Xbox Facing Crucial Holiday Season

To build and maintain consumer interest in Xbox through the crucial 2003 holiday season, Microsoft has introduced a wireless networking adapter and a discounted bundle with two games and is adding new functionality to the Xbox Live online gaming service. Yet, even as it focuses on the upcoming holiday season, Microsoft has begun planning for the next version of the console by signing a deal with graphics chipmaker ATI.

Third Holiday Season

The 2003 holiday season is very important to the success of Xbox. Generally, game consoles have a five-year life cycle, with hardware sales leveling off in the third year and software sales continuing to build through year four. Xbox was introduced in North America—its most successful market—in Nov. 2001, making this its third holiday season. Microsoft expects to sell between 5.1 million and 6.6 million Xbox consoles in fiscal year 2004 (which began June 30, 2003), compared with 5.5 million in the previous fiscal year.

Adding to the pressure, Sony announced in May 2003 that it would release an updated version of PlayStation 2 in 2004. Sony’s PSX will include built-in networking capabilities and a hard drive (like Xbox) as well as a TV tuner and rewritable DVD drive (which Xbox lacks). Thus, 2003 could be the last holiday season in which the Xbox hardware will have a clear advantage over its most important competitor.