Half a Billion Dollar Push

On Thursday afternoon, Microsoft announced that it was going to spend $500 million dollars to market the Xbox in the first 18 months of the console’s life. “This will be the biggest launch Microsoft has ever done,” Robbie Bach, senior vice president of Microsoft’s games division, told an annual meeting of financial analysts at the company’s headquarters in Redmond, Wash.

Although the console industry is fiercely competitive, with the Sega Dreamcast already launched and the next console from Nintendo set to debut in 2001, Microsoft clearly has set its sights on the Sony PlayStation as the one to beat. In the second part of his presentation, Bach mentioned that the Xbox’s technical specs have been finalized, and also mentioned that Microsoft’s new console will be significantly easier to develop for, a clear reference to the PS2, which many developers regard as overly complicated.

To offer some perspective, Sega launched the Dreamcast with a US marketing budget of roughly $100 million. And while Sony has not revealed how much it is spending, industry analysts speculate that it was at least twice as much as Sega’s effort. Thus, at the very least, Microsoft is probably spending twice as much to get the Xbox into gamer’s homes.

At first this number seems inconceivably large. Why would a company spend such huge sums of money to promote a product that they will sell at a loss in a market presumed to be dominated by Sony? The $500 million dollar figure is not only a testimony to Microsoft’s commitment to winning the videogame wars, but also demonstrates the enormous amounts of money to be made in the industry. Currently, one in every four US households has a PlayStation, and in 1999, Sony’s console out outsold the top five US domestic grossing movies combined. But even with that potentially lucrative market, with $500 million spent on promotion and a unit that will be competitively priced, it will be some time before the Xbox will be a moneymaker for Microsoft. This simply adds to the speculation that the Xbox is not going to be only a console, as Microsoft claims. The “Trojan Box” theory holds that Microsoft is really after the home entertainment market, with Xbox being the quilting point on a web of DVD/PC/Internet/games/HDTV entertainment. Some speculate that despite Microsoft’s denials, the Xbox will be much closer to a mini-PC than most people think.

The Xbox is currently on course for a fall 2001 ship date. The SDKs have been sent out to developers, and the technical specs have been finalized. Every week more developers announce their support for their console, and the first images of launch titles begin to trickle out. With this announcement, the bell has been clearly rung and we can all sit back and enjoy the spectacle as Microsoft and Sony get ready to rumble.