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Xbox: A Business Strategy Gone Wrong

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Contributed by Adam Barr
April 6, 2001

Why is Microsoft offering us the Xbox and breaking away from its core of business of selling software?

In This Story:

X on the Spot

Why the Change?

Cool It

A Better Strategy

Xbox Good For ... Linux?

There has been a lot of noise lately about Microsoft's new gaming console, the Xbox. Flashy demos, extensive media coverage and supportive statements from game manufacturers. The press loves the story of the upcoming battle between Sony, Nintendo and Microsoft for the hearts, minds, and wallets of game players everywhere.

This hides the truth about the Xbox: It's a terrible move on Microsoft's part, and should offer hope to Linux users worldwide.

Let's review the facts. Compared to the personal computer operating system market, the gaming console market is a whirlwind of competition. Sony has shipped the PlayStation 2 and Nintendo is readying its GameCube. Like Microsoft, both those companies have piles of money.

Unlike Microsoft, they have lots of experience in this market. Sega, makers of the Dreamcast, pulled out entirely, unable to complete with Sony and Nintendo.

X on the Spot

Into this market sashays Microsoft with the Xbox, due to launch this fall. Some people are dubious about the company making that date, but I'll give it the benefit of the doubt.

Microsoft reportedly will lose over US$100 on each console it sells, but that is standard in the console industry, where the money is made in games and licensing.

I'm also not worried about the box itself. Built-in hard drive, broadband access, 733 MHz CPU, self-described "bad ass" graphics controller from nVidia, all make for a very competitive console. And if there is one area where Microsoft does have lots of experience, it is evangelizing a platform to third-party developers.

So game developers should have every opportunity to produce great games for Xbox.

Why the Change?

This brings me to my primary question concerning Xbox: Why is Microsoft breaking away from its core of business of selling software? My suspicion is that it is a combination of factors:

First, Microsoft is caught up in the post-PC frenzy, and when it heard that Sony was going to add Internet access to the PlayStation 2, it panicked. While I've already made my opinions of the post-PC world known, suffice it to say I don't think the PC is going to be replaced by gaming consoles.

Second, Microsoft thinks there is some synergy between Xbox and its other initiatives. Unfortunately, with its custom hardware and software, the synergy is minimal. The Xbox muddies the question "What platform should I write a game for?" since now developers have both Windows and Xbox as options. Confusing third-party developers more than negates any synergy that exists.

Third, Microsoft did the Xbox because it is "cool." Cool hardware, cool companies, cool conferences and cool parties.

Cool It

My sneaking suspicion is that reason No. 3 was up there in the minds of those Microsoft higher-ups who greenlit the project.

Sure, Microsoft has done hardware in the past, but the mouse, the natural keyboard and the various gaming controllers all served as a seed to spur third-party development of similar hardware and make Windows a better platform overall.

Sure they made money, but they also gave Microsoft an opportunity to test out APIs and driver interfaces for various classes of PC hardware.

A Better Strategy

If Microsoft really wanted to do the Xbox, they should've done it as a PCI plug-in card, and used it to design and validate a new "DirectGaming" API for the Windows platform. Then game developers would have one platform to write for, Wintel would crush the gaming consoles, and Microsoft's stock would start zooming upwards again.

Instead, you have Bill Gates flying to Japan for the Tokyo Game Show, which means he is spending time thinking about the Xbox instead of thinking about .NET or Windows or Office or something that actually has strategic value to Microsoft in the future. As a shareholder, I protest!

Xbox Good For ... Linux?

If Microsoft keeps screwing around with this post-PC nonsense, it is going to become a self-fulfilling prophecy -- which leads me to the reasons why the Xbox is such good news for Linux.

If Microsoft takes its eye off the PC ball and the post-PC world happens, then Microsoft will become so overwhelmed trying to dominate all the various platforms, that the whole creaking heap will slide down the hill into Lake Sammamish.

So all you Linux advocates, I know this may be hard. But for the sake of your preferred platform, grit your teeth, paste on a big smile, and get out there and support the Xbox.

Talkback Forum

Author's background:
Adam Barr worked at Microsoft for over ten years before leaving in April 2000. His book about his time there, "Proudly Serving My Corporate Masters," was recently published. Barr lives in Redmond, Washington.

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