Due out in the second half of 2001, Microsoft’s long-rumored X-Box–a name that will undoubtedly spawn a thousand dirty jokes–will be a test of the company’s cultural hipness. It’s also a shot across the bow of market leader Sony. Like PlayStation 2, which set a record in Japan with 980,000 units sold in its first two days, the X-Box plays cutting-edge games and DVDs and connects to the Internet. But X-Box is twice as fast as PS2, with more memory, built-in Ethernet and an 8-gigabyte hard drive. “Our games are good on the PC. They’re gonna be great on PS2. But they’ll be unbelievable on X-Box,” says Epic Games’ Mark Rein. And since the new machine’s operating system is based on Windows 2000, thousands of PC game developers should be able to make a rapid transition to the console, ensuring that Microsoft will have a number of new games ready at launch.
So far, Microsoft seems to be making all the right moves to offset the fact that X-Box will hit the United States a year after PS2. But there are other pitfalls ahead. Chief among them is that Microsoft is way more comfortable marketing to corporations than to consumers. “Bill Gates used to brag that he didn’t even have a TV,” says 3DO chairman Trip Hawkins. “He just doesn’t get consumer entertainment.” So Microsoft, which is about as hip as a leather pocket protector, will have to try and convince Gens X and Y that it’s a cool company. But the biggest hurdle may be the price. Intel currently sells the chip that will power X-Box (a 600MHz Pentium III) at $425 a pop, more than the $360 Sony’s charging for an entire PlayStation 2. Throw in the other components–an 8-gigabyte hard drive and 64MB of memory–and the challenge is clear. “I would doubt that they’ll be No. 1,” says Sean McGowan, an analyst for Gerard Klauer Mattison. “It’s a race for No. 2 between Nintendo and Microsoft.”
Still, Microsoft is charging ahead confidently, though less arrogantly than in the past. Asked how soon the new games unit would account for 40 percent of Microsoft’s operating profit, as PlayStation does for Sony, vice president Robert Bach cracks up. “[PlayStation CEO Ken] Kutaragi gets to compare his profits relative to the rest of a CD company. I get to compare my profits relative to Windows and Office. I have a tougher challenge than he does.” Let the games begin.
