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X-Box: Why Microsoft is Unlikely To Conquer Consoles
by Jeremy Horwitz for Gamers Today
It's hard to like Microsoft - their products are rarely innovative, frequently delayed, and always buggy. Yet they continue to succeed in the marketplace, largely by leveraging their massive size to take over new markets: first Microsoft partners with or purchases companies that have successfully developed new software or hardware technology, then they aggressively under-price remaining competitors and force them out of the market. Anti-trust proceedings aside, Microsoft now plans to conquer the multi-billion dollar video games business, based on a strategy of partnering with two leading hardware companies after studying the strengths and weaknesses of the industry's current leaders.
Microsoft's first public step towards that goal came with its March 2000 announcement of the X-Box, a video game console that the company has been informally conceptualizing for six years. Planned for release in 2001, the X-Box is said to feature twice the memory of Sony's PlayStation 2, three times its graphics performance, built-in Ethernet capability and an internal eight-gigabyte hard drive, each in addition to virtually all of the other features Sony's cutting-edge console offers. At the core of the machine are chips by Intel and nVidia, arguably America's leading developers of personal computer CPU and graphics technology. And frankly, having seen the X-Box demos in motion, it's hard to take issue with the hardware Microsoft claims it's going to offer - the demos evince an impressive level of graphic detail and smooth motion, clearly on par with some of the PlayStation 2's early demos and in some ways surpassing them. In theory, at least, who wouldn't want such a powerful, feature-laden machine?
Despite the fact that the success of Microsoft's plan would constitute the biggest re-taking of a Japanese-dominated industry ever staged by an American company, few people believe that Microsoft will succeed. First, their history of gaming endeavors suggests that they'll have problems fighting Nintendo, Sega and Sony, placing Microsoft in the category of Commodore, Philips and numerous other companies that have tried and failed to become kings of the electronic entertainment jungle. Secondly, there's little reason to believe that today's Microsoft has what it takes to become a legitimate player in today's console games business.
I. Microsoft's History
History is a critical predictor of the future, and though Microsoft has some history in the PC games market, its only real experience in console gaming comes from an extended development partnership with Sega. The video game industry heard the first whispers of the partnership in 1994 and 1995, an arrangement designed to enable Sega's then-secret Dreamcast game console to have instant and simple Internet connectivity with a network-ready operating system developed by Microsoft. Though it was openly speculated at the time that Microsoft was merely involved with Sega in order to learn its design, marketing, and distribution practices, Sega continued the partnership anyway. But the results were disappointing: Microsoft's finished Windows CE-based OS proved sluggish, memory-demanding and unimpressive, forcing Sega to develop its own Dreamcast development environment. Developers who wished to port PC games to the Dreamcast using Microsoft's tools were surprised to discover that they were forced to become licensed Microsoft developers, pay Microsoft for the privilege, and then accept sub-par performance from the Dreamcast hardware. Consequentially, very few Dreamcast games have been developed with WinCE, and those that have been are generally plagued with visual problems - slowdown, uneven or slow frame rates, and other PC-like issues (see Sega's Virtua Cop 2 and Sega Rally titles for examples). In the end, Sega opted to use a different company to develop the Dreamcast's Internet browser software and has publicly downplayed Microsoft's involvement in the system.
Microsoft's involvement in other gaming ventures has been similarly unimpressive, with a single and important exception. In the PC market, Microsoft successfully popularized the Direct3D graphics standard, staving off initially superior standards offered by competitors such as Silicon Graphics and 3DFX. Of course, Microsoft did this by giving Direct3D away with every Windows consumer operating system while giving programmers relatively inexpensive access to the development tools. As a result, many developers are comfortable programming with Direct3D, which is not coincidentally the graphics software core of the X-Box. Comfortable developers are key to bolstering a system's software library. But there are two hitches: first, the X-Box can only use Direct3D if it's running in conjunction with Windows 2000, which on PCs requires at least 128 megabytes of RAM just to run smoothly. The current X-Box specification calls for only 64 megabytes of RAM. Though Microsoft claims that it will develop a smaller version of Win2000 for the X-Box, there is little doubt given the company's track record (with Sega and with developing low-memory applications in general) that the finished X-Box will either ship with more memory or suffer considerable development constraints as a result. Second, PC games developed with Direct3D will not run on the X-Box, so companies will have to produce two versions of their titles even though the underlying technology is inherently almost identical.
Direct3D aside, Microsoft's gaming history doesn't have many bright spots. Microsoft and Intel met with abject failure when they supplied PC-based arcade machines that crashed en masse when their Windows-powered clocks failed to self-adjust for daylight savings time. Microsoft's force feedback joystick and steering wheel technology met with yawns from developers and disappointment from consumers, both those who paid in excess of $100 for unsupported peripherals and those who could not afford to do so. While comparatively more successful, Microsoft joypads found their way into homes only after deep discounts - sometimes as much as 100% through retailers such as CompUSA - and have never compared in functionality with controllers designed by Nintendo, Sega and Sony. And Microsoft's game software division hasn't exactly lit the world on fire, though it has more to brag about than Microsoft's gaming endeavors - largely as the result of aggressive pricing. Microsoft has one solid massively multiplayer game (Asheron's Call), a popular strategy game series (Age of Empires), a good golf series (Links) and a handful of other decent titles. None will appeal especially to console gamers and none is considered even close to the "killer app" status any new console needs in order to become successful. Just as one example, Microsoft recently tested console waters by publishing a Nintendo 64 version of the game it thought most console-ready -- its less-than-thrilling Monster Truck Madness. No one noticed.
