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Will XBox become ExBox?
Mark Hollands
THE Xbox is finally out of its box. Its recent launch may prove to be one of the most important events in home computing, ranking alongside the release of Windows 95.
Even with a marketing budget of $US500 million, the Xbox will not make the impact of Windows 95's grand entry.
But this should not fool anyone into believing the Xbox is just another product release.
Microsoft's invasion of the games console market can take home computing to a new dimension, driving interactivity through the television and away from the old beige box.
This revolution will not be easy, but it has started.
Video game titans Sony and Nintendo also pledge to build into their consoles high-speed access to the internet, email and even the ability for gamers to talk to each other over headsets during intercontinental battles.
A combination of digital television and internet-based video-conferencing in the next decade will make a place for a home desktop computer increasingly tenuous.
Everything, of course, depends on access to a broadband network.
But the demise of the home PC, at least in its current form, is only a matter of time anyway.
The console, regardless of manufacturer, will start to bang nails into its coffin over the next few years with help from mobile phones and handheld computers.
The video game industry already has a remarkable mind-share - much greater than is reflected in day-to-day media reports.
It is a $US20 billion industry - bigger than Hollywood's box office receipts.
The Lara Croft series for PlayStation generated many times more revenue than Titanic.
42 per cent of households have a console of some description.
My house has two - one for each television! Microsoft's overnight emergence as one of three key combatants raises the stakes in this lucrative sector. But unlike the PC business, in which Microsoft seems to win almost every confrontation, this new battlefield is far tougher.
This is the territory of product recalls, not patches, and one technical mistake means death.
Many analysts say Microsoft will never overhaul the dominance of Sony, which has sold more than 20 million PlayStation 2 machines since launch last year.
The number-two player, Nintendo, is no pushover, either.
It has pledged to spend $US457 million to market its GameCube - the next generation of its 64-bit machine. The Cube also recently launched in Japan and the US. And its new handheld Game Boy Advance is coming down the line soon, too.
Analysts such as J. P. Morgan's Mary Meeker, the so-called queen of the tech stocks, says investors have no stomach to risk wads of cash on the Xbox.
She says Microsoft will drop $US700 million from being battered in the boxing ring by Sony and Nintendo. Profits may emerge by 2004, but no sooner.
Yeah, well, maybe.
There are a couple of points to be made about such a stinging analysis.
Firstly, if there is any company that can afford a loss-leader, it's one with an annual profit of $US25.3 billion.
Secondly, a lot can happen in the games market in three years.
In 1998, the global video games market was shared almost equally between Sony (50 per cent) and Nintendo (45 per cent).
By the end of next month, Sony is expected to have almost 70 per cent of the market and Nintendo just 17 per cent, according to IDC. The remaining 13 per cent will be split between the Xbox and Sega.
Projections for next year are more revealing. The survey predicts Sony's figure will slump to 43 per cent, Microsoft will come from nowhere to take more than a quarter of the market, and Nintendo's GameCube will snare the remaining 29 per cent.
That is an amazing set of figures when you consider the Xbox was nothing more than an idea at a small corporate off-site gathering two years ago.
As is the norm in such situations, the attending 50 executives split into teams and were told to conjure up some brilliant new product.
While most tried to think of something clever, consumer division boss Robbie Bach was much smarter - he decided to steal somebody else's lunch - Sony's. And Bill bit.
Business plans flew around Redmond and before you knew it there was a project called DirectX, later renamed DirectX box, being spoken of in hushed tones.
The strategy went through several iterations, of course, including one in which Gates told designers to double the hard-drive from 8Gb to eclipse the power of the opposition.
Gates was concerned that only a minor improvement in specifications would not be sufficient to persuade developers and hard-nosed gamers to switch allegiances. He's not dumb, is he?
Microsoft approached hardware makers such as Dell and Fujitsu to make the hardware.
They refused.
Decisions they'll regret, I bet.
Undaunted, Microsoft designed the hardware internally but sought help on the chip design from California's Nvidia.
It then outsourced the box manufacturing to Flextronics and the chip to Taiwan Semiconductor Manufacturing.
The DirectX crew of more than 1000 was shifted away from the Microsoft campus to create their own funky culture.
Neon green lights now throw a spooky aura across the hallways, and vintage arcade games entertain the troops.
Everyone knows the key to success will be the games, especially since all the promises of interactivity remain a bandwidth pipedream.
Microsoft has signed 19 of the top 20 games creators to work on Xbox. The only recalcitrant is 3DO, which once harboured ambitions of making a games platform.
Another key factor will be marketing. Big brands are never built on sheer weight of money.
Successful brands create a buzz - a factor most people forget.
If Xbox does not succeed in this task, the project will die.
When Microsoft showed off the Xbox at the E3 gamers' conference earlier this year, it was a lead balloon. Participants complained it was like watching a spreadsheet demonstration.
Sony and Nintendo, on the other hand, were pure Hollywood, baby.
Since then, the band of 1500 Microsoft marketeers has been working on the Xbox to turn perceptions around.
Microsoft desperately needs the support of publishers. Their power is incredible.
Software revenue for console games was $US17 billion last year, according to SoundView Technology Group.
The Xbox is a gamble - even Microsoft concedes that. Gates admits he is prepared to wear a $US100 loss on a $US300 box just to entice enthusiasts to change allegiances.
But the rewards should be staggering.
Microsoft will need a lot of support and luck to beat Sony and Nintendo. Without it, Xbox will be become the Ex-Box."