With the Xbox, Redmond plays offense - and defense.
Think of the Xbox as a Trojan horse - a game console that slinks into your living room and unleashes a surprise attack on your entire home entertainment system. It's a classic Redmond offensive. But there's another aspect of the strategy that Microsoft is less keen to publicize: The unveiling of the Xbox is also a defensive move, aimed at shoring up a weakened home PC market.
The opportunities presented by the Xbox pale next to the dangers posed by declining PC sales. According to IDC, Microsoft sold nearly 38 million copies of Windows last year that came bundled with new PCs - versus only about 2 million at retail. In 2001, system sales have declined nearly 20 percent. The main reason is that PC penetration has reached saturation in most of the developed world, and there are few must-have applications that demand a more powerful replacement. The one exception is games.
Each new 3-D spectacular, from Red Faction to Max Payne to Halo, calls for a faster processor, more memory, and a hotter 3-D card than the last. Games have emerged as one of the few compelling reasons to upgrade PCs. Witness the fact that despite the system sales drop-off in the first half of this year, 3-D card sales have held steady. Overall, 2001 is likely to be the console gaming industry's biggest year ever, with sales projected to be nearly $7 billion.
Unfortunately for Microsoft, only 20 percent of those games are made to run on PCs, and that share is dropping. Dedicated consoles, such as the PlayStation, dominate the market. Many developers don't even bother to develop PC versions of their titles.
On the face of it, the Xbox looks like nothing more than a way for Microsoft to jump on the console bandwagon. But there's a clever second layer: Since the Xbox is at heart a PC, sharing the same Intel processor, Nvidia graphics card, Microsoft OS, and DirectX developer tools, the success of the Xbox should have a ripple effect.
Microsoft's main goal is to make the Xbox a hit. But the hidden hope is that developers who write games for the Xbox will use the same DirectX tools to create even more ambitious games for next-generation PCs. That, in turn, will give users a solid reason to upgrade. If Microsoft can reignite the PC sales cycle, Redmond will have found a way to both take on the post-PC console market and protect a vulnerable underbelly at the same time. Embrace and extend has never been so much fun.
