Xbox Success in Japan Crucial for Microsoft
Emboldened by the strong launch of its Xbox console in the United States last year, Microsoft Corp. over the weekend rolled out the device in Japan, where the computing giant faces intense pressure to prove itself in the ferociously fickle fight for the hearts of video gamers.
Although it represents less than one-third of the global $20-billion market for video games, Japan is disproportionately important for Microsoft because the country is the center of the gaming universe.
The three titans of video games for the last two decades--Nintendo Co., Sega Corp. and Sony Corp.--all are Japanese companies, as are many of the industry’s top developers.
If Redmond, Wash.-based Microsoft can gain acceptance in Japan’s quirky $6-billion game market, it may have an easier time selling Xbox around the world.
Cognizant of the country’s strategic value, Microsoft has invested heavily in Japan.
Although the company won’t say how much it has spent, Microsoft established a 200-person Tokyo studio to develop games dedicated to Japanese players. It blitzed the Japanese public with television ads over the last few months to build awareness.
And Microsoft Chairman Bill Gates was in Tokyo’s trendy Shibuya district to personally sell the first Japanese Xbox. At earlier retailer meetings, Gates even played a traditional shamisan stringed instrument in a nod to Japanese sensibilities.
“Clearly, Japan is their biggest challenge,” said P.J. McNealy, an analyst with Gartner Inc., a market consulting firm in San Jose. “They are considered outsiders.”
Even Microsoft is sober about its prospects.
“We are cautiously optimistic,” said John O’Rourke, vice president of sales and marketing for Xbox. “You’ve got Sony and Nintendo there, both Japanese companies. But we think we’ve got great games, a very reliable system and very reliable partners.”
Sony enjoys a commanding lead in Japan with 60% of the game hardware market. Nintendo has 30% and Sega has 10%. Microsoft shipped an initial 250,000 units to Japan, a fraction of the 1 million PlayStation 2s Sony sold in the system’s debut weekend two years ago.
Skepticism runs deep among Japanese analysts and consumers.
“Some still question the extent of their long-term ambitions,” said Masashi Morita, a video game analyst with Okasan Securities.
Microsoft’s reputation among some is seen as technically proficient but a bit stodgy, in an industry where 15-year-olds can drive the market. Nor has the company been helped by the first 12 software titles released with the machine. These include auto racing and conventional sports themes geared more toward buyers in their mid-20s--near-senior citizens in the video game market. In addition, the absence of a role-playing game--an ultra-popular genre in Japan--could hamper sales.
One such game is “Final Fantasy X,” whose popularity has helped drive sales of Sony’s PlayStation 2, currently installed in 10 million Japanese households. The game, the 10th incarnation of the Final Fantasy series, was developed by Square Co., a powerhouse developer partially owned by Sony and, therefore, unlikely to make games for Microsoft.
The game’s success is partly due to the Japanese preference for sequels, which will take Microsoft time to develop. Most Japanese like the assurance of knowing what they’re getting, and that it’s probably a better version than its predecessor, analysts said.
“I like games in series,” said Hidetoshi Hirota, a 21-year-old man who was hanging out in Shibuya, Tokyo’s trendy youth-oriented neighborhood. “Without these, the Xbox might not do well.”
Though clearly the underdog, Microsoft has strengths. It has been able to recruit dozens of Japanese developers, including Konami Co., Koei Co., Capcom Co., Namco Co. and, significantly, Sega, whose stable of game developers and franchises has acquired legendary status in Japan.
Microsoft boasts the most powerful game machine on the market. The Xbox also has a built-in hard drive and an Ethernet adapter, which must be purchased separately for the PlayStation 2 and are not yet options for Nintendo’s GameCube.
Still, the differences in graphics quality among the three consoles thus far are minor.
“Only maniacs will notice,” said Asuka Yazaki, a video game writer with Weekly Ascii magazine. “Most mere mortals won’t know the difference.”
Microsoft also is hoping to distinguish itself with an ambitious plan to bring Xbox gamers online this year via the device’s built-in Ethernet adapter, which lets users access high-speed Internet connections. But the company is likely to meet with resistance from Sony, which is developing its own strategy for delivering online entertainment via the PS2. Sony, which also owns Japanese Internet service provider So-Net, plans to launch its network in late March or early April.
Perhaps one of Microsoft’s biggest challenges is the size of its console. Bulked up by an internal 8-gigabyte hard drive, the Xbox is larger and heavier than the PS2 and the GameCube.
“It’s bigger than a coffee table in most Japanese houses,” said Daryl Pitts, a game designer and consultant who has worked for numerous Japanese developers. “It’s an eyesore and will never be accepted like that. Microsoft needs to hire a Japanese manufacturer to completely redesign it.”
The console’s steep price may also keep Japanese consumers away. At $268, it is about $37 more than the PS2 and $73 more than the GameCube. (It’s still about $39 cheaper than the system’s $299 price in the U.S.) Exacerbating the situation in Japan is an economy in its fourth recession in a decade, a banking sector on the verge of collapse, weak consumer spending and the highest unemployment rate since World War II.
“The pricing disparity seems high to me,” said Shawn Milne, game industry analyst with Soundview Technology Group in San Francisco. “Initial demand among hard-core gamers may be there, but Microsoft may need to evaluate their price shortly thereafter.”
A random sampling of the curious in Shibuya found people interested by the buzz but not in any hurry to fork over $260 unless and until it becomes more of a force to be reckoned with.
Riena Ise, a 19-year-old college student, owns five hardware systems--the Nintendo Famicon and Super Famicon machines, the Sony PS1 and PS2 and the Sega Dreamcast. And that’s about enough, she reckons. “I don’t think I’ll buy an Xbox,” she says. “It’s quite expensive.”
