Xbox 360 Sounds Impressive, but Jury Still Out

Microsoft (Nasdaq: MSFT) pulled back the curtain on its next generation console, Xbox 360, and announced some impressive features, but that and the fact that it beat its rivals to the public's eye, may not give it an edge in the market, one analyst said.

"The market is going to be more evenly split this round -- regardless of when the players launch," Jay Horwitz, senior analyst, Jupiter Media, said.

The preview was timed to beat Sony (NYSE: SNE) (Playstation 3) and Nintendo (Revolution), which are both expected to announce their next-generation consoles at the Electronic Entertainment Expo (E3) in Los Angeles next week. Microsoft is likely to release more details about Xbox 360, which is expected to hit the stores by the holiday shopping season, during the show.

Long Way To Go

The 360, introduced on the show "MTV Presents: Xbox, The Next Generation Revealed," which was hosted by self-described gaming geek Elijah Wood, who played Frodo in the "Lord of the Rings" trilogy, and the band The Killers, is far from ready for prime time. The big issue of backward compatibility has yet to be broached and the games previewed were nowhere near complete. Without the games, it's hard to say whether the Xbox 360 will live up to the hype.

The Xbox 360 will be significantly beefed up, with 512 MB of fast RAM (the Xbox has 64 MB), a 500 MHz graphics chip designed by ATI (Nasdaq: ATYT) Technologies, and containing three IBM 3.2 GHz PowerPC chips. The 360 also supports HDTV.

Microsoft is still trying to push Xbox Live, its online gaming site, and the 360 might just help that along. "Enhancements to the Xbox Live site add significant additional value to the Xbox 360, including the ability for online commerce to effectively increase the revenue per title," Van Baker, vice president and research director, Gartner (NYSE: IT) , told the E-Commerce Times.

Designed Diversity

The Xbox is intentionally designed to look like an Apple (Nasdaq: AAPL) product, J. Allard, founding member of the Xbox development team, said, adding that Apple is the aesthetic to reach for. But it's also designed to be much more than a game console. The box will come with free online access and can act as a go-between from a digital camera or MP3 player and a television. Microsoft has not announced its price yet.

Although predicting only 2 percent growth in the next-generation market, Jupiter Media said the business will still generate big bucks, with the U.S. console market growing from $8.7 billion for 2004 to $11.7 billion in 2010. "The game console industry is becoming adept at diversifying its products to meet the multiplicity of tastes. The mix of mass appeal content, blockbuster hits, niche titles, enhanced functionality and most importantly value opportunities is keeping the market vibrant," Horwitz said.