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Commentary: Microsoft's Xbox 360 spin

MTV debut of new game console issues a sharp challenge to Sony and marks a radical shift by focusing on consumers.

Commentary: Microsoft's Xbox 360 spin
By Forrester Research
Special to CNET
May 13, 2005, 8:49AM PDT

by Fiona McDonnell and Paul Jackson, analysts

The heavy hitters of the video game industry will gather next week in Los Angeles for the E3 conference--and should get a first glance at next-generation consoles from Sony and Nintendo.

Related story

Microsoft beats rivals
in unveiling new generation
of console first.

But Microsoft has taken a radically different approach to showcasing its wares: A prime-time MTV special Thursday unveiled the Xbox 360 to consumers four days before E3, aka the Electronic Entertainment Expo, starts. This direct-to-consumer strategy will give the new Xbox an advantage and transform the game industry's marketing and product development practices.

E3 is the de facto conference for new game platform announcements. It is where the Sony PlayStation Portable and Nintendo DS were unveiled in 2004, and where American game professionals got their hands on the Sony PlayStation 2 for the first time in 2000. This year Sony will unveil the PlayStation 3 and Nintendo, in classic fashion, may or may not show its "Revolution" console.

Microsoft's MTV maneuver, meanwhile, allows Redmond to do the following:

•  Sidestep the industry shindig and talk directly to potential consumers. New hardware is usually unveiled first to partners and developers behind closed doors, then to industry players and analysts at events like E3, and finally to consumers a couple of months before release. Microsoft is breaking this golden rule and taking its offering directly to consumers--despite a wait of at least six months until the console ships. The company risks killing its existing hardware-line sales and stunting software sales, but puts even more pressure on Sony and Nintendo to get their offerings to market.

•  Reduce the classic five-year game console cycle. Video game consoles typically have a five-year life cycle--taking a new platform from early adopters through the mass market and into obsolescence. However, by the time the Xbox 360 hits U.S. shores, the original machine will have been out for only four years. Rather than wait a year--and give Sony the market to itself, as it did with its PlayStation 2 in 2000--Microsoft is seeking to reverse the situation.

•  Build a frenzy of community speculation and support. Sony is widely credited with bringing the image of game consoles up-to-date with the marketing, product placement and design work it did around PlayStation and PlayStation 2. But this was in the days before blogging and Emotive Networks. Speculation around the next Xbox among gamers has built to a frenzy over the past six months--carefully fed by occasional press quotes from Bill Gates, leaked images and viral messaging spread via Microsoft's site.

For Microsoft, little to lose
The video game industry is about to enter another period of extended growth, and it's widely acknowledged that, Asia-Pacific aside, Microsoft has been more successful with its Xbox market entry than many people expected. But that isn't enough for Microsoft: It wants to be the No. 1 player. As a recent entrant to the game console market, it needs impact and is not afraid to overturn old conventions and try something new. Microsoft's Xbox marketing strategy is:

•  A key building block in the overall Microsoft brand strategy. In revealing and promoting its new console through nontraditional means with multiple partners and six months before shipment, Microsoft stands to create goodwill with demanding gaming consumers and beyond. With a gamers-first approach that will create positive associations with its brand, the company aims to offset some of its negative branding in the PC market, where it frequently comes under fire for being the dominant, less innovative player. Additionally, aside from an XP branding campaign, Microsoft has few new products to promote until Longhorn in late 2006.

•  A spoiler strategy to appeal to switchers. Talking to consumers now and bringing the Xbox 360 to stores before the end of 2005, probably long before Sony's or Nintendo's new devices, will give Microsoft a big perceived lead in the market. Microsoft is well placed to gain significant market share in a market whose product cycle has a front-loaded revenue stream. How? By stockpiling consumer sales from potential switchers in the months prior to launch and by maintaining sales of current-generation Xbox games if it ensures their compatibility with the Xbox 360.

•  A foray into viral marketing. After the success of the "I love bees" viral campaign used to promote "Halo 2," Microsoft created to build buzz and officially release teaser images. One key element of this site is its exclusivity: Microsoft hasn't promoted it overtly, but simply waited for keen-eyed consumers to make the connection. Even then, the site is difficult to access unless you are a keen gamer.

•  A way to break the new console out of the gaming ghetto. Another interesting move has been Microsoft's recent agreement with Samsung to collocate next-generation Xboxes with its high-definition TVs in retail stores. This allows the console to escape the intimidating--and often poorly laid-out--gaming aisles and attach itself to the cool new world of HDTV.

Changing the rules of the game
To win as the last entrant into a developed, albeit dynamic, market requires disruption in some way. Microsoft's strategy has a number of impacts on the game industry and the wider world of marketing.

•  Consumer involvement in marketing inspires game design. To date, Microsoft has mainly used "I love bees" and as promotional tools--but given the level of consumer interest and the connectivity potential of the new consoles, it can only be a matter of time before that company and others start using these mechanisms to test out game ideas and distribute freebies like demos and coupons. Building on the interactive campaigns, Microsoft takes the gaming experience out of the living room, blurring the line between product and marketing to become synonymous with "gaming."

•  Sony and Nintendo need to respond fast. With Xbox messages hitting consumers today, Sony and Nintendo can't wait a year to fight back. Nintendo will continue to focus on game-play innovation and "pure" gaming. Some of its regional PR and marketing partners have implemented imaginative TV, print and outdoor campaigns, but don't expect to see Nintendo radically changing its marketing strategy any time soon. Do expect a more aggressive response from Sony--which isn't about to give up the console crown to the Redmond pretender: As recent content partnerships for the PSP have shown, Sony can still drive innovation and excite consumers. What both companies will have to accept is that Microsoft's strategy has cut short the life of the current generation of hardware.

© 2005, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.