Tuesday, May 17, 2005

Microsoft Just Can't Do Consumer Devices 

I feel kind of embarassed for Microsoft after Sony's Playstation 3 announcement last night. I can just imagine the smiles on the faces of Sony executives when they tuned into the MTV special last thursday night. Let me put it this way. When I first started playing the first video clip of the PS3, I thought for a second...just a second, mind you, but there was definitely that instant of confusion...that they were starting off with video footage of a race car being fueled up so that they could compare it to the console's rendering. Of course, it was just the console's rendering the whole time, but that's the point. Here's what the Gamespot editors wrote about Killzone 2:

The models and animations here are so smooth, in fact, that it's tempting to assume that the Killzone 2 footage is prerendered or somehow doctored, but if it is all in-engine, and we have no reason to believe that it's not, then it's going to be hard to imagine a game coming along during E3 that's more visually impressive than this.
I find that caution about what they actually saw telling. Unless Sony is being very misleading by showing pre-rendered footage from a first-person perspective with the "gun-in-hands" view and not showing any actual footage of the game itself, that's pretty much all you need to know about how the next round of the console war will shake out.

Before we knew what the PS3 was going to look like, I was assuming (like many others, I imagine), that Microsoft knew its place in the gaming console world. If you're not the gigantic Sony, then to get a foothold on the market you've got to have some draw that makes people want your console. For Nintendo, that draw is obviously Shigeru Miyamoto and the goldmine of intellectual property they own that allows them to make games for ridiculously underpowered hardware and still sell almost as much as the Xbox. For Microsoft, that draw was having ridiculously overpowered hardware and an architecture that was similar enough to a PC to lure PC developers onto the console.

I think Microsoft was pretty successful in the last round. They entered the market last against two very established console brands, and now stand having sold about 3 million more Xboxes than Nintendo has sold Gamecubes (the statistics I've seen put Sony at about 30 million PS2s, Xbox at around 13 million, and Nintendo at around 11 million). The console had to do entirely without such huge PS2 hits as the Final Fantasy series, the Grand Theft Auto series, and the Metal Gear Solid series, and obviously they never had Mario or Metroid or Zelda like Nintendo did.

Still, starting out with almost no developers, they managed to attract a sizable market. I think without a doubt, Halo was instrumental in drawing gamers to Xbox. You just had to look at the game and it was obvious that no other system was going to offer the graphics or the game experience that Halo could. I think other developers came along to Xbox for two reasons: either they were PC developers for whom moving to the Xbox was a relatively easy step, or they were developers who were hoping to exploit the far superior hardware. Just look at the difference between Splinter Cell on the Xbox (2) and the same game on the PS2 (2). The gamers came along for two different reasons: Xbox Live and the far superior hardware.

Still, Microsoft was obviously frustrated. Not only did Sony's little thing, with its smaller RAM, crappy graphics, and no online functionality, continue to beat them in sales, but Sony made a profit on each one while Microsoft could never turn a profit on the Xbox. Apparently the lesson Microsoft took from this was: release your console first, and make sure you can make money on it.

Neither is a bad thing to do, but Microsoft has probably gone too far in the other direction. With the Xbox they couldn't lower their processor costs very easily because Intel had control of the processor. For the Xbox2, Microsoft has designed their own chip and presumably they'll be able to take advantage of competitive bidding by fabs to lower the costs on the chips, and they've also rushed to get it out to market about a half year before the PS3 comes out. I think both of these moves were mistakes.

The processor issue goes both ways. Using the x86 made it easier for them to get the Xbox to market and it made it easier for game developers to support the console. However, it made it so that the only way they could have backwards compatibility was to continue using the x86 chip, which is really hard to emulate. That has forced them into a difficult position: either they choose backwards compatibility, or face the real possibility that they can never make money on the Xbox. Phrased like that, it's not hard to see why they chose to rip off the bandaid sooner instead of later.

Before the PS3 was announced, I was impressed with Microsoft's PR campaign which kept the Xbox in the news for weeks leading up to the announcement. I also looked at the next Xbox as something that would essentially try to be what the Xbox was in the console market, and so I assumed that Microsoft was using the best components they could get to make sure that the Xbox was going to keep a least a slight RAM, processor, and graphics chip advantage over the PS3, even if it came out sooner.

