Microsoft to Offer Net Game Service
After lackluster launches of its Xbox video game console in Japan and Europe, Microsoft Corp. on Monday unveiled plans to spend hundreds of millions of dollars building a worldwide network that will let gamers play over the Internet.
The service, called Xbox Live, is widely seen as an attempt by Microsoft to bolster the faltering Xbox, which has sold just 4 million units since its debut last fall. By comparison, market leader Sony Corp. has sold more than 30 million PlayStation 2 consoles.
Analysts said Microsoft needs to make a splash at this week’s Electronic Entertainment Expo at the Los Angeles Convention Center if it is to resurrect some of the early buzz surrounding Xbox. Although the most powerful and versatile of the three major consoles, Xbox has suffered a dearth of compelling games.
Industry executives said it’s a mistake for the company to focus on technology that has little near-term revenue potential. But analysts said the drive to go online is part of Microsoft’s long-term ambition to eventually own the gateway to living rooms and control the standards that regulate the transfer of all forms of digital entertainment, from games to music to movies.
“On the [personal computer], nothing happens without Microsoft” because the company’s operating system runs more than 90% of all the world’s PCs, said Josh Bernoff, principal analyst with Forrester Research in Cambridge, Mass. “But on devices such as cell phones, set-top boxes and game consoles, there’s no requirement that Microsoft be involved. And Microsoft desperately wants to make sure it has a role in these other devices, not just the PC.”
The Redmond, Wash., software giant said it will charge players an introductory rate of $49.95 for a year’s subscription when Xbox Live goes online this fall. The fee will include a headset for voice chat but will not cover the cost of high-speed, or broadband, Internet access.
“Xbox will be the only all-broadband-dedicated video game service,” said John O’Rourke, Microsoft’s director of worldwide marketing. Online capabilities would let gamers find opponents, download new levels, weapons or characters, post high scores and play in tournaments.
With hundreds of millions of dollars invested in Xbox Live, Microsoft is playing to win. The company is putting more staff on building the project than it did to design the console itself. It’s placing hundreds of servers in Tokyo, London and Seattle to handle online traffic. And it’s spending millions making its own online games for Xbox.
The project, however, faces numerous hurdles. The Xbox, which has a built-in ethernet adaptor, can support only high-speed connections. Just one in 10 U.S. households had broadband at the end of 2001, according to Forrester Research Inc., a technology research and consulting firm.
And even if consumers have broadband, it’s likely to be connected to their PC rather than to devices in their living room. Once connected, other pitfalls await, including hackers, viruses, delays in transferring data and excessive download times for rich media.
Microsoft officials said the company is prepared for the headaches.
“We’ve built in military-grade security,” O’Rourke said. “It’s a platform designed to manage those environmental factors.”
Microsoft will be competing with other console companies this fall. Sony will release a dual dial-up and broadband modem for PlayStation 2 in August. And Nintendo Co. last week said it will sell two modems--one high-speed, the other dial-up--for its GameCube.
Both Nintendo and Sony offer an “open system” in which game publishers must provide their own servers and other online infrastructure. Publishers of games for Xbox Live, by contrast, must use Microsoft servers.
“It’s freedom versus control,” said Luc Vanhal, president of Vivendi Universal Games, a division of Vivendi Universal Publishing. “We have 11 million active players on our online Web site. Do I really want to hand those names over to someone else?”
Microsoft unveiled its online plans two days before the start of the Electronic Entertainment Expo, or E3, the industry’s largest trade show. With PlayStation 2 firmly in first place, Microsoft has a great deal to prove at E3, industry watchers say.
The company saw anemic sales in Japan this year, and the introduction of the Xbox in Europe was marred by a price that was too dear for most consumers. Microsoft quickly sliced its price from 479 euros ($440) to 299 euros ($275) and offered to send two free games and a controller to those who purchased the console at the higher price.
Most say that the online strategy, though promising in the long term, is too far off. Microsoft must instead focus on traditional offline games to buttress its business.
“It’s Microsoft’s E3 to prove,” said Shawn C. Milne, analyst with Soundview Technology Group in San Francisco. “Sony is firmly in the leadership position. Nintendo remains in very good shape. Microsoft, meanwhile, has to show that they have the software to deliver this holiday.”
