Copyright 2001

[ November 19th 2001 ]

It is not often an industry prays for the dominance of a single company, even less so when that business happens to be Microsoft, recently branded as a pursuer of uncompetitive practices.

Yet last week's launch of Microsoft's new games console, xBox, will have been greeted by computer games' developers with delight, together with the hope that it will live up to its hype. The reason for this seemingly odd behaviour is simple: the games industry is beset by differing standards on different consoles. The result has been a business hamstrung by development.

Take Eidos, for example. The UK group has developed some of the most popular titles in the business, Tomb Raider and Championship Manager among them. Yet in the late 1990s the company became a byword for nasty surprises - read profit warnings - as its financial fortunes mirrored the vagaries of the computer games market. The nub of the problem is the intense competition among the console makers. In order to reinforce user loyalty, they have consistently flooded the market with information about developments, be it faster machines, better graphics or improved interactivity.

News, for example, that Sega would be bringing out a new version of its Dreamcast console would prompt thousands of users to delay buying any more games until they had the new machine. So, is xBox going to be the console to end all consoles and give the games industry the stability it craves? It's certainly a big leap forward in terms of its technology, being the first machine to be internet-ready. This in turn opens up the tantalising prospect of online gaming, the Holy Grail of games developers. They envisage a world in which gamers can compete against each other via the internet from different countries, users can bet against their performance and the expense of CD-Rom production, marketing and distribution will be made redundant.

Games groups could also interact with users, employing them as developers, as well as testers. The potential for the big games companies to become true global brands, free from the hassle and cost of offline sales, would be enormous. Little surprise then that the share prices of the leading publishers, such as Electronic Arts, have rocketed since signing up to become xBox games developers.

Nintendo and Sony will be hoping that user loyalties will prove stronger than some analysts fear. Both Japanese groups - no surprise here - have announced new versions of their consoles, Nintendo's GameCube and Sony's PlayStation 2, and also plan internet capabilities. The only question is how quickly this happens and how much of a headstart Microsoft will get.

But it is not just the internet aspect that makes xBox such a potent threat. Its hard disk enables it to power graphics that have won rave reviews from battle-hardened reviewers. Given that most gamers are drawn from the younger, more fickle, end of the user spectrum, Sony and Nintendo should be afraid. Then there is Microsoft's marketing muscle. The software giant is forecast to lose $1bn before xBox turns a profit, a figure it can easily afford, notwithstanding the $500m it is spending on publicising the new launch.

First to market, a leap in technology and deep, deep pockets make xBox a formidable threat to the existing players. Indeed, there were rumours swirling around Las Vegas last week, scene of the world's largest technology fair, that the three main console groups could soon become two, Microsoft said to be in talks with either, or both, Sony and Nintendo. Rather than face a bruising fight, agreement on common standards may be one way forward, with Microsoft rewarding either of its rivals with some share of its production contract.

Consolidation would suit the games developers even better than domination, but it seems, either way, they will come out of this the winners.

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