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Can New Xbox Experience Drive Sales?
By David_Cole
November 20, 2008
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"With the New Xbox Experience, Microsoft is trying hard to stay ahead of the online curve. At the same time, Sony has very ambitious plans for its PlayStation Home (PS Home) service and has been making major improvements to all its online offerings. However, PS Home has been delayed in beta and its appeal is unproven. Meanwhile the promised features for the Xbox 360 are mostly here today. The main question is: will consumers care?"
Microsoft has always promoted online gameplay as a key component of its Xbox systems. The multi-billion dollar investment in the Xbox Live online game service is what is supposed to distinguish Microsoft systems from the competition. Xbox Live hit the ground running without any serious online console competition for six years. However, with the current generation of game systems, the PlayStation 3 and Nintendo Wii have major online features and it is getting harder to distinguish the competitive advantage provided by a service like Xbox Live.
Microsoft is hoping to change that with the November 19th launch of the “New Xbox Experience.” The New Xbox Experience does not really change the online game play experience, but is instead about enhancing the interface and community-building features of Xbox Live. This is part of Microsoft’s long struggle to expand the appeal of the Xbox 360 beyond the core action game fan.
DFC Intelligence has always argued that there are two major appeals of online games: 1) the ability of online games to directly generate significant revenue and 2) online features as the indirect driver of business through building a community, extending product lifecycle and enhancing consumer loyalty. With Xbox Live, Microsoft has clearly been focused on making the service a direct revenue generator. In addition to the annual subscription required to play games, Xbox Live’s big focus has been on getting people to spend money in Xbox Live Marketplace.
In contrast, Sony (and Nintendo) have focused on making online connectivity a free value add. The services were not as robust as Xbox Live, but they were free and most consumers could not really tell the difference. Based on the installed base of the PlayStation 2 versus the original Xbox, having the best online game service was clearly not a key driver. With the PlayStation 3, Sony has significantly increased its online offerings, and unlike Microsoft is not charging for online play. That is why it is good to see Microsoft focusing on adding value without looking to directly generate revenue.
It is clear that the New Xbox Experience is focused on extending the community by enhancing the user interface. There is very little that is targeted to the hard-core user that is probably perfectly happy with the current system. The goal is to broaden the user base and in that sense the new Xbox Live seems like a step in the right direction.
There are some indications that the Xbox 360 may slowly be expanding its demographic appeal, at least in the U.S. With a recent price drop and a new interface, the Xbox 360 has surprisingly become the system with the freshest value proposition for holiday 2008. Most importantly, the Xbox 360 now has a great deal of content to appeal to consumers that DON’T play violent shooting games.
Casual games and social games are quietly becoming a big part of the Xbox 360 experience. Games with more mass appeal, like PopCap’s Bejeweled and Zuma titles, are available on Xbox Live arcade for $10 or less. Other products like the SceneIt? party trivia games are designed for the whole family. The Netflix partnership could prove to be particularly lucrative as it allows users to get living room access to stream an unlimited number of movies for a set monthly fee.
All this effort might finally start to pay off for Microsoft. According to Trina Schwimmer, CEO of GamingAngels, a website targeted to female gamers, the Nintendo DS and the Xbox 360 are the most popular platforms among their users. Schwimmer says their female users have been especially attracted to the community features of the Xbox 360 and have started planning viewing nights around Netflix rentals.
With online console games in today’s marketplace, it is important to focus on building consumer loyalty and extending product life cycle as opposed to build a major direct revenue source. Compared with the traditional retail business, the revenue from console online games is minimal. Microsoft claims Xbox Live has generated over $1 billion in the three years since the Xbox 360 launch. However, when you look closely at those numbers it is clear that the bulk of this revenue has come from the $50 a year membership fee. There have been 12 million hours of video content served on Xbox Live. This sounds like a lot, but revenue generated is at most a couple of bucks an hour. The usage will need to grow exponentially for Microsoft to generate any real revenue.
DFC Intelligence forecasts strong growth for console online games. In our latest Online Game Market Forecast report we estimate that worldwide console online game revenue will grow from just over $600 million in 2007 to $4.7 billion by 2013. Furthermore, the bulk of that growth is expected to occur in digital downloads. Whereas, today the majority of revenue comes from subscriptions (most notably the $50 a year for Xbox Live), by 2013 about 55 percent of revenue is expected to come from digital distribution.
Nevertheless, even by 2013, console online game revenue is expected to pale in comparison to online game revenue from the PC. Worldwide PC online game revenue is expected to be $15.7 billion in 2013. In other words, the opportunity in console online games is not so much about the revenue, but is instead about the more intangible features to enhance the customer experience.
With the New Xbox Experience, Microsoft is trying hard to stay ahead of the online curve. At the same time, Sony has very ambitious plans for its PlayStation Home (PS Home) service and has been making major improvements to all its online offerings. However, PS Home has been delayed in beta and its appeal is unproven. Meanwhile the promised features for the Xbox 360 are mostly here today. The main question is: will consumers care? We think that online games are an important part of the mix, but only one of many deciding factors. In a detailed evaluation of the online services we think the Xbox 360 clearly has the current lead. However, this is only apparent after taking the time to make a close assessment. We wonder how many consumers will make that effort.
The other issue to consider is whether online games can help Microsoft on a global basis. DFC has forecasted that the Xbox 360 will do significantly better in markets like North America and the U.K. than it does in the rest of the world. Right now we are sticking to that assessment, but will of course revisit the issue in early 2009.