History aside, there are still reasons to doubt the ability of today's Microsoft to pull things together enough to release the X-Box on time and make it worth buying. Perhaps the most dramatic reason is the most recent one: Microsoft changed course on the machine's two most important components - the graphics chipset and the CPU - literally hours before Bill Gates announced the X-Box at the Game Developers Conference. Microsoft switched from AMD to Intel on the CPU, allegedly for pricing reasons, and from Gigapixel to nVidia on the graphics chipset, supposedly because of nVidia's higher name recognition value. If the parts in question were off-the-shelf components, that would be one thing; rather, Intel is now supposed to develop a brand-new, cheaper custom version of the Pentium III, and nVidia is supposed to rush to finish a brand-new 3-D chip design that was apparently nowhere near completion at the time of the announcement.
Microsoft's last-minute change of components simultaneously calls four things into question. First, it undermines the validity of the X-Box demonstrations, which clearly were not using the core components planned for the final machine. Second, it makes doubtful Microsoft's ability to deliver a finished machine on time - nVidia is nowhere close to being done with its new NV25 chipset, and Intel has to start tinkering with the functions and design of the Pentium III far more fundamentally than it has done previously for laptop computers. (Even Nintendo, which neighbors Microsoft in Redmond, Washington, no longer thinks that consumers take it seriously when it announces the imminent release of a new piece of hardware when none of the chips inside has been finished.) Third, unlike Nintendo and Sega, which are experienced in controlling the prices of their third-party component suppliers, or Sony, which controls its prices by developing its own chips and handling its own manufacturing, there are all sorts of ways that a hardware newcomer such as Microsoft may find itself facing unexpected X-Box development costs. Console price control is especially important today in light of Sega's aggressive Dreamcast pricing and recent giveaway strategy. Fourth and finally, one has to question Microsoft's organizational and planning skills if it's making such critical changes at the last moment, confounding its own publicity efforts and burning its long-term partners at the eleventh hour.
To be fair, some might argue that these factors make Microsoft no worse than its competitors. Responding to the first point, Sony previously demonstrated mocked-up PlayStation 2 hardware that modestly underperformed relative to the finished product, and to the second point, Nintendo now has a reputation of announcing hardware prior to completion of chip designs. To the third point, Sega's bad experience with component sourcing on the Saturn led it to do better on the Dreamcast, and on the fourth point, Sega, after all, dumped graphics chip partner 3DFX for NEC and VideoLogic during the Dreamcast development process. But what spells trouble for Microsoft is the presence of all four of these factors, any one of which could be fatal to a company inexperienced in console development. You need to be pretty well-liked or -respected before you can get away with burning your development partners, delaying announced hardware, over-pricing the hardware or shipping it with unexpected limitations or glitches. For obvious reasons, Microsoft can't afford to make these mistakes.
Assuming for the moment, however, that Microsoft manages to transform its on-paper description of X-Box hardware into reality, the company will still have major problems. The most likely one? Microsoft software. The words instantly conjure up images of delays, bugs, and bloated code. Microsoft rarely if ever launches products on time, and frequently delays critical launches for entire seasons or years. It pares down products from what it promised in initial announcements. When the products do ship, they almost always contain frustrating bugs and require software patches, say nothing of their excessive RAM and hard drive space demands. Needless to say, excepting the delays (and commensurate negative consequences) suffered by Nintendo, these are all problems presently all but unknown to the console games business.
Microsoft will also have to get past popular attitudes and its inexperience with console marketing and console content design before it can stand a fighting chance in the video games market. Frankly, consumers are not clamoring for yet another game console at this point, and they're certainly not looking to buy that console from Microsoft. (The X-Box pitch, as you might recall, was not delivered at an open press event or a major trade show such as E3 - it was delivered to Microsoft's only two friendly constituencies, first and quietly to Wall Street, then openly to game developers at the Game Developers' Conference.) Consumers and developers alike are generally satisfied with the options offered already by Nintendo, Sega and Sony, and no one wants to see Microsoft take over yet another industry. Additionally, Microsoft's marketing campaigns and product designs have never been targeted towards video game buyers, people who aren't likely to be excited about Flight Simulator 2001 or Age of Empires II as a launch title, nor another ever-present Microsoft ad campaign featuring some tired old rock anthem. And finally, we can't forget that specs don't sell consoles - only great games, and exclusive great games, get people into stores. As securing the exclusivity of key third-party console titles has become increasingly elusive, Microsoft will really need a lot of help - or a lot of money - to convince any company to develop X-Box exclusive content.
III. Conclusion
In the end, there are a number of reasons that Microsoft could succeed - a strong on-paper spec, a history of throwing around its substantial weight, and the use of a familiar software environment for developers. But more likely than not, Microsoft will fail. Unlike Sony, a consumer electronics giant which went from making bad software to making a world-beating games console with great first- and third-party games, Microsoft has none of the pieces in place that Sony had when it introduced the first PlayStation - actual hardware, both in-house and external console game development talent, and great dissatisfaction with the dominant competitors in the marketplace. Moreover, it has a history of blundering its product releases and shipping buggy software. If Microsoft has a successful launch of the X-Box in 2001, satisfying consumers with a refined and impressive new product, it will deserve the success it enjoys, having manifested an organizational shift that observers such as myself believe highly improbable.
