When Microsoft launched Xbox in 2001 it came into a market dominated by
the power of Sony’s PlayStation brand. The obstacles were daunting. It
would take more than a pile of money to succeed.

Xbox arrived late, well after the launch of PlayStation 2. Microsoft
had to spend $500 million on marketing alone; more than any other of
its product launches in a history studded with big product launches.

In North America, Xbox has been soundly beaten at a ratio of 3.5:1
sales. And yet, this has been an encouraging result. In May, Microsoft
chairman Bill Gates said the company had achieved its first generation
goal to simply “be in the business”.

Building on that position, Xbox 360 is arriving from a very different
place than in 2001. Then, Microsoft was seen as the big American
business outfit using its muscle to barge into a party to which it
hadn’t been invited. Now, it’s practically part of the furniture.

The company has proven its ability to work with third parties to create
a satisfactory library of games. Its XNA development platform, designed
to make development for Xbox 360 easier, is another brownie point as
far as developers and publishers go.

Through Bungie it has created Halo, one of the most beloved and
influential games of the past half-decade. And through Xbox Live it has
done more to propagate online gaming than any other company in the

Trojan Horse

Microsoft’s determination to bring massive resources to this industry
is a reflection of its sheer desperation to succeed in the area of home
entertainment. Its 2004 losses for this division as a whole were $1.2
billion (on sales of $2.8 billion), although its first quarter this
year saw year-on-year comparable losses down by 25%, and sales up.

The analogy of a Trojan Horse is often used to describe Microsoft’s
attempts to get within the walls of digital entertainment, but this is
wrong. We’re looking at a devil-take-the-hindmost all-out assault from
every direction. The company’s interests are in music, mobile phones,
television, home security, education; the list goes on. Microsoft has
no choice but to be in videogames.

It’s no after-thought that the Xbox 360 demonstration at E3 included a
link-up with Media Center; seen as the company’s attempt to create a
hub for all home entertainment.

On the whole, Microsoft’s arrival in gaming has been a good thing,
though there have been some upsetting moments. The company’s
performance in Japan has been, frankly, a joke – outsold at a ratio of
nearly 40:1 by PlayStation 2. It hasn’t helped that Xbox itself,
stylistically, is ugly. Hardware shortages – of the real rather the
PR-spun variety – have annoyed retailers and publishers.

Creative giants

But despite post-E3 concerns Xbox 360 the oulook is overwhelmingly
positive. Xbox Live’s subscriber base is targeted to increase five-fold
to 10 million and the company has tied up the experienced Limelight as
its content delivery partner. A new user interface gives gamers real
power to customise their experience.  Downloadable content
micro-charged to the user are planned. Graphical performance, despite
the intrusion of PlayStation 3, is still an impressive jump up from
Xbox 1.

Collaborations with Japanese creative giants including Hironobu
Sakaguchi (formerly of Square), Yoshiki Okamoto (…Capcom) and Tetsuya
Mizuguchi (…Sega) have been announced.

Microsoft’s first generation target to get into the game industry was
to stay in shouting distance of Sony. Sure enough, Sony can hear what’s
coming up behind. This time, it’s going to be closer.