High Technology Entrepreneurship & Strategy
Microsoft’s Xbox – Changing the video game console industry
Dominic Lim
Annie Wei-An
Giovanni Pozzoli
Sameer Oundhakar
Frederic Pakin
Peter Tabak
1. The history of the console game industry ........................................................................3
1.1. The origins.................................................................................................................3
1.2. The 3D gaming revolution: Doom ............................................................................5
2. The value chain of today’s console gaming industry.......................................................6
2.1. Hardware development and engineering ...................................................................8
2.2. Hardware manufacturing ...........................................................................................9
2.3. Software production ..................................................................................................9
2.4. Distribution..............................................................................................................11
2.5. Online gaming .........................................................................................................12
3. Industry attractiveness – A five forces analysis .............................................................13
3.1. Entry barriers ...........................................................................................................14
3.2. Supplier power.........................................................................................................14
3.3. Buyer power ............................................................................................................15
3.4. Complements and substitutes ..................................................................................15
3.5. Internal rivalry .........................................................................................................16
4. The introduction of the Xbox: Did it change the console gaming industry? .................16
4.1. Hardware .................................................................................................................17
4.1.1. The console hardware platform ...........................................................................17
4.1.2. Hardware capabilities..........................................................................................18
4.1.3. Complementary hardware....................................................................................20
4.2. Software platform ....................................................................................................20
4.2.1. Operating system..................................................................................................20
4.2.2. DirectX / NV2A: ...................................................................................................21
5. What is so innovative about the Xbox?..........................................................................23
6. Microsoft’s marketing strategy ......................................................................................24
6.1. Marketing mix .........................................................................................................24
6.2. Expected market response .......................................................................................25
7. Sony and Microsoft: Evaluating differences in value capture strategies .......................27
7.1. Sony’s approach ......................................................................................................27
7.1.1. Technology & manufacturing ..............................................................................27
7.1.2. Internet Connectivity ............................................................................................27
7.2. Microsoft’s approach...............................................................................................27
7.2.1. Technology & Manufacturing ..............................................................................27
7.2.2. Dealing with time compression diseconomies .....................................................28
7.2.3. Integrated product development...........................................................................28
7.3. Internet connectivity................................................................................................28
7.4. Impact of innovation................................................................................................29
8. A look into the future: Expected changes in the basis of competition...........................29
8.1. First Mover Advantage............................................................................................29
8.2. Barriers to market entry...........................................................................................30
8.3. Supply side network externalities............................................................................30
8.4. Demand side network externalities..........................................................................30
8.5. Reliance on third-party assets..................................................................................30
9. Conclusions ....................................................................................................................30
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1. THE HISTORY OF THE CONSOLE GAME INDUSTRY
1.1. The origins
At Christmas, a furious debate was raging about the innovation in graphics and sound
capabilities of the two most hyped gaming consoles in the industry. In this particular year, the
war was not between PS2 and Xbox, but between the Atari 2600 and the Mattel Intellivision
– the year was 1978. The Intellivision sported an amazing (for its time) 8-color capability,
had no joysticks but a kind of remote controller with a keypad and a “direction disk”. The
two consoles were widely available in the US and Europe and qualify as the first mass
marketed video game consoles.
The roots of video games can be traced back to Los Alamos research center and MIT, in
1962. This was emerging technology then. The first commercially available video game was
the Odyssey from Magnavox in 1972. The difference between these early video systems and
the consoles of today is that the games came packaged in the hardware: on an Odyssey, one
could only play one of the six games available. A console however is capable to support a
variety of games through the purchase of different cartridges.
The cartridge is a robust packaging for a simple ROM (read only memory) chip engraved
with the game to be distributed. Games were developed both in house by the console
manufacturer and by game companies: one of the most successful among those game editors
was Activision in the late 70’s and 80’s. From the origin of the video game industry, games
were platform specific.
Boxing on Atari 2600 Atari 2600: Cosmo fighter
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The novelty of the experience and the imagination of the player were able to compensate for
the very poor capabilities of the games. Developing games for these early consoles was a big
challenge: graphics were constrained by the number of colours available, and the resolution
was very limited.
Dragon Lord 1 on NES
During the 1980s the performance of game consoles expanded rapidly: Coleco launched the
first 3D game, Sega and Nintendo expanded the graphic capabilities to 32 colors and
introduced rudimentary sound support. Around this time, console started to be one of the
major pastime activities of many children and parents started worrying about the time their
kids were dedicating to playing electronic games.
Sonic from Sega on Game Gear
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The next big step in game technology was in the mid 1990s, when Sony launched the PS1,
which sported vastly improved capabilities. Among other things, the cartridge was replaced
by the CD as the means of storage. The new product improved the virtual world (universe)
players can experience. Nintendo created a complete dynasty of arcade game with Donkey
Kong, the Mario titles, and the invention of the Pokemon. All players in the industry at that
time were trying to license exclusive adaptation rights on different themes (movies, Disney
characters, etc.). From one console version to another by the same manufacturer, customers
were able to retain the same universe (for the price of a new console plus a new game).
At this point in time, Sony was pushing very hard to dominate the market, while Sega
suffered a lot. Its Saturn console (launched in 1995 like the PS1) turned out to be a failure.
Atari exited the gaming console market to focus on the computer game market while other
minor players were definitively eliminated due to the escalating marketing expenses
necessary to match Sony. Despite their size differences (Sony was about 65 times bigger),
Nintendo was able to resist Sony due to its very sophisticated game universes.
1.2. The 3D gaming revolution: Doom
Parallel to these developments in the gaming console industry, PC multimedia capabilities
developed extensively and were slowly catching up with the consoles. The game offering for
PCs used to differentiate itself on slower pace, complex games, which could make use of the
additional resources of the PC platform.
Sim-City on PC Doom on PC
Doom appeared on the scene in 1993 and created a new genre: the first person shooter. It
featured a 3D representation of the environment as seen by the eyes of the player. Doom was
the first game to allow the player to freely investigate and interact with his environment.
These types of games make use of the specific computational power of the PC platform and
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cannot be easily ported to a console. Doom requires a lot of floating point computation per
frame for 3D environment to screen space (2D) conversion with respect to the position of the
player’s point of view. Doom was designed to run on the new 80486 processor: the first Intel
processor with an integrated math coprocessor. Consoles were optimized for 2D graphics and
integer computation therefore lacked support for floating point operations.
