Microsoft's Big Bet on Online Gaming

Carl Bialik from the WSJ writes "The Wall Street Journal Online analyzes the prospects of the Xbox's online-gaming component. Analysts say Microsoft has spent hundreds of millions on Xbox Live, with little guarantees of returns. 'It is not clear that companies like Microsoft and Sony will be able to lure large numbers of players -- each has attracted a small fraction of users to online play with their previous consoles,' WSJ Online writes. 'The companies also must be careful about new business models for distributing games -- such as games-on-demand -- so as not to alienate game publishers, who still rely heavily on in-store sales. And games designed for multiple players have a mixed record of attracting customers.' Says analyst Michael Pachter, 'At the end of the day, we don't play games for social interaction ... We play games to escape.' Microsoft's strategy is 'absolutely flawed,' he added.""

Re:Um

There was an interesting interview in this month's Maxim with the head game designer at Nintendo (I think that is his title, he is the guy that invented Mario Bros etc.)
He said the big challenge is that games have become so complex, that there are no casual gamers. That the world has been divided into two types of people: those who play games, and those who don't play games.
I see his point- I haven't played a video game in years, aside from ones that can be learned in 5 minutes. I just don't have the time to spend hours every day attaining levels and learning complex controls and commands.

Re:Time

Life happens. Getting married, having kids, or just having an actual full-time job substract from the hours the young'uns used to spend playing.

I used to clock at least 15 hours a week in videogames a few years back. Now that I'm married, college done and I have a full time job, I rarely put more than 5. And even though I can navigate my way through most of the hardcore stuff of today, I'm beginning to appreciate more games where the learning curve is well integrated in them and don't take forever to finish.

Microsoft's real gamble

Something that isn't even mentioned in the article is this. We know that Microsoft sells the XBox for a big loss- I recall hearing that the number was around $75 per system, initially at launch. I have come to believe that the original plan was to make that money back on XBox Live subscriptions. Think about this- if every XBox user bought Live and paid for four years, Microsoft makes $200 per user just off Live. Heck, if less than half of XBox users paid for a Live subscription and kept it for four years it would pay off the losses incurred from the system. At the same time they could sell a more powerful system for the same price as some of the competition (PS2 and XBox are the same price to this day- interestingly, the GameCube is at a lower price yet is more powerful than the PS2 and sold at a profit).

Unfortunately, the percentage of users on XBox Live is much smaller (the numbers I hear are 10-20%). Microsoft took a big loss on the XBox. And now they are doing it again, but this time they are trying to make Live much more appealing- with the Arcade and demos and trailers, they want people to be willing to get Live even if they don't want to play any games online. If they can get the majority of XBox users to pay for Live, they can keep selling more powerful systems for losses to keep ahead on the competition.

Also unfortunately, it seems the competition have other ideas. Sony is gambling that by putting a Blu-ray player in every home, they'll make a fortune off of Blu-ray, so they're willing to sell the PS3 for an even higher loss than Microsoft ever did methinks- even if they take an overall loss on their games division, they'll take the loss and gain total control over the movie market. And Nintendo has the right idea- they said, "You know what, it's stupid to throw away money and sell for a massive loss and lose profitableness for bragging points on who has the most powerful system. We're out of this race- we'll sell a lower priced system with free online play, hundreds of downloadable classic games and a controller that gives you new ways of play. Having slightly better graphics than your competitor isn't so important anymore."



And to the above poster:
There was an interesting interview in this month's Maxim with the head game designer at Nintendo (I think that is his title, he is the guy that invented Mario Bros etc.)
He said the big challenge is that games have become so complex, that there are no casual gamers. That the world has been divided into two types of people: those who play games, and those who don't play games.
I see his point- I haven't played a video game in years, aside from ones that can be learned in 5 minutes. I just don't have the time to spend hours every day attaining levels and learning complex controls and commands.

That would be Shigeru Miyamoto. Yeah. He also said in the interview that Nintendo wanted to change all that with the Revolution controller being so intuitive and easy.
I've noticed that tendency. Games are becoming staggeringly complicated; on some Adventure games and RPG's I'll get halfway through the game before I realize what some of the items I have can be used for. There aren't many games that can be learned in five minutes, except maybe Burnout 3 (that button is accelerate, that one is brake, that on is boost, try to run into other cars, game learned!).

Re:Um

"...those who play games, and those who don't play games..."

Depends on the game too. I actually mis-read the title of the article at first, thinking it said something about MS using the Xbox for online gambling...which really did catch my eye.

If there were some way to do gambling online through a video game...man, THERE would sure be a huge revenue stream there. A virtual casio would be pretty cool...a Sims type world, where you can really win/lose money.

