Xbox Live Comes Online

Microsoft swept in a new world of online console gaming
Friday, unveiling its “Xbox Live” broadband game service for its Xbox game

While Microsoft is the last of the big three console makers to enable online
play on its console, the Redmond, Wash., software behemoth is pursuing a
very different strategy from Japanese firms Sony and Nintendo. Sony and
Nintendo are only providing network adaptors that allow connectivity,
customers must supply their own Internet Service Providers and game
publishers must supply infrastructure for their own games.

Microsoft, on the other hand, is positioning itself to take a more central
role in online gaming — and to create a new revenue stream — by supplying
gamers with connectivity services and game publishers with the underlying
infrastructure to enable online play. Of course, Microsoft, as one of the
world’s largest game publishers, will benefit from the infrastructure it has
put in place.

“I think that they have different places in the market,” David Cole,
president of DFC Intelligence, a market
research firm focused on the gaming industry, told
in September. “Sony has a nice install base and is comfortable in its
leadership position. Microsoft is trying to be a pioneer, to build a new
market. Both strategies make sense in terms of these companies’ respective

In research published in August, Cole noted, “It is important to understand
the strategies of the three major players. There is a big difference
between the attitudes of Microsoft, Sony and Nintendo. Microsoft is making
a big bet that the future of console online gaming is now. They have
built-in online support and are spending a great deal of money building a
proprietary online service. On the other hand, Sony and Nintendo seem to be
of the attitude that, in the short term, online gaming will be something for
the hard-core. Their current systems require separate add-ons to play
online games. Even more telling, neither Sony nor Nintendo will launch
their own proprietary online game service in the short term. Instead they
are leaving it to individual publishers and developers to create their own
services for individual games. Of course, this does not mean that down the
road Sony or Nintendo will not build their own service.”

To access Microsoft’s service, Xbox gamers have to buy a $49.95 starter kit,
which includes 12 month’s worth of access to the Xbox Live service and a
headset kit for voice communications. Microsoft said about 16 games with
online play capabilities will be available by the end of the year. To
support the service, Microsoft has built data centers in Seattle and
Tukwila, Wash. (as well as London and Tokyo, to serve European and Japanese

The Xbox Live service offers gamers a number of features, including:

  • Gamertag, a unique online ID for all gamers across the service
  • Friends list, a feature that will allow gamers to find friends online
    and invite them to a game

  • Xbox Communicator, integrated voice communication that allows for voice
    interaction with teammates and opponents, and also features voice masking,
    global muting and parental control

  • Matchmaking, which allows players to enter games and find opponents
    based on similar skill levels

  • High-speed downloads to the Xbox hard disk.

Microsoft has sunk $2 billion into its efforts to bring online console
gaming to its customers in North America, Europe and Japan — all in the
hopes of capturing a commanding position in the online gaming market.
London-based audio/visual media research firm Screen Digest predicted in October
that online game revenues will be more than $1 billion by 2006 — including
PC-based online games, like Sony’s subscription-based massively multi-player
online roleplaying game (MMORPG) Everquest, which draws 430,000 players
worldwide who buy the software and pay $13 a month to play in the online
realm. And DFC Intelligence believes there will be 23.4 million online
console gamers by 2006.

The general video game market racked up $9.3 billion in revenues last year,
outgunning Hollywood’s box office take of $8.1 billion by a cool billion
dollars. According to research firm InStat/MDR, console games accounted for
nearly $7.4 billion of that revenue.

Sony unveiled its Network Adaptor, with a price of $39.99, on August 27. Its
Network Adaptor allows both broadband and narrowband connections. The firm
has sold about 200,000 Network Adaptor’s since the launch and predicts it
will sell 400,000 by the end of the year. Meanwhile, Nintendo launched its
network adapters in October, at price points of $34.95. Consumers have the
choice of narrowband modems or broadband adapters.

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