From this point on, until the launch of Sony PS2, consoles lost their leading position in the
video game market. While innovation was taking place in the PC world, Sony and Nintendo
remained entrenched in their positions, focusing on fast action games based on 2D
technology or false 3D (graphics drawn in 2D to scale with depth effect) or games based on a
licensed universe (like film themes). It took Sony around 3 years to design the PS2: a fully
3D-enabled console, able to run the same kind of games that a PC could.
In fall 2001, a year after the PS2 launch, two new 3D consoles appeared: the Xbox from
Microsoft and the GameCube from Nintendo. The Xbox from Microsoft uses the latest PC
technology repackaged for the console world; this console will compete head to head with the
PS2 on the power dimension. The GameCube has a different approach: it is a more affordable
3D console transferring the entire Nintendo gaming universe from a 2D to a 3D world.
Rocky V on Xbox Halo on Xbox
2. THE VALUE CHAIN OF TODAY’S CONSOLE GAMING INDUSTRY
The value chain of the console game industry moved from the comprehensive in-house
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operation to outsorcing non-key (e.g. parts manufacturing) and complementary (e.g. game
development) elements. Console manufacturers slowly but increasingly become ‘virtual
organizations’ by controlling key elements of the value chain and receiving royalties from
licenses granted. Since there are less and less physical activities kept in-house we rather call
these organizations ‘console producers’ and use this term later on.
The market size for console games in the US in 2002 is estimated to be around $19bn1,
almost equally divided between software and hardware. This 50:50 split predominant at the
time of new console launches moves to 35% hardware – 65% software when the hardware is
due to be replaced soon2.
Although it is very difficult to obtain accurate cost estimates due to producer’s secrecy and
constantly dropping production cost of electronics gear, it is generally accepted by industry
analysts that the hardware part of the gaming industry is a loss maker. According to estimates
by BusinessWeek3 Microsoft loses $100 for every Xbox it sells at $300. Considering that
Merrill Lynch has estimated a loss of $175 per machine and that Microsoft has recently
lowered the price to $200, it is reasonable to assume that Microsoft is not earning any money
on the sale of the hardware. The same goes for Sony, where loss per machine estimates range
from $0 (DowJones & Co.) and $188 (Merrill Lynch). Both estimates are based on the
original PS2 selling price of $300, which recently dropped to $200.
The players in this industry earn money with the sale of the games. The broader the installed
base of hardware is, the larger the potential market for the software. The losses incurred from
the sale of the hardware can only be offset by a sufficiently large volume of software sales.
Therefore, only players with a broad customer base can manage to capture a (positive)
Customer Lifetime Value. This fact can explain why Sega, the smallest console producer
exited the console market and today it is only a game developer for other companies’
consoles.
Appendix 3 shows how many games a game console producer needs to sell in order to break
even. This need for a broad installed based combined with the fact that most people do not
want to buy more than one console (due to cost considerations and physical space limitations
in people’s living-rooms) leads to a tendency for consolidation in the industry. In fact,
1
Wall Street Journal, May 25, 2001
2
Compare the figures for 1999 in Dsn Retailing Today, February 5, 2001
3
December 24, 2001
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industry analysts believe that at most two players can survive at a time. With its market entry
Microsoft is clearly signaling that it intends to displace one of the two incumbents and is
willing to burn a lot of money in its attempt. Even before launching the Xbox, Microsoft
announced that it would spend $500M on marketing over the first 18 months after the market
entry.
The classical value chain in the game industry can be depicted as follows:
Microsoft Xbox
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2.1. Hardware development and engineering
Microsoft was the only player with no experience in development or production of hardware
components as sophisticated as a game console. Instead of copying the incumbent’s approach
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of developing and producing in-house, Microsoft based the design of the Xbox on well-
known industry standards and outsourced all the additional work to specialized companies:
NVIDIA for graphics chip development, Taiwan Semiconductor Manufacturing for the
production of these specialized chips and Flextronics for the assembly of the game console.
Microsoft’s main task was the coordination of the suppliers and contractors it had enlisted
and the adaptation of its Windows 2000 OS.
Contrary to Microsoft, both Sony and Nintendo developed their consoles in-house based on
proprietary designs. Initially, Sony even produced the console in-house, because it considered
its technology as a core competency that should not be outsourced.
2.2. Hardware manufacturing
The dominant model in the industry seems to be one of operating through outsourced
manufacturing. Initially, Flextronics produced all Xboxes in plants in Guadalajara (Mexico)
and in Hungary. The Hungarian production was moved to China in 2002 in order to lower
costs. Additionally, Microsoft signed up Wistron as a second contractor, thus reducing its
dependency on Flextronics and further increasing its bargaining power.
Sony kept the PS2 production in its Japanese plants until early 2002, when it signed up Hon
Hai and Asustek to produce the console in China.
In early 2002 Nintendo was negotiating the outsourcing of the GameCube production to
Wistron, but there were some issues to be resolved, because Wistron is an Xbox contractor,
too.
Generally speaking, Microsoft’s market entry forced all players to seek to rationalize their
hardware production through outsourcing in order to contain losses.
2.3. Software production
Game console companies do also develop and market games themselves, but independent
third-party developers play a very important role in this industry. These independent players
normally develop their games for more than one platform, in order to capitalize on some
synergies in marketing and development4.
Sony and Nintendo have traditionally charged royalties on the games sold for their consoles.
4
Development synergies are limited to the basic game idea, the graphics and the music; the actual coding has to be
done from scratch for every platform due to their completely different architectures.
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Microsoft on the other hand so far seems to maintain the PC-games industry tradition, where
game producers are not charged any royalties.5 In recent years, the production costs of games
have risen to levels comparable to movie production. On average, a two-year development
time and $10m investment required per game and it is estimated that between 1998 and 2001
the R&D-expense to revenue ratio has risen from 16% to 29%6. R&D and marketing are the
major costs incurred in the game business – the marginal costs of production are nearly zero.
When compared with the PC-games business, there are two main differences: console games
are 20-30% more expensive and – so far – software piracy has not been a big issue for
console games.
Although Microsoft is a heavyweight in terms of software development, it has started with a
weak position in Japan, which is probably the most important country in terms of game
consoles. On top of being a foreign company, Microsoft does not have a gaming tradition in
the view of the numerous Japanese game developing companies. To overcome this weakness
and enlist as many developers as possible, Microsoft has given away Development Kits worth
$10,000 and funded focus research groups to help developers (these are traditionally
charged). Furthermore, it charges the same fees (software and documentation) for small and
big developers to avoid discrimination7.
