Microsoft Ready to Rumble in Video Games

May 16, 2001 -- The next big virtual slugfest in the land of video games won't be limited to brawls among cartoon figures — the $6 billion industry is bracing for a battle royal between industry giants. At stake? The title of "King of All Video Game Makers."

Software powerhouse Microsoft announced today at the Electronic Entertainment Expo, dubbed E3, in Los Angeles today that its long awaited Xbox game unit will hit retail stores in the U.S. on Nov. 8 for $299. The sub-$300 price tag matched industry analysts’ predictions for Microsoft’s first game hardware system. More importantly, it confirms that the Redmond, Wash.-based giant wants to be a main contender in an arena that has always been hotly contested — and littered with losers.

The reigning champion is consumer electronics giant Sony. Its PlayStation 2 console, introduced last October, dominates among 20-something males — the sweet spot of the video game market. More than 1.4 million units were sold last year, despite initial production problems that caused shortages in the United States during the vital year-end holiday season. According to market researcher IDC, Sony has already more than doubled unit shipments in the first quarter of this year.

Battle Plans and Goals

But Micrsoft plans to counter the PlayStation 2 leviathan with its own massive shipping and marketing plans.

The company has already committed $500 million — the most it has ever spent on launching a new product, ever — to marketing the Xbox unit during the first 18 months. It expects to have 600,000 to 800,000 units on store shelves by Nov. 8 and ship a total of 1 million to 1.5 millions units by the end of the 2001 holiday season.

That would be quite a feat since that late a launch date means Microsoft will have much less time to sell the Xboxes before the heavy holiday shopping period ends in December. But the company thinks it has the right stuff to deliver a shattering body blow to the Japanese electronics heavyweight.

Graphics Heavyweight

For one, the Xbox unit is essentially a simplified PC rather than an overstuffed video game box. Equipped with a 733-megahertz processor from Intel and special video chips from Nvidia, Microsoft’s video game contender has impressive graphics capabilities. And like Sony’s PlayStation, Xbox can play DVD movies and audio CDs, making it an appealing draw as the centerpiece of a gamer’s home entertainment center.

Unlike Sony’s offering, Xbox offers an 10-gigabyte hard drive and the possibility of high-speed connections to the Internet. Such features have excited software developers who see the Xbox as a catalyst for advanced video games which will draw a larger audience of players.

Where No Game Machine Has Gone Before

Robert Kotick, CEO of software game maker Activision, says that such features allow his company to create new types of interactive fun. “Xbox has a high pixel count,” says Kotick. “But with the hard drive, it will push the [games] to new levels.” Kotick plans to show on an Xbox machine at E3, for example, an “extreme sports” game that will allow distant players to compete over the Internet. “The games are now rich and deep enough to appeal beyond teens,” he said.

But, it may take a bit of time before software programmers can fully utilize all of Xbox’s techie capabilities. As such, Microsoft may have fewer than two dozen games available when the unit reaches stores in November. That’s less than a 10th of the more than 2,500 titles available now for the maturing PlayStation market. But Schelley Olhava, senior analyst at IDC, says that even if Xbox has only 10 titles, “They are going to be quality games.”

Initial Hurdles

With no experience in video game hardware and only a handful of games, it may seem that Microsoft will have its work cut out, but in the turbulent world of video games, early hurdles are not necessarily inhibitors to success.

IDC’s Olhava notes that the challenges facing Microsoft today were the same problems that once plagued the current market leader Sony when it introduced the first PlayStation in 1995. “[Sony] hadn’t played in the game space, yet they created one of the most popular platforms,” she said. “There’s a lot of challenges in getting [Xbox] out the door. But Microsoft has “looked at the problems Sony had and tried not repeat them.”

What’s more, Microsoft enters the market when the competition against Sony has been lacking.

Who Could’ve Been a Contender?

Sega, once a top contender with its Dreamcast system has effectively bowed out of the race. After four years of losses, the video game maker announced in January it was scrapping its Dreamcast machine in order to concentrate on developing software for other game makers, including Sony and Microsoft.

Meanwhile, Nintendo has suffered serious delays in rolling out its own advanced gaming platform. After years of production snags, the company will introduce its GameCube system to the E3 crowd later today. However, unlike the PlayStation and Xbox, the unit is targeted at the under-18 crowd and will not play DVDs or music CDs.

And Sony is sure to put up a fight. The company announced Tuesday that it has signed up powerhouse America Online to be the official Internet access provider for PlayStation 2. The move will allow the unit similar multiplayer features as the new Xbox, but PlayStation 2 owners will need to shell out more money for the hardware needed to jump onto AOL.

Which box comes out on top remains to be seen. But come Christmas this year, the bout among the three is bound to be the electronic equivalent of the “thrilla in Manilla.”