Re:Um

Why do you think anyone builds model boats? Because model boats are so useful?

Most hobbies are an advanced (and not necessarily bad) form of procrastination. It's a purposeful 'doing what you don't have to do' so that you don't have to think about anything that you do have to do. It's an escape. An escape from your life and your responsibilities. Playing online isn't real social interaction, even if playing multiplayer games in the same room can be.

Sorry, this is as close to "to your face" as I can get.

This guy missed the point of online gaming . . .

Machines and 'bots can only go so far to provide a challenging fun gaming experience - witness the number of Quake servers on the 'net at any given time.

Online gaming is about gaming getting back to it's roots - "me vs. you". Playing against a console is essentially a souped-up version of solitaire. Fun, distracting, but nothing like the rush of defeating an opponent with the same chance of victory as defeat.

Re:This guy missed the point of online gaming . .

I agree. After I kicked my Everquest habit a few years back, playing single-player games seems to be lacking something. Even playing solo, an online game adds an extra dimension with the random encounters with other players and the background chatter. A single-player game now seems to me to be very quiet and isolated. Sometimes that's a good thing, but being online with other players can add more depth to a player's experience.

Tell this to Blizzard

3.5 million customers x $15/month is nothing to sneeze at.

Gaming is often a social act

I would have to completely disagree with the idea that people play games to escape. Gaming, especially for younger people, is a hugely social thing. Walk around a college campus in the dorms and you'd be hard pressed to not find a multiplayer Halo game going on. While some may use games to escape, I think the trend is towards social gaming.

I play games for social interaction.

The only game I play that isn't about playing with other people is Civilization IV. Otherwise, every game I enjoy has some element of either a) competition, b) cooperation, or c) both. Counter-strike, WoW, etc, would be the most prominent examples for me.

If people don't play games for social interaction, why is the chat screen constantly rolling on most multiplayer games? Why do people join clans/guilds/etc? How do you organize a 40 person raid on an imaginary dungeon? I can't get 40 people together in real life, but I can in a game. And that's not about social interaction?

Microsoft Wallet

I've said before, I'm concerned about Microsoft's huge push into "online" with the new 360 console. Its way too soon, and they seem to be trying to tie everything about Xbox into the "Live" service. If it isn't already obvious, this is Microsoft's attempted way of extracting monthly revenue out of their customers. You can see it in the way they are now re-attempting to push web services like Office Live and .NET.

Microsoft wants that monthly charge, from everybody. But they are pushing way too hard with this generation of console, especially since they never garnered more than 10% or so of original Xbox players. We should rename Live to MS Wallet, or more specifically MS Hand In Your Wallet.

Social gaming...

I've got three teenage kids who will sit for hours, if I let them, on XBox Live and chat with friends while playing Halo 2, America's Army and other "team" games.

When not on live, they also browse MySpace and usually are chatting with IM clients. Yes, they get outside plenty. When you live up north (northern hemisphere) and it gets dark less than an hour after school gets out, going outside to play isn't an attractive option.

Instead of having to have multiple phone lines, or even cell phones for the kids, they all chat with friends -- local and long distance -- via XBox Live & IM.

Microsoft is spot on and when looking at new consoles next year, the question will be does the PS3 and Revolution have a good online community and voice chat? If not, XBox 360 it will be.

  -Charles

Analyst on drugs

"Says analyst Michael Pachter, 'At the end of the day, we don't play games for social interaction ... We play games to escape.' Microsoft's strategy is 'absolutely flawed,' he added.""

Wow, this "analyst" just shredded his credibility with that whopper. He is obviously extrapolating HIS gaming experience to EVERYONE. Blanket generalizations are almost always wrong. He should probably buy a copy of WOW, Battlefield etc, install a copy of vent and come to grips with the fact that millions of people are playing games precisely FOR THE SOCIAL INTERACTION.

Its a simple fact of life that AI's in games are still generally weak and playing against a computer quickly gets old. There is way more satisfaction of beating other human beings than in beating a mediocre AI.

The sweet deal about games like WOW are they are a constant revenue stream of people paying monthly subscriptions versus the boom or bust cycle of sell a box in the store, get a bunch of revenue and then go dry for years while you develop the next one. This is the dream revenue model for companies like Microsoft because it pleases Wall Street to have consistent revenue streams... if your game doesn't suck.

I see what he is saying

I think I see what he is saying by the last sentence in the summary. I, too, have noticed a focus on "social interaction" stuff lately. Chat, messages, etc. While these are valuable for strategerizing and chatting with friends in the game, I don't go online to dink around and "chat" with strangers. Not to say that I don't talk to strangers -- I do. But I don't look to make new friends or anything and it seems like a lot of these services are aimed at linking people in a social way. As in -- meeting new people and making new friends.