So far, more than 200 game companies could be enlisted to develop games for the Xbox,
including top tier players such as Electronic Arts, Infogrames and Sega. To complement this,
Microsoft has taken stakes in several developing companies (bought Bungie Software
Products to get the HALO game; lent money to Interplay Entertainment Corp., the maker of
The Matrix based games) and is mobilizing its internal army of 900 game developers. By the
end of 2002, around 150 games are going to be available for the Xbox.
The single biggest advantage that Microsoft has over its competitors, is it’s Wintel-based
architecture using DirectX libraries. These are the same that games developers use when
writing PC games. Thus, it is very easy for an experienced PC-developer to learn how to
program the Xbox and the translation of PC-games for the Xbox requires barely more work
than simply recompiling the code. Another subtle advantage of the Xbox over competing
consoles is the fact that it incorporates a hard disk. The disk is needed to store software
5
BusinessWeek, December 24, 2001: „Technology & You“ column
6
Barron’s, January 2002
7
Accountancy, Dec 2001
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patches (bug remedial) that game developers can release even after the launch of a game.
Therefore, the time-to-market of software can be reduced by testing less extensively. In
comparison, Sony and Nintendo have no means of correcting a game after it is launched. This
fast-track development and successive releasing of patches is a standard procedure in the PC
industry.
Sony is the biggest incumbent, with the largest installed base and the largest number of
games available (220 at the beginning of 2002). Most of the current top-selling games are
written for the PS2, and the wide choice of blockbuster games is an important advantage in
the eyes of consumers. Nevertheless, Sony’s heavy reliance on third party developers for its
games can be potentially dangerous for the company. For the external developers it is
comparatively costly to develop games for the PS2, due to the steep learning curve associated
with the complicated proprietary design and the royalties charged by Sony.
Nintendo is in a slightly different position. Lacking new blockbuster games, its success relies
on a legacy of its traditional game series. The problem is that these games are mostly targeted
at the less profitable young costumers. Nintendo does not rely too much on external game
developers. In fact, the company has the reputation of not being responsive enough to them.
As in the case of Sony, its proprietary hardware architecture makes it relatively costly to
develop games for the GameCube.
Concluding, it can be said that due to its huge investments Microsoft managed to enlist many
game developers to write games for the Xbox. A market failure of the Xbox would be a big
problem for these companies. However, a big success of the Microsoft console could turn out
to be an even bigger problem in the long run. Microsoft is clearly trying to expand its position
in the game software business and is prone to be a much more serious competitor for the
independent developers than Sony or Nintendo have ever been.
2.4. Distribution
In early 2002 all three players lowered the prices for their consoles. The timing is considered
to be unusually early by industry analysts and is a clear indicator of the increased level of
competition. Prices of both the Xbox and the PS2 were cut from $300 to $200, while
GameCube’s price went down from $200 to $150.
In order to ensure a smooth and controlled distribution of the Xbox in the US Microsoft sells
the console only to four official distributors (Ingram Entertainment, Jack of All Games,
Mecca Electronics, Pioneer Distributors). All independent resellers are required to purchase it
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from them and to provide Microsoft with POS data8.
2.5. Online gaming
Console producers and analysts expect online games as the next step. This is an area in which
Microsoft wants to invest a total of $1bn9. Microsoft announced that it would launch the
Xbox live service in fall 2002 with an annual subscription fee of $50 to access the basic
services. Pay per game and pay per download will be available through high bandwidth
Internet connection.
This service will be supplemented with a hardware package that allows players to chat online
and additional software to provide basic voice recognition in games. The voice recognition
technology and the chat feature are key enablers to put the console online: the major benefit
of online gaming is in the interaction with other players. At the moment, most PC gamers use
their keyboard to interact in online gaming. Since the Xbox console does not have a
keyboard, the voice chat capability will compensate for this shortcoming. Microsoft has
announced that the second version of their first person shooter Halo (one of the Xbox best
sellers) will completely support both (PC and console) technologies.
Microsoft is forging alliances with providers of broadband connections (AT&T, Bell) in
order to offer its customers a complete but ‘closed’ solution. This means that Microsoft
intends to closely, control and, of course, charge for the access to its servers that run the
online-games. The Xbox is, theoretically, already equipped for online-access – even though
the set-up procedures for the network installation still require a separate PC and a network
savvy user.
In contrast to Microsoft, Sony envisions an open platform for online gaming, where
intermediaries can create their own gaming platforms independently of Sony. In order to be
able to provide access and content, Sony is forging alliances with Macromedia, Realnetworks
and AOL. Sony has a considerable weakness in terms of hardware, though. The PS2 was not
originally designed for online connectivity, lacking both a network card and a hard drive –
which users will have to purchase separately.
Nintendo has only recently unveiled plans for online games, announcing that a modem and a
broadband adapter are going to be available in fall 2002. In order to incentive game
8
Video Business, September 2001
9
BBC News, May 21, 2002
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developers, Nintendo announced that it would not charge royalties fees on revenues
generated from the playing of online games on a GameCube.
Finally, online capability of consoles makes it possible for a broad costumer base to reach all
kind of different services. This is an opportunity that Microsoft is well poised to exploit since
it already has the infrastructure and services (MSN) to offer to its potential customers.
3. INDUSTRY ATTRACTIVENESS – A FIVE FORCES ANALYSIS
The previous part’s analysis showed how console producers structure the value chain to
capture the most value. In this part we investigate how attractive the industry is for new
entrants using Porter’s five forces framework.
Entry barriers
• High R&D costs
• High volumes of sales to
achieve breakeven
• Established brand names
and network effects in
the industry
LOW
Bargaining power of
suppliers
Hardware parts: Bargaining power of
Industry competitors/rivalry
• Low switching buyers
• Very concentrated industry
• Loyalty to favorite
costs, fragmented • High but volatile growth
game series
industry structure • High but volatile margins
• High dependency • Price elasticity is
• High installed base needed high for consoles but
on console • Efficient cost structure is very relatively low for
manufacturers sensitive to volume
Game games
developers/producers:
• Fragmented
industry structure
• (Co)dependence
on console
manufacturers
Threat of substitutes
• PC games
• Other leisure activities
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3.1. Entry barriers
Entry and exit barriers in the gaming industry are quite high. Research and development
invested in hardware (especially in the processor) is usually around the billion USD mark
requiring the sale of more than 10 million units (and the corresponding software sales) to
break even. Manufacturing facilities require high investments and scale in production to be
efficient.
