The X-Factor: With Its Eagerly Awaited Xbox, Microsoft Gets into the Videogame- Console Business

Newsweek, November 5, 2001 | Go to article overview

The X-Factor: With Its Eagerly Awaited Xbox, Microsoft Gets into the Videogame- Console Business


May you live in interesting times, an old Chinese curse says. Microsoft may soon discover what that means. On Nov. 15 its $299 videogame console called Xbox comes out, to go head-to-head against Sony's PlayStation 2 and the Nintendo Gamecube, to be released three days later. In just 19 months the game-hardware newbie has become a credible player by building its device from scratch and acquiring exclusive rights to sought-after titles like the marine adventure Halo and the beat-'em-up brawler Dead or Alive 3. But the competition is stiff. The $299 PlayStation 2 has shipped 20 million units worldwide since March 2000. Nintendo has legions of loyal fans.

Both of Microsoft's rivals have weaknesses. PS2 developers are still complaining about the difficulty of making games under the complicated Sony technology. And Nintendo is still releasing games at a snail's pace and doing business in a way that suits Nintendo far better than it does independent game publishers. Still, it won't be easy for Microsoft to take advantage. Lift up the emperor's new threads and you'll see the same old company single-mindedly focusing more on market domination than on initial quality. That approach has served it well in operating systems and productivity software, where it could keep offering improvements until it got the product right. But a console maker must keep its system unchanged for six years in order to amortize its investment, because as with razors and razor blades, the manufacturer sells the hardware at a loss to profit from the software. And Microsoft has approached the Xbox hardware with a software mentality--emphasizing a laundry list of marketable features over judicious, timely design. The result: a game console that's expensive to manufacture, a bulky, awkward controller that few seem to like and an underwhelming lineup of launch games. This doesn't mean the Xbox won't ultimately prevail. It means that Bill Gates has made a large and potentially expensive bet.

This gamble began before Xbox was even announced. In 1999 Gates decided to hold off on releasing it until the fall of 2001--more than a year after the PS2--so that Xbox could be, as Gates said, "three times more powerful" than PS2. Right move, wrong reasoning. The right reason to hold off on releasing Xbox would have been that a year is not enough time for most developers to make an original, from-the-ground-up game. But what Microsoft has done for years in software is marketing by checklist: it releases a long list of features its software has that the competition doesn't, and lazy reviewers cite those features in their write-ups. And even though Microsoft claims that Xbox is three times more powerful than PS2, major game publishers say all three systems are in roughly the same class. "Although there are differences in graphical quality from platform to platform, there is no game that we have in development for Xbox that we can't also make on PS2 or Gamecube," says Activision CEO Robert Kotick.

Nevertheless, Microsoft seemed to be building buzz. At the January Consumer Electronics Show in Las Vegas, Gates showed off the Xbox with a brief demonstration of a "Toy Story"-like adventure game called Malice that was so mind-blowing, crowds gathered to watch the replayed footage on the show floor. And while Sony was perceived as the arrogant market leader, Microsoft was being hailed as a friendly counterweight, taking the time to talk to the people in the industry, solicit their feed-back and--gasp!--actually incorporate that feedback into its plans. Todd Hays, the president of the videogame-accessories company InterAct, said at the time: "Before, everyone was anti-Microsoft, saying, 'We're not going to let this monopolist into our business.' Now they're saying, 'My God, we need Microsoft'."

But by the time Gates went to the Tokyo Game Show in March to introduce the machine to the Japanese, the momentum was already starting to stall. Industry insiders in both Japan and the United States were saying that Microsoft was not getting solid support from the top Japanese game publishers, who are crucial to the success of any console; that Xbox was too big for Japanese homes and its controller was too big for Japanese hands, and that, as an outsider, Microsoft would find the local market impossible to crack. …

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