The difference is subtle but there. When I game, the chatting, etc is pertinent only for the game. If I want to meet new ppl or find a date, I go elsewhere. Taking my online gaming and trying to make it a "social interaction" *IS* the wrong approach.

And I think that is what he is talking about here.

I love it. Test your assumptions with games.

This is the exact system that Microsoft wants to use for it's other applications. They want you to buy Word monthly, or yearly. They want you to pay for a service rather than "own" the program. Briliantly they are testing the idea in their lackluster gaming system before moving it over to their applications.

Next you're going to see an application "Office 360" that replaces your computer desktop and only allows you to do your desktop job... one ap at a time.

Brilliant.

An interesting question

This article really sheds light on a fundamental dichotomy : hardcore gamers versus the rest of the public. As I'm sure most slashdotters will post here in a second, online gaming CAN be and generally is far more engrossing and much, much harder than any single player game. Online is also much more technically complex which is the real reason why it's only recently come to consoles : you need a voice chat or keyboard, and to get the kind of smooth gameplay console players are used to you need broadband. So to hardcore gamers like us, there's not even a second's thought : the vast majority of the games in the xbox lineup will be more fun online, if the game is written well enough technically to support it. (for instance, games like Gears of War will probably be a lot of fun Co-op if that game supports it smoothly)

Further, WoW/other MMORPGs and the Battlefield series I think offer some of THE most intense gaming available in any form, anywhere. No console solo or online game or PC game can really touch the intensity and complexity of these games. (and the difficulty level, especially in Battlefield. Even n00bs shoot me down and gun me down every 5-10 kills I get, which is a far harder game that most solo ones)

But the regular public, the joes on the streets who buy game consoles by the millions and make up the "average", fat, T.V. watching, braindead gameplay game playing, Geography ignorant, stereotyping and racially biased, Americans? Who the hell knows what sort of trash they'll really buy. Unfortunatly for us, they make up the real market that Microsoft needs to make money from, and it seems that Microsoft, composed mostly of top C.S. graduates, thinks more like we do.

Very shortsighted

What many people seem to be forgetting is that current generations of kids are interacting in a way that's totally different from what many of us experienced growing up.

If you had told me when I was a kid that I should be chatting with friends through VOIP while playing Space Quest, I don't think I would have given you the time of day. In fact, I'd probably try to urinate on you or something. It just wasn't part of my world.

Now, though, kids spent a *lot* of time getting together online - through IM, myspace, games, and other technologies. It's a fact of life for them, and it's only going to grow for the coming generations.

To say that the strategy is "Absolutely flawed" is to look at one segment of the gaming population without considering where *everything* is trending, and that's toward online activity.

I've seen a lot of arguments here of the "Well, I don't like the idea, so it must suck dog balls" variety, but you have to remember that there is a universe outside your own - there are plenty of people who *do* live huge chunks of their social lives through online interactions.

Here's a great example..

How well did Doom 3 do this year compared to Half-life 2/Counterstrike Source? Doom 3 did not fair very well. Sure, everyone was excited about Doom 3 and it's singe player mode was fun, but once you beat it - the game was quite boring. The multiplayer aspect was well below par. Quake 4 was supposed to change that, but it doesn't seem to have taken off either. Multiplayer > Single player. period.

eh, don't make so much out of it...

Honestly, there's just no way to make a machine as complex as a console anymore without being able to issue updates. Heck, even the launch GAMES are buggy as crap (PGR3 awarded me -250,000CR for winning a series just last night). So you're going to have to have online capability for the consoles. And you're going to have to be able to send out code over it.

The stuff they did is just an extension of that. Once you can download code and content, why not put some stuff up for free publicity? Once you already sell "track packs" (see PGR2 on Xbox), why not sell entire micro games?

You're gonna want to update the "BIOS" on the machine to thwart modchips anyway...

All this came more by necessity than anything else, and so I fully expect you'll see similar stuff from Sony, who isn't otherwise known for being keen on online. Heck, they'll have to send out patches to fix their BluRay video player ability, since it's going to be just about the first one of its kind and complex as heck (it uses Java!).

We also expect Nintendo is going to do this too, since they said the "Revolution will be infinitely backwards-compatible". They meant that it will play NES, SNES and N64 games. Well, it doesn't have 3 cartridge slots on it, so where will the game ROM images come from? Answer, they'll sell them to you again over the internet.

It's just business in today's world. MS isn't really striking out much or taking much of a gamble.

If it's in WSJ, it's a marketing trigger word.

It means, BUY BUY BUY.

It's kind of like how Real Estate agents describe shitty houses: Clean Home, Great Schools!

There's ton's of codewords out there folks. The fun thing, is outing them!