Xbox Launched

Microsoft launched the Xbox, its much-awaited US$300 gaming console, in North America on Nov. 15. Approximately 300,000 units were available in retail stores on the launch date, which is considerably less than the 600,000 to 800,000 that Microsoft originally expected. The company says it will restock stores at a rate of up to 100,000 units per week to meet its goal of shipping between 1 and 1.5 million Xboxes by the end of 2001, and it hopes to sell between 4.5 and 6 million units by the end of its fiscal year (June 30, 2002).

Microsoft will launch the Xbox in Japan on Feb. 22, 2002, giving Japanese developers time to complete more games before launch, and in Europe on Mar. 14, where it will be the first gaming console manufactured in a European plant (by Flextronics in Hungary).

Prospects for Success

Microsoft’s first foray into the console gaming industry will be expensive—analysts estimate the company will lose between US$20 and US$80 on each box sold, and Microsoft does not expect to break even from game sales and licensing until 2003 at the earliest. Although Microsoft has not publicly revealed licensing terms, analysts estimate the company will make around US$10 per third-party title sold, and up to US$40 in profit from each of its own titles. (Xbox titles retail for about US$50.) In other words, Xbox will only succeed if Microsoft and third-party developers create enough interesting titles so that gamers buy several games for each console. Here, Xbox will face its stiffest competition from Sony’s US$300 PlayStation 2 (PS2), which was released in late 2001 and already boasts a library of 175 games: game manufacturers can play it safe by cranking out new PS2 titles to appeal to its installed base of 20 million users, rather than taking a chance on the Xbox. In addition, Nintendo’s less-expensive (US$200) GameCube, released three days after the Xbox, might dilute demand for a new gaming console, although it targets younger users than Xbox does.