The console in itself is worthless without software; games that can be developed either in-
house or at independent game developers. Game development is very expensive as well; with
a cost of around 10 million USD per game the break-even should be above two million copies
sold. Since consoles and games are strong complements and only strong games can sell the
consoles, a successful console launch requires either in-house game development capabilities
or an alliance with the best-of-breed game developers.
Distribution channels can be entry barriers as well. Because of the strong complementarities
of the software and the hardware only systems with a big game library will receive shelf
space. The escalation of advertising and marketing expenses is an important entry barrier as
well requiring strong financial resources and commitment. Microsoft invested 500 million
USD in the introductory campaign of the Xbox and it will have to keep a high level of
marketing expenses later on. Building up the critical mass to break even entails strong
financial resources either because of the waiting time or the large marketing expenses needed
to accelerate the adoption process.
3.2. Supplier power
The analysis of the industry’s value chain showed different approaches to control value
creation. Nevertheless all approaches lead to the same result: supplier power is moderate or
rather weak. The supplying industries (hardware parts manufacturing, game development) are
fragmented and strongly competitive, enabling console producers to exert their power. In
contrast to the R&D process, manufacturing is a more standardized process. That is why it is
difficult for hardware suppliers to lock-in console producers who can change their suppliers
with relative ease and low cost.
In specific cases suppliers of some crucial parts (like NVIDIA in the case of the graphic card
or Intel in the case of the processor of Xbox) can have somewhat more power but these
manufacturers have a much stronger interest in keeping good relationship with Microsoft
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because of their much more important dependence on Microsoft in the PC business. In-house
manufacturing of crucial parts at Sony and Nintendo mitigates interdependence and standard,
non-key parts can be purchased from different, competing sources thus decreasing supplier
power.
3.3. Buyer power
With a few large console producers, a more fragmented distribution and many individual end
customers buyer power is weak. Customers usually buy a specific console because of the
games available for it. The uniqueness of game characters and virtual universes combined
with the relatively high price of consoles lock in customers.
In order to have a good access to retail customers console producers should have a balanced
and controlled relationship with retail channels (as already mentioned in the Entry and exit
barriers part). That is why Microsoft tries to regulate these relationships (see part 2.4.).
3.4. Complements and substitutes
The most important complements for game consoles are games. Although current consoles
have somewhat different technical characteristics they have more or less the same perceived
performance from the customer’s point of view.
Since with technical development consoles became commodities, the games associated with
the brands turned out to be the differentiating factor. Game consoles cannot be successful
without a wide choice of strong games. All the platforms have most of the basic game types
but the most popular game characters (like Mario or Parappa) are proprietary to one platform.
Add-ons, accessories (like adaptors, storage or control devices) are important complements as
well because they constitute a high margin business and console producers can lock in
customers by using proprietary design. Theme films, collectibles and other accessories can
mutually increase console, game and complement sales and leverage the existing brand
equity of the strongest element. For example Pokemons started as a Nintendo game but their
success inititated a series of films, toys and other accessories largely increasing Nintendo’s
sales. On the other hand in the case of Shrek the films popularity helped to sell the game.
Console producers and game developers are interdependent but the control is in the console
producers’ hands. They are more concentrated, financially stronger and they can control the
value chain through sales and distribution channels. Console producers can secure their
power over game developers by relying on their in-house game development capabilities
(Microsoft, Nintendo) and their investments in game development companies. Exclusive
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partnerships however are not easy to build since software companies worry about the
dominance of one manufacturer10.
The closest substitutes to console games are PC games. Console games however are easier to
optimize for the underlying infrastructure because of the uniformity and relative stability of
the platforms they are written for and therefore give superior results in their game categories.
Other leisure activities are more distant substitutes but their substituting power rises as
customers’ age increases. The most addicted gamers are in the age group between 14 to 35
years.
3.5. Internal rivalry
Internal rivalry in the industry is very high because of scale efficiencies and demand side
increasing return effects. Sales growth is very high (Sony experienced an average 37% annual
growth between 1995 and 2001), margins (taking into account all revenue sources) are
attractive but both of them are quite volatile requiring financially strong entities to survive the
downturns.
Given these characteristics the console game industry is attractive only to players and
entrants with capabilities of controlling the whole value chain by leveraging their existing
capabilities and financial strength.
4. THE INTRODUCTION OF THE XBOX: DID IT CHANGE THE CONSOLE
GAMING INDUSTRY?
Against this industry backdrop, Microsoft launched its Xbox in the end of 2001. The launch
was significant in many ways not only because it signaled the entry of the software giant into
this market space, but also because of Microsoft’s innovative approach to overcome the
significant first mover advantage that the incumbents had already established. Microsoft
adopted a very different approach than its competitors to value creation and capturing
throughout the whole value chain. In this part we describe the key strategic innovations
Microsoft applied.
10
Electronic Arts in Sony Game Deal, The New York Times, May 16, 2002
Nintendo to invest in game developers, Financial Times (London), November 28, 2001
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4.1. Hardware
4.1.1. The console hardware platform
The Xbox console was designed around the existing PC platform, breaking the tradition of
proprietary hardware design in the console industry. The relatively standard architecture gave
the advantage of a wide choice of suppliers available to source every component of its
console, so Microsoft can benefit from a strong bargaining power. In addition to components,
Microsoft was also able to source the design of the console to outside suppliers (e.g. NVIDIA
for 3D graphics capabilities). By doing so, Microsoft was able to leverage its huge existing
knowledge of the PC environment, acquired through all the DOS and Windows development
with very limited investment in hardware development. In contrast, Sony designed its PS2
console from scratch during a 3 years development cycle. We can also note that Nintendo has
imitated Microsoft’s strategy to some extent: they contracted with ATI (NVIDIA’s main
competitor) to design and supply them with the 3D components of the GameCube.
The design of the Xbox is very similar to that of other consoles in that it is completely
specified and cannot be expanded by the final user (no expansion slots or add-in cards). This
guarantees stability and robustness to software developers, ensuring efficiency and reliability
while developing and testing new software. But, for Microsoft, this solution has additional
benefits: the PC components used in the Xbox will continue to evolve (at no cost) and
potentially provide Microsoft with a low development cost new, higher performing version of
Xbox in due time.
