Microsoft Corp started selling Xbox, the largest software maker's new video-game machine, as the newcomer to the console market challenges experienced players Sony Corp and Nintendo Co for holiday sales.
Microsoft Chairman Bill Gates distributed the first unit of the US$299 Xbox at midnight to Edward Glucksman, first in line at the Toys R Us Inc store in New York's Times Square. Microsoft will lose US$50 to US$100 on each console sold, analysts estimate.
Microsoft will have a hard time besting top game-console makers Sony and Nintendo in the US$20 billion worldwide game market because there are few exciting games that are exclusive to Xbox, analysts and industry executives say. Most developers are focused on Sony's PlayStation2, and Nintendo, which will roll out its GameCube machine Sunday, has strong in-house game development.
"The general consensus is that Sony will stay in the lead by a lot," said James Lin, an analyst at Jefferies & Co who follows the game industry. "The battle will be for No. 2, but Nintendo will win and Xbox will be a close third."
Microsoft will lose about US$1 billion in total on Xbox, and probably won't break even until the fiscal year ending in June 2004, estimates Mary Meeker, an analyst at Morgan Stanley Dean Witter. Meeker rates Microsoft "outperform."
The company is risking the losses to grab a piece of the fast-growing game market as sales of personal computers slow, crimping growth for Microsoft's Windows and Office software. Sales of games are forecast to rise 20 percent or more over the next several years.
"Their two monopolies -- Windows and Office -- are very mature," said Tony Ursillo, software analyst at Loomis Sayles & Co. "This is a business where you can milk a large installed base if you're successful.''
Nintendo will kick off sales of the new US$199 GameCube system just three days after Xbox's debut. PlayStation2, which costs US$299, was introduced in October last year.
Microsoft expects to sell 1 million to 1.5 million consoles this holiday season, and Gates said all available units should sell out.
"Tonight is probably the last night for a long, long time when everyone who comes can get an Xbox," Gates told the crowd at Toys R Us.
Xbox will be sold in Japan in February, followed by western Europe in March, said Olivier Richard, Microsoft's spokesman in Hong Kong. Microsoft hasn't yet decided whether to sell the console in Asia outside of Japan because of piracy concerns.
"We know that selling games consoles where piracy rate is high is challenging," Richard said. "We need to ensure we have enough consoles to serve the bigger markets first.'' Makers of game consoles typically lose money on the devices, instead relying on sales of game software to generate profit.
About 15 Xbox games initially will be available, including several published by Microsoft.
Gates said Microsoft's ability to challenge Sony is "all up to whether people like the games."
Exclusive games include Tecmo Ltd's fighting game Dead or Alive 3, and Microsoft's action-adventure Halo.
Electronic billboards in Times Square were lit with scenes from several games to mark the product's release.
Microsoft's in-house games bring in more money than those developed by outside companies, according to Rick Sherlund, an analyst at Goldman, Sachs & Co, who rates the shares "recommend list."
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