The Coming Living Room Superstorm

There has been some talk lately that Microsoft's XBox console is faltering. The "gloom and doom" crowd, spured on by a recent John C. Dvorak piece in PC Magazine entitled The XBox Quagmire, claims that XBox, having too few exclusive "AAA" games, is bound for failure in a PlayStation 2 dominated world.

In my opinion, these people are missing the point. This is about much, much more then games. Microsoft is taking the long view here...They intend XBox to be the first part of a long term strategy to compete with Sony for the blossuming digital home entertainment market. In essence, these are first drops of rain in a looming battle of corporate giants to create the equipment that will power the HDTV-centered living room of tomorrow.

For example, Microsoft is trying to push Windows Media technology as the software side for a hi-definition DVD replacement. Check out the demos here. Just look at the new T2 DVD release. It comes with a WM9-encoded version of the movie to be viewed on PCs that's higher resolution then the DVD. With resolutions like that, there's no doubt in my mind that Microsoft is serious about the next DVD standard being Windows Media based. Think of the T2 HD disc as a sort of prototype of the next generation in home video. Sony, of course will undoubtedly have their own codec to counter Microsoft. And why not? Whoever controls that codec will be receiving lisencing fees from each HD-DVD player slod, even if that player is a competing company's videogame console.

This is bigger then just DVD. With PSX (Sony's new Tivo-like PlayStation 2 model), Sony is trying to create a centralized digital home entertainment machine. This is an attempt by Sony to undercut Microsoft's Windows Media Center initative.Microsoft thinks Sony wants to leverage their Playstation empire to start to compete against Microsoft in the home entertainment world.

While most people see very definite borders between PC's, consoles, Tivos, and DVD players, Microsoft and Sony see this as all one big market. The same technology drives all four markets. A Tivo is just a PowerPC running Linux. A PS2 is not just a game console, it's a MIPS based Linux platform as well. Microsoft understands that in the home market their Windows monopoly on PC is dependant on people needing Wintel PCs for everyday tasks. They fear Sony wants to "come in the back door" so to speak by creating products that people use instead of their Wintel-based PC. So, to compete, Microsoft competes with Sony on a one-to-one basis, with a Wintel-based console, which could easily become a Wintel based home-entertainment center.

Therefore, I'm saying that Microsoft is willing to fund XBox until Sony gives up their home entertainment ambitions. XBox is the moat that lies between the Sony hoards and Microsoft's Windows monopoly. As a result, it doesn't matter how good or bad XBox does at this point. It's a hedge for the future.