Since the design and the components of the console are standardized what can prevent a
competitor from building an Xbox clone? With the right sourcing capabilities, nothing except
for the software (the operating system and the game library) required to run the console and
play a game. Since Microsoft holds every right on the software platform, building an Xbox
clone is not possible without their assent.
The Xbox is not the first console supporting hardware accelerated 3D gaming (it was Sony’s
PS2) but as a follower it brings a significant increase in performance and realism over the
PS2. In addition to 3D graphics, the Xbox has very promising sound capabilities that where
previously unknown in the console market.
The Xbox is the first console on the market with a hard drive. This 8Gb unit is used to save
data from games but also acts as a buffer to accelerate games. The Xbox also features a
standard network connection (the PS2 has limited networking capabilities through its USB
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port). In addition, Xbox supports memory cards for data exchange with non-networked Xbox,
a DVD drive and 4 joystick ports.
There are several drawbacks of the design however: the use of the PC board standard
constrains the design of the console, which is bulkier than the PS2 or the GameCube. The
presence of the hard drive and the fan reduces mean time between failures (MTBF) of the
console and makes it less robust (especially in the hands of the younger ones) compared to
other consoles with no moving parts. Another backlash of the hard drive is that it makes the
system more vulnerable to game hacking (more on the additional protection in the Operating
system section).
4.1.2. Hardware capabilities
For a gaming console, the most important issues are centered on its graphics 3D capabilities.
For the Xbox, Microsoft has contracted with the leading PC 3D graphic card designer,
NVIDIA, to build this critical element. NVIDIA has fitted the Xbox with a modified version
of its GeForce 3 reference design (code named NV2A). This chip features more advanced
capabilities than the PS2 as well as more raw power due to higher frequency and better
memory usage (bandwidth). This power is very easily exploitable thanks to well-tested and
developed drivers and utilities from NVIDIA and Microsoft.
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This image is a live captured screen from “Tom’s hardware” web site from an Xbox game
called Rage. This screen shows the most impressive features of the Xbox’s 3D capabilities:
the numbers and specificity of the light sources, the diffractions effects of the light in the
water (mip mapping or usage of the pixel/vertex shader), the ripples of the rain, the blur of
the road texture under the ripple (bump mapping), the smooth edges of the car and the
continuous lightning perspective between rain drops, car and background (2 way anti
aliasing). Current Xbox games (including Halo) are supposed to use no more than 50% of the
possibilities of the NVA2. Rage, a game in development uses more 3D features and is able to
draw these superior images at 40 frames per second (fps).
The final result also looks better than on a PS2 due to anti aliasing. Anti aliasing is very easy
to use on an Xbox compared to the limitations and precautions necessary on PS2 (motion
blur) and GameCube (limited to 16bit depth). Anti aliasing prevents any “stair” effects on
hedges and generally makes the image look better:
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The sound capabilities of the Xbox are as impressive as its 3D capabilities. The sound
subsystem goes well beyond the simple digital stereo sound of the PS2. The Xbox supports
3D positional audio through the use of the DSL2 library from Sensaura. This library offers
many algorithms for reverberations and reflections in different environments. The APU
(audio processor unit) of the Xbox can compute all the effects offered by the Sensaura library
in real time. To transform those algorithms into live performance, the Xbox is fitted with a
real time AC3 encoder that provides digital 5.1 sound capacity. The results seem to be very
impressive, here is an extract from a review at www.tomshardware.com the leading web site
for hardware tests:
“The Xbox is the first console that really uses sound positioning and integrates all the 3D effects.
The audio processor in the Xbox is so interesting that there are rumours that a similar PCI audio
card will be released. In the first games using the 3D sound of the Xbox, such as Halo, Max
Payne, Project Gotham or Amped, the sound immersion is amazing and gives console gaming a
new dimension.”
4.1.3. Complementary hardware
Hardware accessories are provided by Microsoft or by third parties under the Xbox trademark
umbrella. The variety is quite extensive and matches the one for Sony PS2. To offer a
peripheral for Xbox, manufacturers need to apply for a “Xbox compatible” logo and pay
royalty fees.
Comparing the connectivity/architecture of accessories the only noticeable difference is that
Sony used a standard USB port to connect these peripherals (PC peripherals can be used
directly on PS2 provided the operating system supports them), but Microsoft chose to go for a
proprietary interface thus locking this market.
4.2. Software platform
4.2.1. Operating system
The basic system running when the console is powered up, is a stripped down version of
Windows 2000. It is stored in a ROM module and supports data transfer needed by the
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console as well as an encryption facility to prevent copying of the data present on the hard
disk.
In addition, the Xbox features a simple program, the dashboard, used to interact with the
gamer when no disk is present in the console. The dashboard allows for:
§ organizing saved games on the hard disk;
§ transferring data between the hard disk and the memory card;
§ playing audio CDs or saved music tracks.
The system also offers management capabilities to handle numerous ‘title libraries’ (from
Microsoft or from third parties) thus promoting and facilitating the integration of additional
features in Xbox games. Microsoft provided the Xbox with a standard set of common
libraries essential for game developers. These services, derived from the PC game developing
tools, the Win32 program interface and the DirectX, ensure a high level of similarity with PC
game development. In addition, the availability of a modem, a network driver and a TCP/IP
communication stack makes the system ready to interact over a local area network or the
Internet. In contrast, the PS2 requires the game developer to include a software/driver in each
of the games in order to make it capable of multiplayer gaming. This software is not available
to PS2 game developers as of January 2002. This gives Microsoft a very important advantage
to deploy multiplayer games on the Internet and particularly to open subscription based game
servers for Xbox.
4.2.2. DirectX / NV2A:
DirectX is a de facto standard in the PC game industry, which provides isolation from the
hardware platform. This is very important for the PC world where compatibility is a big
issue. We can see DirectX as a model of all multi media capabilities of an ideal PC. The
game developer is free to use all of them and is provided with a standard way to manipulate
them. If the resource, such as 3D hardware capabilities, is present, then DirectX will make
use of the hardware. If, on the other hand, the capabilities are absent, DirectX will either
emulate the function through software algorithms or ignore the request making the game
playable at the expense of a downgraded result.
This approach has proved to be very successful: game developers can benefit from high-level
abstractions and have a head start in a new development. In comparison, PS2 game
developers need to write their own abstractions to provide the same level of functionalities
directly available through DirectX to Xbox developers.
