From...

by Kenneth Li

(IDG) -- Tony Loke really wants to kill his friends. An avid Sony PlayStation gamer in Flushing, N.Y., Loke swaps tips and strategies for the Tekken 3 game with his pal Harry, who lives in Cape Cod, Mass. But he can't do the one thing he thought videogame consoles would've let him do years ago – allow him to take on Harry over the Internet.

"Half the fun of playing videogames is playing with other people," Loke, a marketing executive, says. "It's pretty dumb that [the Net] doesn't support this."

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Five years after the Internet went mainstream, and 20 years since Atari released Pong, the intuitive lure of hooking videogame consoles up to the Net remains a glimmer on the horizon. The three largest videogame makers – Sega, Sony and Nintendo – continue to grapple with technical glitches, competing business models and consumer indifference, leaving players stuck in their living rooms.

That's about to change, the companies say. Taking a cue from the computer game industry, the big three – each with its latest-generation game machines just released or about to be – are racing to figure out how to rejuvenate an idea that once seemed as dead as interactive TV. "The whole industry is going in this direction," says Charles Bellfield, director of marketing communications at Sega of America. "Online multiplayer gaming will revolutionize gameplay in the next five years."

But tellingly, Sega, Sony and Nintendo (all based in Japan) have taken different paths, pinning their hopes on divergent strategies.

Sega is leading the march. Bristling from two failed attempts at online gaming, the company recently launched the Dreamcast system to widespread acclaim and record-breaking sales. The Dreamcast machine is built to take advantage of today's Internet infrastructure. Through a landmark deal with AT&T's WorldNet unit, Dreamcast players can upload high scores to a bulletin board, and download special game functions and promotional items onto their machines. It's the first step toward what, in a year, is expected to be full-fledged online gaming – meaning players can take on real-life competitors in 3D, real-time format.

Sega is also considering other uses for Dreamcast, including stock trading, Web surfing and other Internet-related services. In Japan, the company inked a deal with Nomura Securities to offer stock trading to Sega's Japanese customers.

If Sega sees its Dreamcast machine as an improvement on the here-and-now gaming experience, Sony is positioning its next-generation system as the centerpiece of a broadband digital entertainment nirvana that will come to fruition in 2001. The first step is the PlayStation 2 console, which debuts next fall, designed as a do-it-all, set-top-boxlike machine that plays DVD movies, music and games. So enamored of the future of broadband, Sony says it will not provide a built-in modem, in contrast to Sega.

But Sony's plans raise more questions than they answer. For instance, Sony executives are the first to admit that broadband penetration will remain low, even as of the PlayStation 2's launch. "When we launch the system, we envision it's going to be a small percentage [of consumers] that will actually take advantage," says Kaz Hirai, president of Sony Computer Entertainment America.

And then there's Nintendo. More than a decade after revolutionizing videogames in the U.S., Nintendo has been surprisingly cautious about wading into the online arena. That's because, in part, company executives have been ambivalent about whether such a system will provide enough revenue. "We're bullish on concept, but bearish on where the business model will come from," says Jim Merrick, technical director at Nintendo of America. This means that, in Mario's world, game players will be able to connect to the Internet through some combination of a traditional console and the popular handheld GameBoy machine.

"You'll see that we're doing our best to merge the two systems to have them communicate," Merrick says about the unit, now code-named Dolphin.

In Japan, Merrick explains, the company has already launched the next version of the GameBoy, called the AGV (to be renamed the GameBoy Advanced when it hits America). AGV lets users connect their units to such devices as wireless phones and send information to other GameBoy owners. But AGV is unlikely to appear verbatim here anytime soon as the U.S. juggles a handful of wireless standards. "While I think there's great interest, the technology is not quite refined enough," Merrick says.