I despise the lame cartoon cutesyness of the new interface. It makes me embarrassed to be an Xbox player.
Dose anyone know if it is possible to restore the old interface?
Or, did Playstation 3 just become my platform of choice?
why dont you try a different theme and see if you like it?
Are you serious NewJerseyThomas? The new interface is sick!
I've been enjoying the NXE thus far. Probably my favourite and most used feature right now is the party system. It's great to be able to go into Gears of War 2 public matches and have a 100% chance of avoiding annoying little kids and the other variety of morons. I can also see the potential of a friend joining the general party, when the game party is full, if just to talk and wait until there's a spot free in the game party.
I'm very much looking forward to installing games to my HDD (especially Fable 2) once I get an Elite and have the extra space. I was looking forward to the NetFlix integration, but it seems NetFlix isn't available in Canada. Hopefully they come up with a service for countries outside the US that is exclusively online (even with licensing deals, the shipping logistics are probably the main factor in keeping the service from expanding outside the US).
That being said, I don't think the update will effect sales really. There's nothing here in of itself that will compel consumers to buy a 360 outright. Even the NetFlix option comes with the overhead of needing a XBL Gold account. And it all really adds up to being a nice bonus which compliments the core reasons to buy a 360.
"That is why it is good to see Microsoft focusing on adding value without looking to directly generate revenue."
HA! You think this was not looking to directly generate revenue? The only advantage the new interface has over the last version is that it is an improved marketing platform (of course, that's an advantage to microsoft, not to me, unless I was struggling to figure out what I can buy next through my xbox). Netflix and party system could have been added without the new billboard-style commercial assault I have to endure now. The system is less intuitive and serves only to expose me to more products I can pay for. That, plus the increase in the points cost in marketplace content that came with the NXE, which nobody else in the world has seemed to notice.
Sorry, but if you think this was just a way to add value for loyal customers and wasn't a concentrated cash grab, you're naive.
I gotta say I agree with you. I've never seen so many advertising windows. Repetition is crucial but this gets ridiculous.
@Huw Jass - 360 is built around online, which is precisely why MS doesn't include WiFi in the box and openly discourages it by pricing the WiFi add-on so high. Anyone who is serious about online gaming knows to avoid WiFi. Anything other than direct Ethernet connection is going to lessen the experience for everyone else in the game - not to mention yourself.
Regarding NXE, I don't think it's really going to have much of an impact expanding the 360 demographic. I think that comes down to advertising in other areas (Women's and Kid's tv shows and magazines) and emphasizing the features and library 360 already has that can appeal to those users when reaching out to them.
While most hardcore gamers (myself included) resent Nintendo for talking past us this generation, there is little question that is the secret to their success with the Wii and DS. They could care less about the hardcore gamer and spent more resources advertising to seniors and Mom's.
On the question of Wireless, MS really should lower the price of the WiFi adaptor, so at least there's an inexpensive choice available for the 360 owners who would prefer to connect their 360 online, easily.
I personally use a Cat 5/Ethernet cable and I will always use one for online gaming whenever the option is there. Still I don't think this was MS's motivation with the lack of WiFi and high priced adapter. If anything, MS would want to make hooking up your 360 online be the easiest, most hassle free thing out of the box, as more players online translates into more potential marketplace customers, more ad impressions and more potential Gold subscribers.
I have a friend who's been a fairly hardcore gameplayer in the past, but is a grad student and doesn't have much time to game, he only hooked up his 360 this week, after having it for a year and a half. The reason he didn't hook it up before was that the WiFi adapter is way too expensive for how little he'll be online. He basically connected it with a Cat-5 to install the NXE, and I believe he's disconnected it as he doesn't want to have a cable from his router to his 360 cluttering up his condo.
I'm really enjoying the dashboard
in fact I didn't play any games on my 360 last night, i just messed around with friends and made some wacky avatars
It's 1000X better the the old one
Sony should really start concentrating on their online service otherwise teh "14 million" users will get bored of waiting for home
Once again MS takes someone elses idea and makes it SO much better
Well done MS
I am enjoying NXE significantly, especiallyl for its aesthetic appeal, netflix and 1680x1050 resolution. That said, I'm not sure if it can drive sales -- that sitll comes down to price and software, methinks.
MS strategy of placing a cheap console into homes seems to be paying off, but i cant help but feel that this new initiative is at odds with the overall experience that is promised/delivered.
The arcade was simply not built for the new live and marketplace, and by the time you upgrade might as well have purchased a "higher" sku. But that may be the trick, get them in the door cheap. Now i know that the usual response was that upgrades were not mandatory... but from what i understand the new live requires a bit more drive space than the arcade has.
Now to the question at hand, can the new experience drive sales? I dont think so, but the numbers will surely be murky enough to point so... the price drops will gain even more traction in the holidays after the new live is fully up and running.
nxe=128mb
256mb memory card comes with arcade
refurbished 20gig= like 20 bucks right now.
A very interesting read. One thing I do find a bit odd is that the Xbox isn't wireless out of the box, unlike the other consoles (even the DS!). With all the marketing that highlights the online functionality of the Xbox, I feel this issue has been somewhat ignored in the above report.
Whilst this won't be a problem for those who have a router near their television/console (or perhaps they are able to run a cable from their console to their router), having to spend another £50 for this functionality is a crucial drawback.
Perhaps it won't have any impact. I just feel that without this functionality Microsoft are restricting the potential that their console will have in this area.