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Portability Evolution Hardware
barrier barrier platform
application GAME GAME GAME GAME
middlewar DirectX
e
Operating PS2
system / PC XBOX XBOX II platform
drivers / platform platform platform
hardware
In addition, the benefit of using a middleware such as DirectX is to facilitate the transition of
software among different platforms and reduce portability, conversion or evolution barriers.
This common ground between applications gives additional opportunities to Microsoft and
the application developers to seek new leverage in their Xbox development by delivering PC
version of these games at a very low additional cost.
NVIDIA plays a very important role at this level too; it provides the software (driver)
between the DirectX software and the hardware. Since NVIDIA designed the hardware and
the drivers, they know how to optimize the capacities of their platform. The technical
documentation provides ample information about these issues. Code fragments can be reused
in new games, increasing scale efficiencies and shortening the learning period. Since the
system is used for PC software development as well, every imperfection or bug will be
eliminated or at least documented in a short period of time. Thus, compared to PS2, Xbox
game developers benefit from a well-documented, mature, very stable and efficient library to
develop new applications.
All this factors contribute to make the Xbox a console very accessible to developers who
benefit from the best of the PC (development tools) and the console world (stable, well
defined platform). This advantage translates into reduced lead-time to produce new games
and applications.
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5. WHAT IS SO INNOVATIVE ABOUT THE XBOX?
The innovations of the Microsoft Xbox are not easy to evaluate. They seem to be radical on
the surface but they are rather incremental in nature. The system of innovations taken as one
entity give rise to a radical change compared to the existing concepts and can change the
basis of competition in the game industry.
Let’s first focus on the individual innovations from the perspective of the innovation
hypercube model. The Xbox’s architecture is different from that of the competitors’. It is not
new but coming from another (PC) industry, it does not create major obstacles to implement
either by the suppliers (hardware manufacturers), the innovator, the customers or the
complementary innovators (game developers). The new architecture is incremental to the
innovator’s (Microsoft’s) value chain since it enhances their previous PC linked knowledge,
keeps linkages between core concepts and components unchanged and even reinforces core
concepts. These features enhance the probability and speed of adoption.
We have to take into account the network effects and costs of switching from one system to
the other. Network effects are important because in general the development of
complementary assets is interdependent with spreading of the innovation. Microsoft’s strong
financial background, commitments and its integrated complementary asset capabilities (in-
house game development) helped mitigate this factor.
Looking at the innovation from the competitors’ point of view we could say that it is more
intense since it changes linkages between the core concepts and components making it an
architectural change for the innovator, the suppliers and the complementary innovators.
Therefore it would not be easy for Sony or Nintendo to follow Microsoft’s move and launch
their own PC based consoles.
Another important innovation linked to Xbox is the use of Microsoft’s existing DirectX game
development middleware and the open PC platform (of course with Microsoft’s proprietary
Windows operating system). This innovation is again value enhancing and incremental to
Microsoft’s value chain while it can be architectural to Sony and its complementary
suppliers. DirectX helps Microsoft and its partners to leverage and transfer their existing
assets and knowledge in PC game development to console game development. Benefits can
be substantial by reducing time-to-market of new games and enabling development for
multiple platforms.
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6. MICROSOFT’S MARKETING STRATEGY
6.1. Marketing mix
The move to the game console market is a key part of Microsoft’s strategy to “steer the
digital entertainment revolution”. The launch of the Xbox was strongly backed up by its
technological superiority, and a financially strong marketing strategy.
In the effort to build its brand awareness and induce first trial, Microsoft was willing to
commit a marketing spending of US$500 million including an integrated distribution drive, a
promotion and communication campaign clearly targeting teenagers and young adults. The
US launch before the 2001 Christmas season was characterized by:
§ a bundled product offering: a console with 19 games including the path breaking “
Halo” and “ Project Gotham Racing”,
§ matching pricing: console is set at US 299$, parity to Sony PS2;
§ extensive distribution policy: first product release to over a thousand retailer,
including Toys ‘R’ Us, electronic distributors, etc.
§ promotion/communication by Microsoft
o teamed up with Teco Bell to promote Xbox on a TV commercial and set up
displays in 7000 restaurants in the US;
o launched a road show teamed up with SoBe drinks visiting outdoor music
festivals and street fairs where people could test the Xbox system;
o joined as sponsor of Van Triple crown series (other sponsors are PepsiCo and
Rolling Stone magazine targeting younger customers as well);
o replaced Sony in a contract with skateboard outfitter Vans to promote Xbox
among young people;
o some in-store setups enabled customers to test the system, and detect the
superior image quality compared to PS2.
Xbox’s Japanese and European launches started in the Spring of 2002, following the initial
positive sales results in the US. The recent price cut (May, 2002), following lower than
expected sales in these markets, demonstrated the effort that Xbox is seeking to broaden its
consumer base by targeting more price sensitive customers. The US price was cut from $299
to $199, while the Japanese price was reduced from $270 to $193.
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Introduced one year ahead of Xbox, Sony PS2 have sold more than 30 million consoles
compared to Xbox’s 4 million. The larger installation base means a bigger market potential
for game developers standing for a well-established game player community who share game
software and exchange game playing experience as well. Xbox is facing the challenge to get
adopted by a gaming community by reaching critical mass in a short period of time.
6.2. Expected market response
Given the short time from Xbox’s launch, it is too early to get a clear read of market
response. We anticipate that the market will evolve along with the key player’s effort in
managing market expectation and building customer perception on their own products.
Customer expectations and console perception over time
XBOX
perception
PS2
perception
PS2 launch
Customer PS1 N64
expectations perception
2002
In the video game industry, customer expectation is shaped by the communication and
marketing efforts of the different players. Given the very similar characteristics of previous
generation consoles (PS1 and Nintendo 64), marketing had a very big impact on customer
expectation, actually shaping this expectation to match the performance level of existing
hardware and software. The perception of the consoles is S shaped to reflect the learning
curve of game developers who take advantage of enhanced console features over time.
Customer expectations show an upward trend due to the impact of the PC gaming market
acting as a moving target for the console market. The short life cycle and fast performance
improvement in PCs translates into improved gaming experience and thus influence the
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expectations of the console gamers.
