Microsoft boxes clever

Halo : Games will sell the box say Microsoft

By BBC News Online's Darren Waters

Microsoft is one of the most successful companies on the planet and has come to dominate the market for software on PCs.

But its foray into the console gaming market is a gamble for a company with no real track record in computer games and games hardware.

Sony's PlayStation 2: 10 million consoles already sold

It is spending $500m on marketing the console alone, and countless millions more on building the Xbox, which is released in the US on 15 November.

There are huge risks attached - established console manufacturer Sega was forced to stop production of its Dreamcast machine because of disappointing sales.

Microsoft's intentions

Rival Sony has a stranglehold on the market with more than 25 million PlayStation 2s sold around the world and Nintendo's new Gamecube at £150 cheaper than the Xbox is another serious rival.

David Wilson, a spokesman for PlayStation in the UK, said the company was confident of future success.

"We believe we have got the right product at the right time in the market," he said.

But the penalties if Xbox does not succeed are equally severe.

Sega was forced to abandon its Dreamcast console, because sales never caught up with rival PlayStation 2.

Dreamcast sales recently reached 10 million and many of the games released for it were impressive but the machine failed to woo consumers away from the strong PlayStation brand.

Some critics have also questioned Microsoft's intentions with the Xbox.

Is it a stealth machine, putting a Microsoft product in millions of homes and taking over the computer games industry much as Microsoft dominates the software in offices?

Ed Fries, vice president of Microsoft's games division, told BBC News Online: "We think entertainment and software are coming together and that is something Microsoft is very excited about and wants to be part of.

Lifespan

"We don't see this as a hardware business, we see this as a software business. It is not the hardware that is going to sell this machine, it is games."

Indeed, Microsoft will lose money on every Xbox sold; analysts predict it will be at least five years before Microsoft sees any profit on the venture, mainly through software sales.

One of the initial hurdles for Microsoft is convincing a swathe of consumers that they can trust the company, according to Patrick Garratt, deputy editor of Computer and Video Games' website.

Nintendo released Gamecube in the US three day after Xbox

"The anti-Microsoft stigma is something [the company] is very much aware of. It has a very controversial name in the world of software.

"It is something Microsoft wanted to dispel very early and I don't think people are particularly worried that it is a Microsoft product."

Ironically, the reverse is true for software developers.

"Companies are very keen to get behind Xbox because it is Microsoft. They feel they can trust Microsoft," says Garratt.

Given that it will take five years for the Xbox to break even - which is about the average lifespan of a console - Microsoft is clearly thinking long term. Rumours of Xbox 2, dubbed Homestation, have been circulating for months.

Clearly, Microsoft is making an enormous commitment to the Xbox.

"100% of the resources of the company are behind the machine and that has never been an issue," says Mr Fries.

'Market leadership'

The company is spending more on promoting the Xbox than it did on the world-wide launch of its groundbreaking package Windows 95.

And the ambitions of the company are simple enough.

Xbox offers new levels of graphics on a console

"I am not sure Microsoft is in any business where we don't want to be number one. I think that is the goal of any good company," says Mr Fries.

That view is echoed by Sandy Duncan, vice president of Xbox Europe.

He said: "Market leadership is where we want to be, it is our culture, we don't like being a second place. That can't be our goal."

Financial rewards

Mr Duncan would not be drawn on sales targets but he did admit that he would like to reach a position where more Xboxes are sold in a month than PlayStation 2s.

The financial rewards, if successful, are impressive.

The global market for games software was worth $17.7bn in 2000, according to the European Leisure Software Publishers' Association and a successful console would reap dividends for Microsoft.

"I honestly think that Christmas [2002] is going to be the big crunch," says Sandy Duncan of the battle with Nintendo and Sony.

"If you don't come through Christmas very well, it is going to be a hard struggle after that," he adds.