Microsoft Gambles
With Xbox 360
Risky Venture Tries to Draw
Gamers and Mainstream,
But Rivals' Systems Lurk
By ROBERT A. GUTH
Staff Reporter of THE WALL STREET JOURNAL
May 13, 2005; Page B8
Microsoft Corp. Thursday night unveiled its much-anticipated Xbox 360, a videogame machine that will attempt to wow traditional gamers while attracting mainstream consumers.
The box is a gamble. It could give Microsoft the lead in the $25 billion videogame market and help establish it as a force in home entertainment. It also could become one of the company's most expensive failures. Microsoft Chairman Bill Gates concedes the risk in pushing forward a game strategy he launched in 2001 with the first Xbox but is confident it will pay off. "Three years from now," he said in an interview, "the world will see that was one of the gutsiest decisions that we ever made."
Microsoft's Xbox 360
Microsoft hasn't disclosed the total amount it has invested in its Xbox business. In addition to earlier losses, the Xbox division has reported losses of about $1.2 billion in each of the past two fiscal years, so the pressure is on the Xbox 360 to not only grab more market share but also to be profitable.
The Xbox 360 will be in stores for the holiday season, Microsoft said, but pricing isn't decided. The Xbox 360 will go up against new videogame consoles from Nintendo Co. and market leader Sony Corp., which are expected to announce their boxes next week and to begin selling them next year.
The Xbox 360 is foremost a game machine. But Microsoft is also betting that its features will entice mainstream consumers to buy it as a tool for broader home entertainment. Historically, hard-core gamers have resisted that approach, arguing that extra features and add-ons rob a console of performance and add cost.
Whether Xbox 360 succeeds will depend heavily on how many top videogames are written to run on it. History is rife with new game machines so powerful it took years before game makers could get the best games to market. A list of top videogame makers have committed to making Xbox 360 games, though Microsoft declined to say which games will be available for the debut.
Microsoft CEO Steve Ballmer and Sun Microsystems CEO Scott McNealy discuss several joint ventures between the two companies.
Then there is the Sony question. Sony has kept plans under wraps for the successor to its hugely popular PlayStation 2, but it has a history of surprising its opponents with its new machines. "I'm confident that [Microsoft] will be good in gaming," said Michael Pachter, an analyst at Wedbush Morgan Securities. "It's just that Sony's going to be just a little bit better."
A look at some of the Xbox 360's features tells a lot about Microsoft's strategy:
The PC Connection: The Xbox 360 will connect with PCs running Microsoft's Media Center Edition of Windows XP, a version of the operating system aimed at consumer uses. The feature is clearly aimed at consumers who might use the Xbox 360 with their television sets to view videos, music, pictures and other files from their PCs. Mr. Gates badly wanted this feature, which could help attract PC users who aren't necessarily gamers.
Hard Drive: The Xbox 360 has a slot for a removable 20 Gbyte hard drive for storing music, images, game information and other data. The first Xbox comes with a built-in 8 Gbyte drive.
High Definition: The Xbox 360 will handle games and videos produced in high-definition format, the technology for producing more-detailed images in TV sets and other devices. The feature is aimed both at gamers and at mainstream consumers who are snapping up HDTVs and might be tempted to put an Xbox in the living room.
Online Marketplace: The Xbox 360 is designed to work closely with Microsoft's Xbox Live online-game service, which will offer a marketplace where gamers can buy and trade game levels, virtual weapons and other game assets. Microsoft will use Xbox Live as a way to introduce new features and services for the Xbox 360.
Speedy Chips: The Xbox 360 runs on custom chips Microsoft built with International Business Machines Corp. and graphics specialist ATI Technologies Inc. The chips will produce more-natural graphics and more-realistic behavior than do today's machines.
Memory: The machine houses 512 Mbytes of RAM, the chips that store data during game play. That is up from 64 Mbytes in the old Xbox . This was an expensive gift by Microsoft to game makers, who pleaded for lots of memory so they could produce more-realistic games.
Design: The Xbox 360 features a sleeker design than did its predecessor, intended to appeal to a broader set of consumers. The 2001 Xbox design was criticized by some as too big and boxy. Borrowing an idea from the cell-phone world, it will offer removable face plates of different designs.
Write to Robert A. Guth at [email protected]
