Microsoft To Invest $1B in Online Xbox Gaming

Although Microsoft had to cut the priceof its Xbox console last week to keeppace with rival Sony in the gaminghardware market, the company is poised to announce a US$1 billion investment in anonline game service that could smoke the competition.

The Redmond, Washington-based software giant is aiming to become the biggest player in afast-growing market. Its new service, called Xbox Live, will let users subscribe to anonline network to play games with each other.

Although Microsoft already hosts somesubscription-based role-playing competitions on its gaming site, Xbox Live couldrepresent a giant step toward integrating game consoles with their online counterparts.

“It could make online gaming a standard part of using console gaming,”Jupiter Media Metrix research directorMichael Gartenberg told the E-Commerce Times. “This is going to be really significant.”

Plug and Play

It seems that the market is chock full of gamers just waiting to log in and startplaying. Jupiter Media Metrix has projected that online gaming revenue could top $2.5billion by 2006, with most of that coming from subscriptions.

Market research firm IDC also haspredicted rosy numbers, reporting that online gaming revenue is likely to increase about50 percent annually.

Gartenberg said Microsoft could see a major financial boost from its new effort.

“Microsoft is going to do a land grab here,” he said. “There are people already lookingfor a great online gaming experience, and that’s who they’re going to reach at first. Itmight only be in the tens of thousands this year, but it’s a number that will definitelygrow as people look to use broadbandmore.”

Game Almost Over

The prospects for Microsoft’s Xbox console looked less bright last week, when Microsofthad to cut the device’s price from $299 to $199 to compete with similar price cuts fromcompetitor Sony. Rival Nintendo followed suit with its own price cut on itsGameCube console, from $199 to $149.95.

Microsoft was thought by many analysts to be barely holding its own in the gaming consolewars. The company has sold only about 3.5 million to 4 million Xbox consoles in 2002 –only slightly below Nintendo’s 4.5 million GameCube sales but far below the staggering30 million sales of Sony’s PlayStation 2.

But the software titan’s high-profile entry into online gaming could change the playingfield.

Eyeing the Competition

“Sony is going to have a bit of a battle here,” Gartenberg said. The Xbox comes with abroadband adapter for online game playing, but other game consoles do not, requiringconsumers to buy an adapter separately. Gamers who are not keen on hunting down adapterscould drive more sales toward Microsoft.

Sony and Nintendo have online ambitions as well and already possess some networked games.They are each expected to announce further plans at the annual Electronic EntertainmentExpo (E3), which starts Tuesday in Los Angeles.

“Up until now, online gaming has been a fragmented effort,” Gartenberg said, noting thatthe Xbox Live network could be a unified model that others follow. “Microsoft is leadingthe way forward. This is going to change the way things advance, without a doubt.”

Microsoft officials were unavailable for comment, but a Webcast of the Xbox Liveannouncement is due to be shown Monday evening on theXbox.com Web site.