The launch of the PS2 by Sony has been a real marketing stunt: the hype around the console
was tremendous and players’ expectations were constantly teased. Sony’s strategy may have
been to increase the slope of the customer expectations to kill the previous generation
consoles already at the end of their life cycle. Sony’s advertising revolved around a parallel
universe, no screenshots of games were displayed to emphasize the immersion in the universe
and make customer demand as high as possible. We believe that the result of the launch of
the PS2 was to shift the customer expectations upward. The rush on the console and its initial
scarcity emphasized this aspect and pushed the curve during the first year further upward. As
more people were able to test the console, it’s perception improved with respect to its
exclusive touch and not only the gaming experience delivered. This point explains the
inverted bell shape of the PS2 perception curve.
Microsoft tried to approach the console market from the high-end. The attributes of the Xbox
made it the top performer in the console market; its initial price point above the PS2 was in
line with its technical superiority. Xbox’s one-year time lag after PS2 allowed Microsoft to
play on the belief that “the newer the better”.
The commitment of Microsoft in developing games and the particular software architecture
of the Xbox reducing lead-time in game development explains the shorter time required to
reach peak perception.
Comparative surveys among young video game players about their perception of the PS2 and
the Xbox gives controversial results: for the moment, players see no difference in the console
itself (excluding the price tag), they have no particular expectation in term of console but are
waiting for the forthcoming releases of a new games that are expected to yield superior
gaming experience. As for the perception or gaming experience of currently available games,
replies are very unclear and seem to depend on a community based consensus largely shaped
by a strong opinion leader.
In conclusion, players’ expectations are still raising, maybe at a slightly higher speed than
previously, due to the combined effect of the communication campaign from Sony, Microsoft
and Nintendo. Despite the increasing trend, it is very unclear if this expectation curve is
above the perceived performance delivered by PS2 or Xbox. An evidence of this would be
the success of the GameCube from Nintendo targeting the lower end of the console market,
which sold 400,000 units during the first week of its commercialization.
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Microsoft marketing needs to make sure that customer expectations are very quickly rising.
To succeed, the Xbox will have to demonstrate superior game play and possibly new features
yet unknown in the video console market, at the moment the most promising seem to be
speech recognition or online gaming.
7. SONY AND MICROSOFT: EVALUATING DIFFERENCES IN VALUE
CAPTURE STRATEGIES
In this section, we compare Microsoft’s strategy to that of Sony, the ‘typical’ player in the
console game industry.
7.1. Sony’s approach
7.1.1. Technology & manufacturing
Sony has always believed that the technology behind their game console was its core asset
and has thus held the design proprietary and kept the development and production in-house.
That is why they internalized all the functions required to bring new consoles into the market,
drastically lengthening time to market (in the case of PS2 to 3 years). After the launch of the
Xbox, Sony realized that its position on the high-end market was encroached upon and its
proprietary design was not a sustainable advantage any more. In early 2002 Sony started to
outsource the production of the PS2 to lower its costs.
7.1.2. Internet Connectivity
After changing its mindset about keeping the design proprietary, Sony started to form
alliances to bring Internet connectivity to the PS2 in order to rival Microsoft. Sony now
plans to incorporate RealPlayer software by Seattle based RealNetworks into the PS2 to
provide music and video download from the Internet to the PS2 system. At the same time,
plans to include AOL’s instant messaging and email into the PS2 are underway and
Macromedia has also licensed its Macromedia Flash Player for Sony to deliver “high impact
web experiences” on the PS2.
7.2. Microsoft’s approach
7.2.1. Technology & Manufacturing
The key feature of the Xbox is that it enables Microsoft to leverage on its current capabilities
on OS and DirectX, and other complementary innovations that are already in place.
To achieve a fast time to market and commercial success for Xbox, Microsoft has used
extensive contracting and outsourcing to gain access to complementary assets. The most
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striking example is the choice of NVIDIA to design the 3D graphics processor of Xbox.
Other contractors that played major roles in the developments of Xbox are: Taiwan
Semiconductor Manufacturing Co. Ltd. (TSMC) for chip manufacturing and Flextronics for
Printed Circuit Board (PCB) manufacturing and assembly. In all, Microsoft has contracted
more than 200 component vendors.
Microsoft has been very careful about according too much power to the suppliers for the
components of Xbox. To that respect, Microsoft has granted Solectron, Flextronics’ main
rival in Electronics Manufacturing Services (EMS) industry, the contract for after-sales and
support services in North America.
7.2.2. Dealing with time compression diseconomies
To ensure that Xbox will be in time for the market, Microsoft demanded that NVIDIA
complete the design of the graphics chip “with 4 times the power of previous generations of
graphics chips” for Xbox should be completed within 6 months. To signal its commitment,
Microsoft even prepaid NVIDIA to build a fixed number of graphics chips during the ramp-
up cycle.
7.2.3. Integrated product development
The participation of each individual player in the whole course of product development was
quite impressive. Microsoft participated actively throughout the product development cycle
and even conducted weekly reviews with NVIDIA to make sure to hit the right targets. To
improve the downstream communication and development iteration cycles between designing
and manufacturing, NVIDIA invested $15 million to improve its IT infrastructure for chip
simulation and design communication with TSMC. Meanwhile, Flextronics maintained close
contacts with Microsoft, NVIDIA, Intel and TSMC to gather the latest information on
product development while preparing its Guadalajara plant in Mexico for full production. In
addition, most of the component vendors in the supply chain were connected to Microsoft via
the Agile platform.
7.3. Internet connectivity
As with the other hardware components, Microsoft chose to use established Ethernet system
together with Microsoft proprietary software for Internet connection and broadband on Xbox
is due to be released in summer of 2002. Microsoft has significant technical experience on
Internet connectivity as compared to Sony and can leverage on its existing MSN
infrastructure.
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7.4. Impact of innovation
We now focus on the impact of innovations Microsoft and Sony introduced to the industry.
The Xbox uses mainly components that are already in the market and is thus not dependent
on complementary innovations with the exception of the 3D graphics chip developed by
NVIDIA under close supervision by Microsoft. The biggest challenge for Microsoft is that
this is the first time they are coordinating such a large-scale hardware project. Sony on the
other hand went through a classical R&D process to design the PS2. They could not leverage
on existing assets as PS1 and PS2 have radically different architecture.
For the software suppliers, DirectX is a very mature middleware in the PC with a large pool
of library functions that will allow them to write programs much faster. These functions
represent significant benefits to game developers. First, game makers do not need to relearn
new programming languages every time there is a change in the hardware platform, as in the
PS2. Second, games written under DirectX enjoy access to both the PC and the Xbox
market. Furthermore, DirectX is well known among game makers since it has been the
standard on the PC platform for over 10 years. The introduction of Xbox represents an
incremental change to the game makers and in fact, may increase the ease of writing
programs and enable the game-makers to focus their efforts on creating new game concepts.
