What's Next for Xbox 360?

As the final part of our coverage of five years of Xbox, GamesIndustry.biz spoke with head of the European division, Neil Thompson.

In part one of our interview, he talks about the lessons Microsoft has learnt from the original Xbox and how it intends to develop its market share with Xbox 360. He also gives us his take on the delay to the launch of the PS3 in Europe, and the challenges of competing with rivals over the Christmas period.

The second part of the interview will be published on GamesIndustry.biz next week. And if you missed this week's full retrospective on the launch of the original Xbox, you can read it here.

Neil Thompson: I'm fairly knackered! I've been in it since day one and it's been an interesting journey.

What would you say has been the Xbox's biggest contribution to the games market?

The biggest thing that we've done that didn't really exist before we came into the market was the vision that software and services were the way that this industry was going to change. And we still think that will be the biggest thing to change the industry in the future.

If you look at what Xbox Live is doing, it's certainly been a landmark strategy and an offering to consumers that hadn't really been seen in the same scale and size as we've done.

Even when you look at updating the console software and the services, the fact is that people are getting a better service now than on day one, because we're updating the technology without having to update the hardware.

What we've done is really move the focus away from the hardware - and you still need great hardware - but we are helping people understand how software content and services is really the thing that defines gaming experiences today, and will continue to define that experience even more in the future.

That was also one of the biggest fears that consumers had when you launched the original Xbox - it was labelled a PC in a box and there was this worry that it would be reliant on upgrades and patches...

When we launched, we have to remember, broadband penetration was just beginning to take off and narrowband was still the order of the day. I think people didn't really understand what broadband could bring to the market and how quickly it was going to become adopted.

If you look at broadband rates now, they've gone through the roof and it's the norm in many households, not an exception. I think people were sceptical that we'd invested a lot of our research and design into this thing called Live, where you plug an internet cable into the back of an Xbox and you're connected. That idea hadn't really been seen in that way before.

You could argue what Sega tried to do with the Dreamcast was in that vein, but it didn't really understand what it was going to take and what software services it would need to make it successful. And maybe its timing wasn't quite right.

People were sceptical but if you look at what's being offered now by our competitors and look at the numbers we've got, we see people mimicking everything that we're doing.

And we also see we've got phenomenal attach rates in the UK on Xbox Live - it's higher than the world average of 60 per cent or so. It's definitely changing not only how people play their games but also how they will consume their entertainment in the future - and probably how the entire games industry will think about its business model.

What do you think has been the biggest learning experience for Microsoft over the lifecycle of the original Xbox?

Firstly, don't be second to market. We found it very difficult being a year and a half to two years behind PlayStation 2 in Europe. Being early to market with great innovation is important and we recognised that with the launch of the 360.

As I said earlier, software and services are key, but you also have to have a hardware platform that looks appealing and makes people want to show it off in their living rooms. That was something we learnt from Xbox to Xbox 360.

Something we also came to recognise is that you just have to keep listening to people. We're the sort of company that innovates constantly, but we're of a mindset that says we don't always know all the answers, we have to listen, get feedback and then based on that, keep refining what we do.

We're one of the few companies in this marketplace that admits to that and does respond quickly to what consumers tell us they want. Whether that's with pricing, technology innovation or content acquisition strategy, we have learnt to be a very agile and nimble company reacting to publishing, retail and distribution partners and what they tell us they need from us.

Neil Thompson is head of Xbox Europe. Interview by Matt Martin. Visit GamesIndustry.biz next week to read part two.