Microsoft to invest $1bn in online gaming service

20 May 2002 Microsoft is to invest $1 billion (€1.08bn) in its new online gaming service called ‘Xbox Live’, according to US press reports.

Xbox Live will enable users of Microsoft’s Xbox games console to subscribe to a global network and play against other users over the Internet. The initiative will mark the second phase in the Xbox launch. Microsoft wants to turn the games console into the hub of a global, interactive home entertainment service – controlled by the software giant itself, of course.

The network will be run from three data centres around the world, including one in London. Users will pay a subscription of about $10/£10 per month. Microsoft expects about 10% of Xbox users to join-up.

However, the launch will be over-shadowed by disappointing Xbox sales, despite recent price cuts. Sales to the key Japanese market have remained distinctly lacklustre, where users have preferred the rival PlayStation 2 from Sony and the cheaper Nintendo Game Cube.

Sales have been satisfactory in the US, where the console was competitively priced from launch, but in Europe, Xbox initially cost a third more than the PlayStation 2 and more than twice as much as the Game Cube and has been snubbed accordingly by gamers.

The Xbox can boast a better technical specification than both its rivals, including a Pentium III microprocessor, hard drive and built-in modem. Both the Xbox and the PlayStation 2 can also play DVDs – a feature missing from the Game Cube.

However, that technical specification makes Xbox much more expensive to make than rival machines, meaning that Microsoft makes a bigger loss on each unit sold than its competitors. The economics of the games industry sees manufacturers selling their consoles at below cost price, but making up the difference on royalties from all games sales on their platform.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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