From the consumer’s perspective, radical changes in terms of performance are always
welcome. Since both PS2 and Xbox convey the impression of vastly improved performance
compared to the previous generation customers will not see any difference in Sony’s and
Microsoft’s.
8. A LOOK INTO THE FUTURE: EXPECTED CHANGES IN THE BASIS OF
COMPETITION
In this chapter we will examine how the entry of Microsoft has changed the basis of
competition in this industry along the dimensions listed below.
8.1. First Mover Advantage
At first sight, it seems as if the console game industry would offer some first mover
advantage. Although the switching costs for customers are only medium, there are strong
network effects - both on the software developer and on the game player side. Reaching
critical mass is therefore crucial for market success.
However, these advantages are not sustainable. With each introduction of a new generation of
game consoles it is necessary to build a new customer base from scratch. The carry-over
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effects are limited to brand equity (both of the console producer and the offered games).
8.2. Barriers to market entry
If anything, Microsoft's entry into the market has further increased the barriers to entry. The
announced marketing expenditures of $500m for the first 18 months after the launch of the
Xbox are likely to deter other potential entrants from attempting to enter the market.
8.3. Supply side network externalities
At this time, there are about 220 games for Sony on the market. Therefore, the number of
developers familiar with the PS2 is much higher than those familiar with the Xbox. By
adopting libraries and development tools known from the PC-world, Microsoft managed to
overcome this natural disadvantage. No other player will however be able to replicate this
strategy, as there is no company that has as broad an installed base of libraries as Microsoft.
8.4. Demand side network externalities
For the game players, a broad installed base had the advantage that they could easily
exchange and borrow games. If online-gaming takes off, there will be an additional positive
effect because the value proposition of online-games is exactly to create gaming
communities. However, there are already attempts to create platform-independent online-
games (i.e. they can be played with any console). If these attempts are successful, none of the
console producers will be able to appropriate the positive externalities created by them.
8.5. Reliance on third-party assets
Microsoft's approach in terms of hardware development was radically different from the rest
of the industry, but it still relies to a great extent on external software developers (like every
other player). Independent developers will indeed continue to play a significant role, in
particular if they manage to secure rights on coveted themes (movie characters etc.).
9. CONCLUSIONS
Microsoft's market entry was extremely well orchestrated: they understood that software and
not hardware was the key to success in this industry. Hence their decision to adopt a well-
known standardized platform, outsource all hardware-related activities and to concentrate all
their efforts on the software part, one of their traditional core capabilities. In hindsight, Sony
and Nintendo will probably have learned that standardized and easy-to-use software libraries
are extremely important - a lesson Microsoft learned in the PC market.
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Appendix 1: The history of video games consoles
INTRODUCTION MANUFACTURER BRAND NAME
1972 Magnavox Odyssey
1976 Fairchild Channel F
1977 Atari 2600
1979 Mattel Intellivision
1983 Coleco Colecovision
1983 Atari 5200
1985 Nintendo NES
1986 Sega Master System
1986 Atari 7800
1989 NEC Turbografx 16
1989 Sega Genesis
1990 SNK Neo Geo
1991 Nintendo SNES
1993 Atari Jaguar
1995 Sega Saturn
1995 Sony Playstation
1996 Nintendo N64
1999 Sega Dreamcast
2000 Sony PS2
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Fall 2001 Microsoft Xbox
Fall 2001 Nintendo GameCube
Appendix 2: Technical attributes of popular consoles
Xbox PlayStation GameCube
CPU 733 MHz Intel 300 MHz 486 MHz Power PC
Toshiba
Graphics Processor 233 MHz custom 150 MHz 200 Mhz "Flipper"
Unit chip, jointly Proprietary
developed by
NVIDIA and
Microsoft
RAM 64 MB 32 MB 43 MB
Memory Bandwidth 6.4 GB/sec 3.2GB/sec 3.2GB/sec
Polygon 125 M/sec 66 M/sec 6-12 M/s
Performance
Simultaneous 4 1 N/A
Texture Fills
Compressed 4 g/sec 2.4 g/sec N/A
Textures
Storage 2-5x DVD, 8 GB hard 4x DVD player, 8 1 Mb digicard
drive, 8 Mb storage Mb memory card
card
I/O 4 Game controllers, 2 game Controlle, 4 Game controllers,
Ethernet 10/100 USB, Firewire, high speed serial port
PCMCIA x 2, high speed
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parallel port
Audio Channels 256 48 64
3D Audio Support in Yes (64 3D channels) No N/A
Hardware
Midi and DLS Yes Yes N/A
Support
Hardware Audio Yes No N/A
Filtering and EQ
DVD Movie $30 remote accessory Yes No (Optional in
Playback required Japan_
HDTV Movie Yes No N/A
Support
HDTV Game Yes No N/A
Support
Maximum 1920 x 1080 1280 x 1024 N/A
Resolution
Maximum 1920 x 1080 640 x 480 N/A
Resolution (2X 32
bpp Frame Buffers +
z)
Operating System W2K Kernel Closed, Sony Closed, Nintendo
proprietary proprietary
US Launch Date 15-Nov-01 October 2000 18-Nov-01
Broadband Enabled Yes Future upgrade Future Upgrade
Source: Dundee Securities Corp.
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Appendix 3: Break-even calculations
Sales
Worldwide game software sales (estimate for 2002) $26bn
Average price per game $50
Number of games sold per year 518m
Costs
Average number of games developed per year 230
Production costs per game $10m
Total marketing expenditures per year $600m
Contribution margin
Total revenues per year $26bn
Total production costs per year ($10m × 230) $2.3bn
Total marketing expenditures per year $0.6bn
Contribution margin per year $23bn
Contribution margin per game ($23bn / 518m) $44.40
Estimated loss on hardware (Xbox) $150
Number of games required to break even 3.38
Appendix 4: Some accessories for the Xbox
§ Remote control (required to watch DVDs)
§ Advanced AV Pack, which offers an S-Video outlet and an optical 5.1 outlet ($20)
§ Additional game controllers is big (Xbox can accommodate 4 of them to play a game
on a divided screen)
§ 8Mb memory card ($30)
§ Steering wheel (80$)
§ Joystick/pad (30$)
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