Xbox Live, the online gaming network for Microsoft's Xbox gaming console, became available in North America on Nov. 15, exactly one year after the launch of the console. However, Microsoft does not expect the network to significantly affect console sales this holiday season. Instead, Microsoft is counting on new offline games and discounted bundles to drive sales in North America and Europe. Meanwhile, Xbox continues to face difficulties in Japan, and the head of the Japanese business development unit has stepped down.

Xbox Live: Slow Ramp-UpMicrosoft expects only a small portion of Xbox users to subscribe to Xbox Live by the end of 2002 (including 30,000 beta testers who will be transferred to the production service) and is not counting on Xbox Live to draw many new customers into stores to buy the consoles this holiday season. Rather, Microsoft is counting on new games, such as MechAssault (which will also be available for Xbox Live) and UbiSoft's Splinter Cell. The company has also announced a package available in North America and Europe that bundles the console, a new type of controller, and two games (Sega's Jet Set Radio Future and GT 2002) for US$199. According to Microsoft, since this bundle was introduced in North America on Oct. 15, Xbox has outsold PlayStation 2 (PS2) in that market for the first time.

The expected slow ramp-up of Xbox Live will give the company time to iron out any technical glitches and work with partners to improve the service. For example, Microsoft is still considering peering arrangements with ISPs that would allow customers to be connected directly to Xbox datacenters (rather than via multiple hops over the Internet), thereby reducing latency. In addition, Microsoft is working with home networking companies, such as NetGear and LinkSys, to ensure that Xbox Live works behind these companies' home firewalls.

To sign up for Xbox Live, consumers must have DSL or cable-based broadband Internet access; must buy an Xbox Live Starter Kit (which comes with a headset for voice communication and trial versions of two games, Moto GP and Whacked!) for US$50; and must enter a valid credit card number. Users' cards will not be billed for 12 months; Microsoft has not yet revealed what the monthly subscription price will be once the year is up. Nine online games were available on the launch date, with 14 expected by year's end. Beta programs for the service have begun in Japan and Europe; the Japanese launch is scheduled for Jan. 16, 2003, and the European launch for Mar. 14.

(For more background on Xbox Live and how it fits into the Xbox business model, see "Network Vital to Xbox Success" on page 15 of the July 2002 Update.)

Japanese Business Troubled

Microsoft also announced that the head of operations for Xbox Japan, Hirohisa Ohura, is being transferred to Microsoft headquarters in Redmond, WA, to "tutor" the Xbox team on how to approach the Japanese market.

According to Microsoft, Xbox is outselling Nintendo's GameCube in North America and Europe, and has recently pulled ahead of PS2 in North America as well. But Japan continues to pose major problems: recent sales reports suggest that Japanese consumers have bought an average of fewer than 40,000 Xboxes per month since the console launched, compared with an average of about 125,000 GameCubes and 330,000 PS2s per month since these consoles became available. Japanese Xbox sales were initially hampered by a glitch which scratched some game discs and by Microsoft's slow response to that glitch (the company did not immediately offer to take the consoles back); differences in Japanese gamers' tastes and a slow economy are also to blame.

The company has not yet named a replacement for Ohura in Japan nor announced any changes to its Japanese strategy. According to Senior Vice President Robbie Bach, Microsoft will continue to try to take advantage of its business relationships with some Japanese game manufacturers from the PC space to convince them to create exclusive Xbox titles; the company is also reportedly considering investments in or acquisitions of Japanese game developers.

Xbox information is at www.xbox.com.