A bone-jarring Ah-ha moment: How Microsoft wins the Game Wars

Here’s how Microsoft will win the Game Wars by next summer, before the Playstation 3 ships in volume, using a wireless handheld Xbox that plays games, movies and TV stored on the detachable hard drives announced in the Xbox 360—and, building on .NET, Microsoft will turn both the game console and the portable game system into full-fledged productivity systems.

As you may know, I have been fascinated by the Sony PSP, particularly because of its code-sharing ability, though there are some shortcomings that need to be addressed if it is going to become a huge hit by appealing to all ages as a robust network client for movies, messaging and games. But over the past few weeks Microsoft’s Xbox strategy has brought several things into clear focus for me and I now realize that Sony is facing a profoundly different challenge than the simple game-system-versus-game-system battle that most folks talk about when the Xbox is discussed.

Take a look at the Xbox 360 spec. You see that the system is a full-blown media center right away. It supports DVD playback, CD audio, streaming and ripping of audio, a “Media Center Extender” that communicates with a Windows Media Center PC and these diabolically clever detachable one-inch hard drives of up to 20 GB capacity. With a few of these storage devices, you could carry dozens of hours of recorded television and movies with you anywhere.

What you need is a device, like the PSP, with a high-resolution screen to play the recorded entertainment. Moreover, that device has to provide wireless connectivity and support for .NET applications in order to be attractive to a non-gaming person. If you give them that, you may also sell them a few games, even if it is just to hand back to the kids so they can play while you are driving. But, in any case, this is what I hear rumors is coming next summer.

The detachable drives in the Xbox 360 blow away Sony’s well-worn attempt at introducing a new storage format, its currently unwritable 1.8 GB UMD discs. An Xbox 360 user will have far more flexibility in carrying along media and games than any other console developer. Sony should have learned by now that it can’t win by erecting walls, even walls it plans to take down. Sony hopes to sell TV shows on UMD; Microsoft will let Windows Media Player users record shows and take them along—which strategy will win? No contest: Microsoft wipes the floor with Sony.

This all makes perfect sense. Xbox as a system is a PC without the choice in OS, since the software running the console is intricately tied up with the box. In a way, it’s Microsoft finally coming round to Steve Jobs’ approach to building PCs—deep integration removes convenient alternatives in software, opening a larger ongoing revenue stream from each customer, who can be marketed to through your device.

Moreover, you can’t be sued by antitrust regulators for distributing an integrated device. Everyone else in the console space is doing it and, if Microsoft happens to have tapped the main artery of communication with the device (in Xbox Live), then it can not be accused of tying, as it has been in the PC market, where it forced manufacturers to use only Windows on their PCs or suffer adverse pricing pressure or the threat of being cut off in favor of other competitors. Sony, Nintendo and others can’t sue Microsoft without having to unbundle their own consoles and software, which they are not likely to want to do.

Then, you come to the fact the Xbox 360 and portable system will be a grown-up tool, not just a kid’s gaming system, which wins both maturing gamers and workers who want to better mix their work and personal lives in a single portable device. It’s both a bridge device and a back exit from the PC business that preserves all the strengths Microsoft has built on for 30 years.

There are surely ways to hack the Xbox 360—give the world about three days with it after it ships to get Linux running on it, for example—but most of the consumers in the world will not craft their own console. A competing data service will also certainly be available, but the majority of the market will opt for an Xbox Live subscription, especially if the same fee covers both the Xbox 360 console and a portable game system. If it turns out that Xbox Live also lets you run a .NET-enabled version of Word or Outlook, allowing you to communicate and consume, amongst other things, RSS feeds from friends, co-workers and media, then, you’ve pretty much wrapped up the personal media market.

Like the iPod, which has created a very powerful halo effect that brings people to the Mac, the Xbox 360 is a natural nexus of transactional opportunities Microsoft can leverage to sell many more “copies” (really, they are instances) of its existing productivity applications, as well as integration with its back office tools. That integration is both attractive to corporate IT managers who want to communicate better with mobile employees and it makes Xbox Live a channel for media, from TV and movies to music and text.

So, that’s how it will happen. Bill Gates will “surprise” everyone with the wireless portable game system announcement either in conjunction with the release of Xbox 360 or at the Consumer Electronics Show in January, and by the time Playstation 3 is available people will be placing pre-orders for the Xbox portable. That won’t kill the Playstation, because people will buy it for the games exclusively available on it, but it will severely limit Sony, who may have an improved PSP in the works, but one still hobbled by the proprietary UMD storage system, because even a writable UMD requires a burner that isn’t currently installed on anyone’s computer or game console.

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Author: Mitch Ratcliffe

Mitch Ratcliffe is a veteran entrepreneur, journalist and business model hacker. He operates this site, which is a collection of the blogs he's published over the years, as well as an archive of his professional publishing record. As always, this is a work in progress. Such is life.

3 thoughts on “A bone-jarring Ah-ha moment: How Microsoft wins the Game Wars”

  1. A bone-jarring Ah-ha moment: How Microsoft wins the Game Wars

    [Source: RatcliffeBlog””Mitch’s Open Notebook] quoted: Bill Gates will “surprise” everyone with the wireless portable game system announcement either in conjunction with the release of Xbox 360 or at the Consumer Electronics Show in January,…

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