New Xbox: Games are just the start

MercuryNews.com | 05/13/2005 | New Xbox: Games are just the start

Beyond being a killer machine for gamers, the Xbox 360 makes good on the company's original plan in 2001 to unleash a ``Trojan horse.'' That is, consumers buy the console as a game box, but they use it for all sorts of digital entertainment. The Xbox 360 goes on sale in the fall but Microsoft has not revealed its price.

The Xbox 360 will play not only games but movies, music and photos. It will connect to the Internet, letting players chat with each other and buy gaming merchandise at an online marketplace. The Xbox's high-definition games will have more of a cinematic feel, and the Xbox 360 will have more horsepower than any personal computer available today.

Beyond expanding the reach of video games -- now found in about 45 percent of U.S. homes -- Microsoft Chairman Bill Gates wants Microsoft technology to be a gateway to all sorts of paid entertainment. At stake are billions of dollars as consumers begin to use such devices for getting everything from Internet TV to downloads of new video game levels.

Microsoft has been willing to tolerate big losses in pursuit of this strategy. The group that includes the Xbox has lost $1.4 billion in the past seven quarters.

``The PC is not going to be the device that wins, so this is the major play that Microsoft is making for the future,'' said Rob Enderle, an analyst at the Enderle Group. ``This is going to put a huge amount of pressure on Sony.''

But Microsoft only can win if it loosens Sony's much stronger grip on gamers. Moore said Microsoft has learned lessons from its first foray into gaming. Sony outsold the original Xbox, with roughly 87 million consoles sold vs. Microsoft's 20 million.

Microsoft did nose out Nintendo as the No. 2 player, beating a company which has been making games for more than 50 years. However, the Xbox fell flat with Japanese consumers, who didn't like the games and who thought the console was too big for their smaller living spaces.

Outdoing initial expectations, the Xbox will come with a 20-gigabyte hard disk and 512 megabytes of memory as well as free online services. The Internet strategy lets Microsoft tailor its ads and other pitches directly to a gamer's personal tastes. Rivals will have to weigh matching Microsoft's expensive upgrades or risk producing less impressive games.

With the Xbox 360, Microsoft is having an easier time lining up game developers and publishers. The company and its allies have more than 160 games in the works, and Microsoft has seeded the developers with thousands of game-making kits.

Electronic Arts, a reluctant supporter of the first Xbox, is now wholeheartedly devoting resources to Xbox 360 games, said a person familiar with the matter who asked not to be identified. Microsoft also has made it easy to create games that run on either a personal computer or the Xbox 360.

``I believe we can win this time,'' said Shane Kim, head of Microsoft's Game Studios, which makes games for the Xbox and the PC. ``We have a massive amount of investment in this project.''

Microsoft has loaded the Xbox with entertainment extras to win over the ``swing voters'' who aren't sure what console they want. But it has stopped short of making the machine into an unwieldy PC.

``It's more like a digital amplifier, not a full stereo,'' said Peter Moore, corporate vice president of worldwide marketing and Xbox publishing at Microsoft.

Analysts briefed about Microsoft plans said the company likely will take business away from Sony, which has 68 percent of the console market.

``I think it's going to be a neck-and-neck battle this generation,'' said Van Baker, an analyst at market researcher Gartner. ``It's clearly much more of a horse race.''

``They've done their work this time, and it's an even playing field,'' says Richard Doherty, an analyst at market analyst firm Envisioneering Group. ``Does it have bang beyond a game console? Absolutely. But are they going to deliver? That's the question.''