CW on RM: The Real Problem With Xbox 360

The Real Problem With Xbox 360
09/11/2006 2:10 PM

I might have been the single most vocal bull on Microsoft for the past few months, and I remain convinced that it is a "safe" tech stock with lots of upside ahead of it.

That said, I'm concerned about one area in particular. Given that I'm Mr. "Flip It," that worry is a very recent development that most pundits have been proclaiming as a new positive: the gaming console business.

I think Sony's going to wallop Microsoft something awful when the PS3 finally comes out en masse sometime in 2007. Sony's way behind schedule after having postponed the rollout of the PS3 for a second time, most recently blaming production delays in the Blue-Ray DVD technology that it is including in every PS3.

Most of the commentary I've read has explained that the delay will boost Microsoft's fortunes for the Xbox 360 because it'll be widely available this holiday season and the PS3 won't be. Yeah, that's all true. Sony will sell a few hundred thousand fewer PS3s and Microsoft a few hundred thousand more Xbox 360s this Christmas season. Given that more than 50 million copies of PS2 and the original Xbox were sold in the U.S. over the past five years, it's not as if that rounding error of a difference will determine which machine dominates.

And that leads me to the real problem with Xbox 360 -- it's just not that great a machine. The PS3 is going to be much cooler with much better graphics and movie playability. Xbox 360 is fun, and it looks much cooler than the original Xbox. But it's not really all that much more functional or fast than my old Xbox.

The graphics -- yeah, incrementally improved. So is the way most games save themselves and so on. And I've seen some rather amazing modified versions by obsessive gaming geeks who tap into the unutilized processing power and storage capabilities of the Xbox 360.

But without a meaningful improvement in the system, something from which a killer app/revolutionary new game can be developed, Microsoft is only getting those of us who feel like we must have the latest and greatest -- whether because we're geeks, competitive, jocks or whatever. The rest of the 50 million-plus gamers in this country rightly see no reason to upgrade.

Microsoft rushed this system out to get a head start on Sony and Nintendo in the next generation of consoles. In their rush, Softee rolled out a 2.5G box instead of a 3G. That head start has amounted to a whopping 2 million units -- and that small number isn't attributable to shortages. The lack of sales is due to lack of demand for a 2.5G system.

We won't know whether Sony or Nintendo will fare any better until the systems roll out, the games get developed and we see if the forces of critical mass and de facto standardization hit on their next-gen games.

Maybe the Blue-Ray technology will enable some unthought of killer apps. Maybe none of the new games will revolutionize and we'll call this generation of video games the 2.5G mistake. Certainly, Xbox isn't going to be "the" catalyst to drive Microsoft to new highs. It'll have to be one of the many other ways to win with Softee, including the rollout of Vista, the value of MSN, the PocketPC, or the IPTV platform.

I'll stick with my Microsoft, but not because of any success in the Xbox or failure in the PS3.