’ve already shelled out big bucks for the game console, only to find out that the bulk of your online experience is going to cost you even more money. Big mistake on Microsoft’s part.

By insisting that Xbox 360 users pony up money for access to Xbox Live Gold, Microsoft is shutting out millions of users from spending money with Microsoft and its premium content providers. Want Netflix? Add the Xbox Live Gold monthly fee to the till. Want Hulu or any of the other premium content? Add the Xbox Live Gold monthly fee to the till. Microsoft could have charged the providers a fee to have access to its Xbox Live users but they decided to charge their own users, instead. In a stupendous moment of short-sightedness, Microsoft has pulled a classic ‘forest for the trees’ move here.

The big picture is that Xbox Live is a portal to the online Xbox experience. Once people get online with their Xbox consoles, the world of online shopping should be open to them. Instead, Microsoft charges you before you even get into the store. An analogy to this would be if Gillette started charging for its razors. Gillette now offers its razors pretty much for free. Hell, they’ll even send one out to you without you even asking for it! Everyone knows that the money is in the blades, not the razors.

Microsoft wants it both ways. Instead of seeing the potential in customers using the Xbox Live site as an online store to generate revenue, Microsoft has slammed that door shut. In a revolving series of discounts advertised on the skimpy free portion of Xbox Live site, Microsoft offers free weekends of the Gold experience, as if someone somewhere realizes the importance of this particular online portal but is bound by some internal law at Microsoft that nothing is ever free.

By not looking at the big picture, Microsoft has limited itself in a way that Sony never did with its PS3. The PS3 experience is much more attractive for consumers. Instead of having to shell out a monthly fee, PS3 users have access to a wealth of content as well as ample advertising for premium material. Sony has you covered. It offers you a good amount of ‘free’ while at the same time having a platform for ‘extra cost’.

In some ways, I think this is a difference between the American business template as opposed to the Japanese template. Instead of gouging you for everything, Sony at least, gives you a decent amount of content and has a built-in platform for its own advertising. Microsoft has missed the boat completely on this one.

Thanks for reading!