Microsofts trump card

Updated: Nov 20 2005, 05:30am hrs
Microsoft Corp. hopes to gain an advantage over rivals Sony Corp. and Nintendo Co. Ltd. by being first to launch a next-generation video game console when its Xbox 360 debuts Nov. 22. While the strategy is not fail-proof, it is essential for Microsoft, which would risk being eclipsed by market leader Sony if the Japanese rival beat it to stores with its upcoming PlayStation 3 gaming system, analysts said.

The current-generation PlayStation 2 owns the $10 billion U.S. video game market and has outsold the Xbox by more than 2 to 1, with more than 30 million units purchased to date, according to market researchers NPD Group. Beating Sony to market in this generation is probably the most important thing (Microsoft) could have done to have a chance at taking the lead, said Matt Rosoff, analyst at Directions on Microsoft, an independent research firm. Unlike hard-core players, many mainstream gamers are likely to settle for just one of the expensive new consoles, Rosoff said.

Most US Xbox 360 buyers are expected to purchase a $400 package that plays current-generation games. DEJA VU Peter Moore, head of worldwide marketing and publishing for the Xbox 360, said Microsofts goal is to get the Xbox 360 into living rooms around the world this holiday season and build momentum by Christmas 2006. Sony and smaller console maker Nintendo plan to launch their systems by then.

The rivals say their technology will trump Microsoft, but Moore is sticking to his plan. I would rather not have second-mover advantage, he said. If anyone knows whats at stake, its Moore, who headed Sega Corp.s September 1999 U.S. launch of the Dreamcast, a console that hit shelves nearly a year earlier than PlayStation 2, driving strong early U.S. sales. But when Sony promised that PS2s emotion engine microprocessor would be worth the wait, gamers bought in and Dreamcast sales slowed, leading a financially strapped Sega to pull the plug on Dreamcast in early 2001.

I saw so many parallels, between the Dreamcast and Xbox 360 launches, said 1UP.com editor-in-chief Sam Kennedy. Both touted online gaming services, and Moore was instrumental in launching both. But the Xbox 360 is backed by the worlds biggest software maker, Kennedy said, and that is a crucial difference. The original Xbox went from nowhere to second place in the United States after its November 2001 launch, and Microsoft was able to absorb more than $4 billion in operating losses in the process.

In the $25 billion global video game market, the Xbox runs virtually neck-and-neck with Nintendos GameCube but is dwarfed by PS2s 70% market share, according to KBC Securities. The fact is that Microsoft is going to get a lot of support (from video game publishers) because its Microsoft, Wedbush Morgan Securities analyst Michael Pachter said. To that end, Electronic Arts Inc. and Square Enix Co. Ltd. the biggest publishers in the United States and Japan, respectively are on board. At launch, there will be 18 Xbox 360 games available.

Reuters