The company's much-hyped new game console goes on sale Thursday in the United Kingdom and other European Union nations, and analysts expect it to generate strong demand initially.
"Europe should be a big market," Gartner analyst Andrew Johnson said. "They're getting there earlier than I had honestly expected, and they've really built up a lot of excitement."
That compares with the Xbox's first overseas venture, Japan, where the consolelast month amid growing skepticism over whether Microsoft could carve out market share in the home of the video game industry. Besides competing against entrenched local game companies Sony and Nintendo, Xbox software for Japan must appeal to gaming tastes that differ significantly from American trends.
Those fears may prove to be well-founded, with the Xbox plunging in sales rankings for game consoles in Japan last week after a mere week in the No. 1 spot, according to Japanese market researcher Nikkei BP. The decline was at least partly due to widespread news reports of Japanese consolesgame and movie discs. While Microsoft has worked diligently to address the scratching complaints, media coverage of the situation could contribute to Japanese apathy towards the Xbox.
Europe is vital to the console's long-term chances. Johnson estimates Microsoft needs to ship 11 million consoles worldwide this year for a successful launch. "Europe needs to be about a third of that," he said.
Credit Suisse First Boston analyst Heath Terry agreed. "For them to be successful overall, they need a strong showing in Europe, particularly with what's happening in Japan," he said. "Europe is the market where they have the most potential, partly because it's neutral territory, unlike Japan with Sony and Nintendo."
And European gaming tastes are roughly similar to American preferences, said Scott Dodkins, senior vice president of European publishing for games maker Activision, which has found a solid European audience for its "Tony Hawk Pro Skater" series of skateboarding titles.
"A lot of games from the American market translate very well here," he said. "Things like driving or action games work just as well in Europe as the U.S."
Add a few soccer games, and the Xbox's strong American software lineup should satisfy European appetites, Terry said.
"It's a lot easier to leverage your U.S. software support for Europe than it is for Japan," he said. "You look at the games they have for Europe, and it's a really strong lineup."
One of the challenges Microsoft will face in wooing European consumers is price. The Xbox will cost European gamers the equivalent of about $425, $135 more than Sony's recentlyPlayStation 2 and almost double the European price announced for Nintendo's GameCube, set to arrive in the continent May 3.
Dodkins expects hardcore gamers will snap up the Xbox at its current price for the first few months, but Microsoft may have to trim the price in a few months to appeal to more mainstream customers.
"Microsoft is holding a very hard line that this is where they're entering the market," he said. "But my instinct is there will be a market-share war going on, and they will have to fight on all fronts, price being one of them."
Dodkins noted that Sony's decision to cut the European price of the PlayStation 2 helped reinvigorate sales last year. "I don't think that lesson has been lost on Microsoft," he said.