Now that the PS3 has been announced, it's pretty clear that this is not even close to being the case. The PS3 has as much total RAM as the Xbox2, and its CPU runs the same architecture (PowerPC) and clockspeed as the Xbox2's. But that RAM is connected to an overwhelmingly superior graphics chip from NVidia, and that CPU seems to have much more parallelism than the Xbox2's. The PS3 supports more media types and its games come on much higher-capacity discs. It supports the same high resolution as the Xbox2, but it supports two simultaneous monitors as well. It has built-in WiFi connectivity, and on top of that, it can communicate wirelessly with a PSP to coordinate games like the Dreamcast's little controller screen did. Sony appears to have finally formulated a cohesive online experience as well to rival Xbox Live.

Sony is obviously carefully managing what we know about the PS3 at this point, but it's hard to ignore those screenshots. If Microsoft had something that looked that good, they'd show it. The worst part of it for Microsoft is, all of the interesting games that they announced for the Xbox2 turn out to also be coming out for PS3 as well: Alan Wake, 2 Days to Vegas, Dark Sector, Darkness, Demonik, Splinter Cell 4, Ghost Recon 3. Some of these are going to suck, but it's hard to see the Xbox's gems showing up the PS3, where they will without a doubt look better. It's going to be really hard for Halo 3 and Perfect Dark Zero to overcome this software lineup.

There are some situations that are so stacked against you that not losing completely is a sort of success. By that measure, the Xbox was very successful. It's hard to see any route to similar success for Microsoft here. Microsoft said they would announce whether or not the Xbox2 would be backwards compatible after the PS3 announcement (well, they didn't phrase it like that, but it's clear that's what they were thinking), and after the PS3 was announced, they did say that the Xbox2 would be backwards compatible, but only for certain games. That's not going to do it.

Looking longer-term, I think Microsoft has taken the first losing step in what was a bigger battle: the battle for the consumer living room. Microsoft has said before that they want to be in the living room very, very badly, but they've clearly been outplayed here. The PS3, aside from being a rocking games console, and looking a lot more like sleek appliance to match a sexy LCD TV (slot-loading drive!), is like a universal media adapter attached to your TV set.

Other thoughts: This announcement explains a lot of Sony's previous behavior. They've committed to BluRay for the PS3, and it's hard to imagine them making some compromise with Toshiba over HD-DVD that doesn't keep the BluRay disc structure.

I think this also hurts Apple, the other company that has had a great shot at owning the living room. Apple and Sony have very different strategies for this; so far Apple has been reluctant to sell an appliance for this sort of thing (I don't think that's how they see the Mac Mini), preferring instead to mesh seamlessly into the home through WiFi and devices that work with PCs and stereos and other existing devices. However, Sony has a big presence there assured, and you can bet that Sony CONNECT (their online music store) is going to make an appearance on the PS3. Sony also said that you would be able to buy movies on the PS3, though I haven't seen any more details on that. With all the media ports on the back of the PS3, it could well become the new sync point for portable music players.

This all makes me wonder how much Steve Jobs has known about this. I am thinking back to Macworld in January, where Jobs brought the CEO of Sony onto the stage so they could show off their new HD camera. They laughed and said nice things about each other, and talked about how 2005 was going to be "the year of HD" (high-def). Apple can't make a killer game console, so it'll be interesting to see how this will affect their media business. As much as I'd love to see Apple and Sony partner or merge (and I think it could make sense), I don't see that happening.

And yes, I call it the Xbox2 instead of Xbox360. Xbox360 is just such a horribly bad name I can't stand to use it. It strikes me as the sort of thing Microsoft would think was important: getting a 3 in the name so that the PS3 wouldn't have a bigger number. It just winds up making the thing seem kind of boring and generic instead. It's almost as bad as...well, "Xbox."

Oh great! Right as I'm finished, Microsoft announces that Xbox2 will support Media Center and let you stream content to your TV screen through the Xbox2. Spur of the moment, I don't think that's quite going to do the trick...the PS3 IS (or can be) the media center PC. But I am going to hit Publish Post now before more announcements come out to render what I've written obsolete.

Update: Just saw on Gizmodo that BluRay/HD-DVD unification talks have failed. Interesting timing, of course. For an insight into what Microsoft was thinking for the Xbox2, check out this article on Kotaku. The summary is: "We believe that despite the evidence (TurboGrafix 16, Atari Jaguar, and Dreamcast), getting to market first wins."
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