|
| By Troy Wolverton
TheStreet.com Staff Reporter
5/26/2005 9:26 AM EDT
Microsoft (MSFT:Nasdaq - commentary - research) may be a behemoth and a
monopolist, but when it comes to video games, it's just an upstart.
In the latest round of the video-game wars, the company lost billions of
dollars while being crushed by industry giant Sony (SNE:SNE - commentary -
research).
Corporate Vice President J Allard, who heads Microsoft's video-game efforts,
is promising a different result this time. Under his leadership, Microsoft
has unveiled its next-generation console, the Xbox 360, which the company
promises will appeal to everyone from core game geeks to nongamers. Indeed,
Allard has boldly predicted that a billion people will eventually play games
on the new console.
But the company again faces a challenge from Sony, which is introducing its
own next-generation machine. And it still has many questions left to answer
that will likely determine the fate of the 360, which in turn will affect
the companies developing games for it.
At the E3 conference in Los Angeles last week, I spoke with Allard about the
challenges for the 360.
Q: Why do you expect the Xbox 360 to do better in the marketplace than the
Xbox did?
A couple of factors: Xbox -- not only did we enter the market, what, 19
months behind Sony -- so we got a very, very late start -- but we were a
brand-new team. The day we approved this project, we had never sold anything
directly to Target and Wal-Mart.
We didn't have a business relationship with Electronic Arts (ERTS:Nasdaq -
commentary - research). We didn't have our online service developed. We had
never shipped a console game before as a company. So we were developing a
lot of new competencies as a company and assembling a new team. As talented
as the team was that we pulled together, we hadn't really jelled as a team
yet. So we had a lot of work to do.
This time with Xbox 360, we've got the experienced team, we've shipped a lot
of console games and built some incredible franchises. And we've got the
relationships that we need and built out partnerships. The other material
thing, obviously, is we're not going to give the 20-month head-start to our
competitors.
Q: At the press event last week, you predicted that a billion people would
play the Xbox 360. How did you come up with that figure?
The thing about that comment is it's really intended to be an inspirational
comment for the industry. Right now, more people enjoy movies, music,
television and movies than they do video games.
Our revenue growth is great, right? If you look at all the numbers, you say,
"We're doing great as an industry." Well, we force everybody to go buy new
hardware every five years. That helps. Our average selling point of content
is $50 or $42 or whatever you want to call it. That helps, right? And the
fact that we have such an enthusiast [base] that consumes so much, it drives
up those numbers.
That's great, but how do we invite people back in and turn the world into
gamers? To think that there are a billion people in the world that can read
or watch movies or play music, nobody would scoff at that. But if you say,
'We're going to get a billion people to go play games,' that's a big dream.
And so, it's more a challenge to the industry to say, 'Hey, we're all going
to appeal to the core [gamers] , but let's all do our part to take it to the
next level.'
Q: Why do you think the Xbox 360 will have an appeal outside of the core
gaming contingent?
Well, the first is approachability, [which] takes several forms. First is
the device itself. The industrial design of the device really reflects the
optimism that we have for the industry, and it's more inviting. We went to a
wireless design. And it seems like a trivial matter from a technology point
of view, but from a living-room experience point of view? Having wires
strewn across your couch and across the floor is a big deal to a lot of
people. So, in showing the industrial design and the wireless concept to a
lot of nongamers, they say, 'Well, finally, this is a product that doesn't
need to be banished to the basement.' So, I think it will get into the right
place in the home and invite more family members to participate.
Another aspect of it is the community, whether it's kids or adults, and
bringing the community more to the forefront of the entertainment
experience. You could be watching Lord of the Rings on your 360, I could be
playing Perfect Dark Zero, but we could have a conversation over voice while
we're doing that. We could talk about those experiences. I could invite you
in to play Perfect Dark Zero while you're watching the movie.
Then the last thing that we're really thinking about is the content itself
and making it more inviting. We have this notion of Xbox Live Arcade, which
is aptly named. It's like walking into an arcade, but over the network. And
you'll be able to download everything from casual, time-killing games to the
classic arcade games like Pac-Man.
Q: The big hit on Xbox has been the Halo series. When will we see a version
of Halo for Xbox 360?
The Bungie [Studios] guys have had [development] kits for a long time now.
So, they're cooking some interesting stuff for 360. I think it won't
disappoint in any stretch of the imagination.
We have one formula with Halo: Ship it when it's ready. We did it with Halo
1. We did it with Halo 2. And we haven't disappointed the audience yet.
That's Bungie's philosophy; that's the Xbox team's philosophy.
Q: How much is the Xbox 360 going to cost?
Not sure. It's probably about two months away before we make the decision on
that.
Q: The last Xbox went out at about $300 initially. Will the 360 be priced
higher, lower?
It's going to be in the neighborhood.
Q: When exactly will you release the 360?
When it's done and we've got enough of them. We're going to do something
that's really unprecedented in the industry by launching the console in all
three major markets for the same holiday. It's never been done before. So,
that's some of the logistics that we're working through now.
The chips are in production, the machines aren't. So we've got a little bit
of work left to do.
Q: Sony's planning on launching their PlayStation 3 around six months after
the Xbox 360 launches. They've gotten some rave reviews for their new
device. Have they stolen some of the 360's thunder?
I don't worry about great visuals that they showed that weren't actually
running on real hardware. It doesn't matter. Gamers don't make their
purchase decisions based on movies that were shown in May for products that
come out in March. They just don't.
Q: When the original Xbox came out, Microsoft showed off what you could do
with off-the-shelf, PC hardware. In contrast, you're going with customized
hardware this time around. Why the change in direction?
Part of it was the necessity of getting to market quickly, we had to go
off-the-shelf. There wasn't an alternative. You can't build a game console
with highly customized silicon components with [the time they had for the
Xbox] . We barely did it, in some ways, with the off-the-shelf stuff.
Part of it was our experience as well. We thought that it was very, very
important to get game developers a great platform that they were familiar
with.
But the thing about going to custom hardware is it will give you the best
price-performance ratio. The second thing it does is it allows you to
control costs.
Intel doesn't make 733MHz parts anymore -- except for us. So they don't cost
reduce in the same way [as custom hardware] . It's very important for us to
be able to manage our costs, so our price curve and our cost curve
approximate one another. On this [past] generation, they just didn't.
Q: You've lost $2 billion or so in this division thus far. Do you expect to
be consistently profitable this time? What's it going to take to do that and
when will it happen?
You can't be consistently profitable, because the upfront costs are so high.
So the first two couple years are pretty tough. But we intend on selling an
awful lot of these things. We've really designed the business around scale
this time, and I think that once we get over that initial curve, it should
be a pretty healthy business for the company.
Q: A couple of reports have mentioned that the Xbox 360 games you and your
partners are demonstrating are running on emulators on Apple's Macintosh
computers. Did Bill Gates grit his teeth when he read that?
The Xbox team thinks different!
Q: They think different? I like that. I'm sure Steve Jobs would like that,
too!
Well, I have more G5's than any human being on planet earth right now. That
was the closest hardware system that was out there. Even though we're doing
highly customized parts, they still are derivative of off-the-shelf parts.
So we've given them a good approximation. When we get the final hardware,
the performance is just going to skyrocket.
|
|