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Tuesday, November 22, 2005

RED HERRING | Xbox 360’s Desert Launch

More than 2,000 video game fanatics streamed into a football-field-sized hangar in the Mojave Desert for a two-day gaming marathon leading up to Tuesday’s launch of Microsoft’s Xbox 360.

The Redmond-based company used its final pre-launch hours to stage the Burning Man-meets-gamer event, which featured hundreds of 360s connected to high-definition flat screens, and thousands of players trying out the games that will be launched along with the console.

The marketing move was one of Microsoft’s last chances to raise the hype for the 360 launch. The software gorilla wants to sell as many consoles as possible during the holiday season in order to challenge long-dominant Sony in the battle over the next-generation of video game consoles.

But the world of gaming remains a gamble for Microsoft, which has spent an estimated $4 billion on its Xbox franchise so far without turning a profit.

Analysts estimate Microsoft spent $500 million on marketing for the original Xbox, which has shipped about 20 million consoles worldwide. In comparison, Sony has shipped 96 million PlayStation 2 consoles across the globe.

While analysts have expressed concern over a lack of blockbuster video game titles for Microsoft’s launch, the Xbox fans awaiting the second coming predictably sang the console’s praises.

While Sony might have an edge with its long history in gaming hardware, Microsoft has decided to anchor its strategy in online gaming. Both the 360 and the PS3 have broadband capabilities, as do the current consoles, so gamers can play against each other or in teams, accessing a live community in the process.

But Microsoft is betting that online gamers will pay to play. Its Xbox Live service—$70 for a year’s subscription, or $8 per month—for the online community has been a key driving point in the original Xbox sales. The service already has 2 million members, and Microsoft hopes that 30 to 50 percent of its 360 players will subscribe.

Relying on online gamers to boost sales would be a savvy move if the online gaming market grows. However, Microsoft could miss the mark if the online gaming growth plateaus, or if it doesn’t ramp up fast enough. Online gaming has surged in popularity, but is still relatively small, with only 30 percent of players in the U.S.

Some analysts say online gaming in the U.S. won’t grow much beyond a relatively small niche of geeks playing online, at least in the near future. “The market is meaningful—it matters—but it is not a big enough piece of the audience yet. Microsoft thinks that everybody wants to be online all the time. I disagree,” said Michael Pachter, an analyst from Wedbush Morgan.

i say, my money is on Sony and the PS3. it best is yet to come.

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