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November 30, 2000

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AsiaweekTimeAsia NowAsiaweek technology

MARCH 31, 2000 VOL. 26 NO. 12

Playing Hardware Hardball
Microsoft charges into the videogame wars


Games: Microsoft's X-factor
Computing: IBM's Deep Blue man is now into e-commerce
Cutting Edge: An e-book horror story

Asiaweek/CNN Tech Index: Tracks 20 hot Asian tech stocks

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The Net: A Piece Of The Action
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Japan: Land of the Rising Internet Ad Spend
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Gripe, Gripe, Gripe
Asia's silent consumers get a chance to vent

New Medium, New Rules
China takes a hard line on Internet discourse

Money to Burn
Hong Kong and Japan converge in a Net investment bloc

Silent Phones
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Marriage of Convenience
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It was a serene beginning to what could become a very bloody war. At a March 10 videogame developers' conference in San Jose, California, Microsoft chairman Bill Gates showcased his company's new toy. On a computer screen behind him, more than 1,000 computer-generated butterflies gently fluttered around a Japanese garden. Plants swayed softly in the breeze. The butterflies smoothly flocked together to form a word: X-Box.

The pixel haiku put an end to the mystery surrounding the long-rumored X-Box, Microsoft's first foray into the market for videogame consoles. Don't let the butterflies fool you. The X-Box is every bit the high-tech weapon its burnished metal prototypes resemble. Their target: Sony's much-hyped new PlayStation 2. Decked out in a black leather flight jacket, Gates detailed the X-Box's arsenal. Like the PS2, it will play DVD movies and connect to the Internet. On top of that the X-Box will come with an 8-gigabyte hard drive for storing games and data, a 600-megahertz Pentium III processor that would be equally at home in a high-end desktop PC, and a brand new graphics chip that can render 200 million polygons (the building blocks of 3-D graphics) every second. That's over three times quicker than the already-impressive performance of the PS2.

There is a simple reason why Microsoft is coming out with all guns blazing: It can't afford not to. Since the first Play-Station was released in 1994, Sony has sold over 72 million units. One in every four U.S. households owns one (compared to one in two that own a PC). With sales of the PlayStation 2 nudging one million in its first weekend of release in Japan, there is little reason to doubt that Sony cannot repeat that success. Only where the original PlayStation was a toy that Microsoft could safely ignore, the Internet-enabled PS2 is a clear threat to Microsoft's Windows operating system.

"The sheer computing power of devices like the PlayStation 2 means that they are going to be more than just games consoles," says Joe Sweeney, Asia Pacific research director for GartnerGroup. Sony's device is being likened to a wired Trojan Horse, coming through the living room door as a games console and then morphing into a full-blooded Net access device for online shopping and entertainment. The idea of one quarter of American households surfing the Web without Microsoft software is not one that Gates wants to contemplate. Hence the sudden interest in videogames. "It's a blocking strategy," says Sweeney. "Microsoft really wants to own the access more than the device. They're running scared of losing their dominance over the operating system."

Porting Windows' desktop supremacy to the living room will be a tough task. Sony already commands two-thirds of the multibillion-dollar market for videogame hardware and software and its competition is floundering just as the PS2 is set to go on a tear. Sega has sold fewer than 5 million of its Dreamcast consoles, while the launch of Nintendo's Dolphin, successor to the Nintendo 64, has been delayed until next year. By the time the X-Box hits the shelves in the second half of 2001, the PlayStation 2 will have had 18 months to cement its dominance.

In Microsoft's favor: consumers, especially teenaged boys, are mercurial. Gamers have shifted their allegiance with each new generation of console. Atari, Sega, Nintendo and Sony have all spent time at the top of the heap. Microsoft is not a newbie to the gaming business either. Its PC games include the bestselling Age of Empires II and the classic FlightSimulator. The company has made joysticks and other peripherals for years. Microsoft is also a matchless competitor, fully capable of clawing back market share after coming late to the table. Remember Netscape, anybody?

Still, there is no shortage of doubters who question whether Microsoft has the X-factor needed to supplant Sony. Microsoft is not a hardware manufacturer in spirit and the company has not always related well to ordinary consumers. Microsoft's previous attempt to hook couch potatoes,WebTV, which delivers the Internet through people's television sets, has had limited uptake. Perhaps most important in the image-is-everything videogame world, Sony is cool. Nerdy Microsoft will have to do much better than Gates in a leather jacket.

Ultimately, the success or failure of the X-Box will rest on the quality of its games. There will be no shortage. The X-Box can't run existing PC titles, but because it uses an Intel processor and a tweaked version of Windows 2000, programmers should find it easy to write new games and modify old ones. Yet Microsoft's necessary reliance on Windows could backfire. Originally designed for PCs, the operating system has translated badly to other devices like palm-sized handhelds. The same could happen with the X-Box. "Windows 2000 is not a bad OS, but it's not the sort you use for real-time modeling. It wasn't built for that," says GartnerGroup's Sweeney. For all the impressive demonstrations "the X-Box won't have anything compelling that the PS2 doesn't already offer. Game over, man, Game over."

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