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Xbox part of long-term strategy: Gates

Anyone who snagged one of Microsoft Corp's new Xbox 360s at its launch yesterday will likely see the new video game console as just that -- a medium for spending hours playing the likes of Halo 2 and Project Gotham Racing 3.

But executives at Microsoft see video games as just the beginning. Xbox 360 is at the center of a strategy that will also eventually tie in elements of Microsoft's new online initiative, called Windows Live, says company chairman Bill Gates.

Gates said on Monday that he expects Xbox Live, Microsoft's service that allows gamers worldwide to play one another, to eventually work with a Microsoft instant messenger that is slated to become part of Windows Live.

Gates said he's also expecting a new Xbox service called Microsoft Points, which lets people pre-pay for things like virtual armor or other game-related items, to eventually work with Windows Live, so people could use a single account to pay for offerings there, too.

"The PC and the Xbox are very complementary," Gates said.

Stores around the US were selling the Xbox consoles to the first customers at midnight. In midtown Manhattan, 200 people lined up around a block in the rain outside a Best Buy store late on Monday.

"You gotta have it," said a drenched Michael Hamilton, 25, of Brooklyn, who had been waiting on line since 1:30am on Monday. Wearing a poncho that did little to keep him dry, Hamilton said, "Rain? It's only water."

"This is the home stretch. I've been here for 15 hours," said Viktor Lundberg, 28, of Manhattan. "I wouldn't wait in the rain for a Sega or a Nintendo."

Carlos Serrano, the "customer experience" manager for the store, called the people in line "crazy and dedicated."

"They are going to get this system right when they want it: 12:01," Serrano said.

Windows Live is Microsoft's newly launched effort to better compete with free, advertising-financed Web services like e-mail and search technology from competitors led by Google and Yahoo.

Analyst Rob Enderle said the move to more closely link Xbox Live with Windows Live intends to bolster loyalty to Microsoft products. Microsoft "can tie that stuff together so that you as a customer become wedded to the Microsoft platform for everything you do," he said.

Microsoft also is attempting to more closely tie Xbox 360 to the rest of its universe by trying to make it a conduit for other entertainment activities such as high-definition TV, looking at family photos and listening to music.

Xbox 360 can do some of those tasks itself, and it also can function as an "extender" that links to a PC running Microsoft's entertainment-centric Windows Media Center.

"In the living room itself, Xbox 360 is our centerpiece and a product that redefines what goes on there," Gates said.

Microsoft's major console rival, Sony Corp's PlayStation 3, also is expected to offer alluring digital entertainment capabilities when it debuts next year.

With the new Xbox 360 system, Microsoft also is significantly expanding what people can do -- and buy -- from Xbox Live itself.

Gates said one big bet is that game companies will use Xbox Live to sell incremental upgrades and additions to existing games, thus extending a game's life.

Analyst Matt Rosoff with independent researchers Directions on Microsoft said efforts to sell game add-ons through Xbox Live are probably more likely to immediately meet success than the grander plans to become a home entertainment hub.

Microsoft -- and Gates in particular -- have long touted the idea of the high-tech living room and den, but the concept is still too geeky for most people, Rosoff said.
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