• Chart: Recent and Upcoming PC Games

The introduction of the Xbox gaming console has influenced Microsoft's PC game strategy—the company needs to promote Xbox sales by creating exclusive titles, without sacrificing revenues in the lucrative and still-growing PC gaming market. To walk this fine line, Microsoft will develop exclusive titles for each platform, based on the platforms' core audiences. However, to maximize returns it will occasionally port popular Xbox games, such as Halo, to the PC platform after sales of the Xbox version have peaked.

PC Market Still Strong

Microsoft and its gaming subsidiaries, such as Bungie Software and Ensemble Studios, develop games for both Xbox and the PC. This presents a quandary. On one hand, Microsoft does not want to cannibalize Xbox sales by creating titles for both platforms simultaneously. Otherwise, gamers who already own a PC might see little reason to buy an Xbox, contributing to a possible "death spiral" in which a low installed base and lack of third-party games for the platform reinforce each other and the console fails in the market.

On the other hand, game development is a "hit-driven" business, in which a few big sellers cover development costs for less successful games. With only 4 million Xboxes shipped so far, and 9 to 11 million expected by June 2003, versus the 125 million PCs that shipped in 2001 alone (according to the Gartner Group), Microsoft stands a much better chance of recouping its costs with PC games.

Moreover, despite the faster growth and larger revenues of the console market, PC gaming remains a healthy and growing market. According to retail market research firm NPD, sales of interactive entertainment PC software (primarily games) in the United States increased from US$5.4 billion in 2000 to US$6 billion in 2001. (By way of comparison, NPD reports that revenues from consoles and console games rose from US$6.6 billion in 2000 to US$9.9 billion in 2001.)

Development Strategy Balances Platforms

To balance Xbox and PC development, Microsoft will play to the strengths of each platform. The company will develop strategy and simulation games for the PC only, and will create action-oriented games for the Xbox first, and then consider porting them to the PC on a case-by-case basis. (For a complete list of recent and planned PC titles, see the chart "Recent and Upcoming PC Games".)

PC-only development. According to Beth Featherstone, Microsoft's marketing director for PC games, PC gamers tend to be older and more interested in strategy games and simulations than console gamers. To appeal to these gamers, Microsoft will continue to develop PC-only games such as Age of Mythology (the latest title in the 9-million-selling Age of Empires series), and Zoo Tycoon. In addition, Microsoft will continue to develop and offer new online PC games, such as a sequel to the massively multiplayer role-playing game Asheron's Call, and will offer these games through its online gaming Web site, The Zone. Finally, because Microsoft already has a strong franchise in golf games on the PC (Golf and Links), it will continue to make these for the PC, while focusing on the Xbox for other types of sports games.

Xbox first, PC later. Microsoft says it will focus its development resources for two types of games—racing games and action sports games—on Xbox exclusively. However, if Microsoft believes it can tap pent-up demand among PC gamers for hot Xbox titles, it will port these titles to the PC. Microsoft's timing with these ports is critical—if the company announces the ported version too soon, gamers interested in a particular title might avoid buying an Xbox; if it waits too long, interest in the game might die down altogether.

Although Microsoft has not made any commitments regarding first-person shooting games, which are popular on both consoles and the PC, these games are likely to follow a similar path from Xbox to PC. For example, Microsoft has licensed Gearbox Software to develop a PC version of Halo, its first million-seller for Xbox, in summer 2003; a Mac version will be developed by Westlake Interactive and published by Destineer around the same time. According to Alex Seropian, the former CEO of Bungie Software and co-developer of Halo, Bungie had already announced plans to release Halo for PC and Mac before Microsoft bought Bungie in June 2000, and the company senses enough pent-up demand from these announcements to justify the port.

Resources

Microsoft's PC game site is www.microsoft.com/games/PC.

The Zone is at www.zone.com.

More information about DirectX is at www.microsoft.com/windows/directx/.

Xbox is at www.xbox.com.

Selected NPD statistics for the video game industry (including both PC-based and console gaming) in 2001 are at www.npd.com/corp/content/news/releases/press_020207.htm.