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Microsoft: Xbox Live is living large

The software giant says its initial shipment of 150,000 starter kits for Xbox Live has nearly sold out. But analysts are cautious about the new online service.

Microsoft announced Friday that it has nearly sold out of its initial shipment of 150,000 starter kits for Xbox Live, the new online service for its video game console.

The software giant introduced Xbox Live a week ago amid heady expectations that the service would finally set the Xbox apart from competing consoles made by Sony and Nintendo.

Xbox Live allows Xbox owners to play supported games against each other over the Internet. The service requires a high-speed cable modem or DSL (digital subscriber line) Internet connection and the $50 Xbox Live starter kit, which includes a one-year subscription to the service, a headset microphone for voice communication, and demo versions of two games.

Microsoft said in a statement that the initial shipment of starter kits was nearly sold out and that additional shipments of the kits were on the way to stores. Kits appeared to be readily available Friday at major retailers such as CompUSA and GameStop.

Sony has reported similarly brisk sales for the network adapter for its PlayStation 2. Introduced last month, the adapter lets the console hook into a broadband or dial-up Internet account to play games online. Unlike Microsoft, Sony does not maintain the network infrastructure for online games, leaving such tasks to individual publishers.

While online gaming via PCs has generated several financial successes, analysts and game publishers expect adoption of online gaming via consoles to grow slowly over the next several years. Limiting factors include low U.S. penetration for broadband Internet connections and slow growth for the home networking gear needed to extend Internet connections to the living room.

Analysts such as Matt Rosoff, of research firm Directions on Microsoft, have said Microsoft will be lucky to have a million Xbox Live subscribers by the end of next year. Microsoft's most optimistic projections call for 10 million subscribers by the time a new version of the Xbox is introduced around 2005.