Microsoft's Gameplan: What They Are Doing and Why

Reproduced with permission from our partner publication, Videogames Transmedia.

Question: Why is Microsoft going first?
Answer: The lesson of the last round was clear. Microsoft launched the Xbox in November, 2001, about 20 months after Sony launched the PlayStation 2. By the time Microsoft sold 1.5 million units, Sony had sold 20 million. It was game over before the start. But going first has its dangers. There is the example of Sega's Dreamcast, which was trounced by the PlayStation 2. And gamers who bought an Xbox just a year or two ago may not be ready to step up with another big purchase, especially if it means they can't play their older games on it. J Allard, general manager of the Xbox platform, says going first will allow Microsoft to "play our game this time," rather than follow the leader.

Q: Why did Microsoft upgrade the technology in Xbox 360?
A: Last year, Microsoft floated specifications that disappointed game developers. The new box, code-named Xenon, only had 256 megabytes of dynamic random access memory. And it lacked a hard disk drive. The bean counters had ruled that including a disk drive was a bad move, from a business view. It didn't get Microsoft a price premium over Sony. And it cost $50, making it the most expensive thing in the box. When the Xbox debuted in 2001, Microsoft was losing $125 on every machine. It never recovered from that money-losing start.

By last year, the hard disk was out. But after getting negative feedback, Microsoft decided to double the DRAM to 512 megabytes and to include a 20-gigabyte hard disk. While that added cost to the box, Microsoft says it found other ways to cut costs. And now the box will be better future-proofed against the Nintendo and Sony boxes. There's less risk that Microsoft will be "Dreamcasted."

Q: Will the Xbox 360 beat the PS3 technically?
A: It's not likely, considering that Microsoft has taken less time to design the Xbox 360 and the PS 3 will be able to take advantage of technology advances that emerge well after Xbox 360's fall 2005 launch date. Microsoft included three IBM PowerPC processors each running at 3.2 gigahertz and each capable of running two threads at once. That means it has six parallel threads. The PS 3 will run at around 4 gigahertz, with one IBM PowerPC processor controlling eight smaller processing elements. One weakness of the Microsoft solution is that the three processors share a relatively small amount of cache, 1 megabyte. Microsoft will also use lower-cost but slower memory, compared to the PS 3's Rambus-based XDR memory and Flex I/O interconnect. Sony is also betting that BluRay high-definition storage disks will give it an advantage. Microsoft, by contrast, is likely to do a better job with the online features than its rivals, analysts say. Developers say that the Sony machine will likely be more powerful, but harder to program.

Q: Will the lack of HD storage hurt Microsoft?
A: J Allard, general manager of the Xbox platform, says this is the HD era. But he says that neither HD-DVD nor BluRay were going to be ready at the time of launch. On top of that, they would cost a lot of money, perhaps twice as much as a DVD drive, estimates Rob Enderle, an analyst at the Enderle Group. And when Microsoft asked game developers, they cared most about the speed of the drive. The 12x drives were going to be faster, Allard said, and the lack of capacity — 8.5 gigabytes versus BluRay's 33 gigabytes — could be made up for with compression technology. But if BluRay and HD home recording takes off, Microsoft's run with the Xbox 360 won't last as long or as well.

Q: What else can you do on the Xbox 360?
A: Besides games, you can play music, watch photos, and view videos. You can rip music to the Xbox 360 hard drive and share pictures with friends. You can stream music onto the Xbox 360 from any digital music player, even an iPod, using Wi-Fi or Ethernet. Through the Media Center Extender, you can also view videos or recorded TV shows stored on a nearby Media Center PC. A USB 2.0 Webcam will cost extra, but if you have one, you can play games on Xbox live with video chatting.

Q: Why isn't the Xbox 360 a full PC?
A: The Xbox 360 hardware is capable of running Windows, even with emulation on the PowerPC chips. But Microsoft decided that its Media Center PCs and Xbox 360 products should be distinct products. For instance, there's no browser on Xbox Live because Microsoft wants to guarantee that gamers will be looking at Xbox-related web pages and generating eye-ball clicks for advertisers. Making the box PC compatible would also have hurt the PC market. Who would pay more for a PC, if the Xbox 360 was cheaper? But Microsoft did include the Media Center PC Extenders in the Xbox 360, which means that media stored on a PC could be streamed into the Xbox and played on an attached TV set.

Q: Is the box backward compatible?
A: At press time, Microsoft wouldn't say. Observers believe that Microsoft has tried to use its Connectix translation technology to make old Xbox games, architected for Nvidia graphics chips and Intel processors, run via emulation on the new box. It isn't clear if all of the games will work right. The hard drive's inclusion as a standard feature makes it easier to make the software backard-compatible. But Xbox owners may have to settle for some limited compatibility, like Xbox owners playing against Xbox 360 gamers online.

Q: How many games are in the works?
A: Peter Moore, corporate vice president at Microsoft, says there will be 25 to 30 launch titles this fall (within 45 days of the launch) and there are 160 games in the works. Confirmed titles include Microsoft's Kameo: Elements of Power and Perfect Dark Zero. Others include Epic's Gears of War, Activision's Call of Duty 2, Take-Two's NBA2K6 and Ubisoft's Ghost Recon 3. There are unconfirmed reports that Microsoft will refashion Halo 2 to run on the Xbox 360. Game developers have had software development kits for over a year, and Microsoft has shipped more than 4,000 development kits.

Q: What kind of HD era will the Xbox 360 create?
A: The company is betting that high-definition TV sets will fall in price to as little as $400 by Christmas 2005. Microsoft specified that Xbox 360 games would have to comply with a minimum standard of being able to run at a resolution of 720p. Publishers who want to create 1080i games are free to do so. Richard Doherty, an analyst at Envisioneering, says that 720p will be the sweet spot of the market through 2006. But after that, 1080i will be the norm. That could create one problem. Games that are created for native 720p resolution may suffer from poor scaling chips. Doherty says that the games may have visual artifacts if they're stretched to run on native 1080p or 1080i TV sets.

Q: Who designed the look of the Xbox?
A: Jonathan Hayes, director of design for the Xbox 360, brought together a worldwide team. Microsoft solicited concepts from various industrial design firms and narrowed it down to concepts from two firms: Astro Studios of San Francisco and Hers Experimental Design Laboratory in Osaka, Japan. One big reason to bring in the Japanese firm was to consider the needs of Japanese households. Last time around, many thought the VCR-size box was way too big, and even more thought the large controllers were ridiculous. The new box has a "chill" white color and looks like something Sony or Apple designed. It comes with face plates that can be modified for any gamer's tastes. The whole design comes off as cognizant of the changes that Apple's iPod has had on the market, which is now accustomed to expect cool designs even in mainstream products. The box can stand vertically, or horizontally, and because it uses wireless controllers it isn't pocked with all sorts of inputs as the previous box.

Q: Will they make it on time?
A: If Microsoft had good working prototypes, it would show them. The fact that it isn't means that the chip makers are most likely still perfecting the chips. Last time around, Nvidia finished its graphics chip for the Xbox in July 2001. That barely gave Flextronics enough time to make 1.5 million Xbox units for sale by the end of December. This time, Microsoft is trying for a worldwide launch, and Flextronics is making the machines again. Microsoft will likely need 3 million units to satisfy demand stoked by the launch ads. It remains to be seen if Microsoft and its partners can execute on such an ambitious plan. P.J. McNealy, an analyst at American Technology Research, estimates Microsoft will be able to ship 1.8 million to 2.4 million units this year if it executes worldwide.