Posted on 07/01/2002 4:15:08 PM PDT by Bush2000
Microsoft’s Freon project is an Xbox, with extras
July 1 — Its code name is “Freon,” reflecting the notion that it is the coolest secret project at Microsoft Corp. these days, at least in the eyes of the Xbox video-game division.
FREON STANDS FOR is a souped-up successor to the Xbox console — capable of playing games but also offering television capabilities, such as pausing live TV and recording shows onto a computer hard drive, say people familiar with the effort. Though it is unclear whether such a product will ever be built, its core concept appears to have the backing of Microsoft Chairman Bill Gates, who wrote in an internal memorandum in January that he was a “big fan” of a machine that would combine video services with gaming.
Such a device, which could cost around $500, would have another big advantage: It could beat video-game market leader Sony Corp. to the punch.
Microsoft officials are mulling releasing some kind of new game machine sometime next year or in 2004, say people familiar with the matter. That timing could shake up the $20 billion global video-game market, breaking a long-established pattern of developing and releasing new systems in roughly five-year cycles. Sony, the undisputed leader in a three-way race with Microsoft and Nintendo Co., isn’t expected to release its next PlayStation system until 2005.
“The utmost goal is to ship something before Sony,” says a person familiar with Microsoft’s plans. Changing development cycles could be particularly threatening to Sony, which relies more than Microsoft on specialized computer chips that take years to design. “My biggest concern is if Microsoft or Nintendo try to change the rules of the market,” says Shinichi Okamoto, chief technology officer at Sony’s game unit, Sony Computer Entertainment Inc. “I can imagine several [ways]. The first one is very simple — launching an annual new model: Xbox 2002, Xbox 2003.”
Microsoft officials won’t comment on Freon. But the software titan has been playing catch-up to Sony since it introduced the Xbox last year. Though Microsoft hoped the introduction of a hard disk and other features would inspire developers to write more exciting games than for the PlayStation 2, Sony’s hardware has retained an edge among consumers and programmers.
“It’s amazing how far we have come, and yet we still have to get people to see Xbox as even more of a breakthrough than they do today,” wrote Mr. Gates in the internal e-mail sent to top Xbox executives in January.
Officially, Microsoft says the current Xbox has been an early success. The company’s focus right now is on selling more Xbox consoles this coming Christmas season, says John O’Rourke, director of Xbox sales and marketing. At the same time, “we have to be thinking about the future,” Mr. O’Rourke says.
Microsoft officials are also mum about the release date for the Xbox console’s next version, known as “Xbox Next,” expected about 2005 or 2006. Still, the various Xbox projects inside Microsoft — as well as Mr. Gates’s musings in his memo — show Microsoft is serious about overhauling Xbox, if necessary, to strengthen its challenge to Sony.
A key pressure is economics: The Xbox console isn’t profitable for the Redmond, Wash., company and its costs are believed to be higher than Sony’s, partly because of the hard drive and a version of its powerful Windows operating system included with each machine. While “the Xbox is a full-feature BMW, the PS2 is a Toyota,” says Bruno Bonnell, chairman and chief executive of French game maker Infogrames Entertainment SA.
But many gamers prefer the more practical Toyota. Sony has shipped about 32 million PlayStation 2 machines world-wide, while Microsoft was expected to have shipped only 3.5 million to four million Xboxes by Sunday, the end of its fiscal year. Microsoft, which lowered sales expectations earlier this year, insists its more-powerful machine eventually will win over customers.
Mr. O’Rourke says the machine’s hard drive helps deliver features like the voice commentary on Microsoft’s “NFL Fever” football game. Microsoft also recently showcased a new Xbox game called “Blinx: The Time Sweeper,” which allows players to record moves they have made in the game and replay them at different speeds in the future.
“That is something you can only do with a hard disk,” Mr. O’Rourke says.
Still, Mr. Gates doesn’t seem convinced. In his memo, sent after one of his periodic “think weeks” away from the office, he mused about whether a hard drive would be necessary for Xbox’s online-gaming service, expected to be launched later this year. “Do we really know that you have to have a disk to do online?” Mr. Gates wrote. “I think it’s probably right, but say Sony tries to do online without it — how bad will it really be?”
Mr. Gates also tossed out a thought he described as “heretical,” wondering whether Microsoft will have to “back down” from its plan to offer online gaming only over high-speed Internet connections. That plan has been criticized because so few U.S. computer users have high-speed connections.
Mr. Gates received a briefing about the Freon product last week, a person familiar with the matter said, and also presided over a pep rally of sorts for a larger Xbox group. When asked about Freon at the meeting, Xbox chief Robbie Bach said there were no definite plans for deployment, this person said.
Mr. Gates has long been fascinated with extending Microsoft’s Windows software into the living room, though Microsoft stumbled with most of its previous TV efforts. And many in the video-game industry wonder if consumers would pay $500 — compared with the $199 Xbox — for a complicated home-entertainment machine.
“I worry about what I call feature creep — layering too many things into a product so the original intent of the product gets lost,” says Schelley Olhava, an analyst with International Data Corp.
That's what I'm wondering, too. Roll a game machine, DVD, and TIVO into a single unit. I'm not sure I'd bet the farm on this one...
I expect a Microsoft "PC" to come of this as well eventually. It will be a "PC" like we've never seen before. Portable, rugged and likely, wireless.
"Unclear" my butt. The entire Ultimate TV team (Microsoft's short-lived TiVo competitor) was recently folded into the XBox group. There is no question whatsoever that XBox2 will incorporate PVR features, which is a no-brainer. Other than the hard drive, there's virtually no difference between the electronics required for a game console and a PVR—since XBox already has a hard drive, adding PVR software suddenly turns that undervalued feature into a killer app.
"Such a device, which could cost around $500..."
Such a device would cost around $300, not $500. The expected royalty stream from game disks would allow Microsoft to sell its PVR for below cost just as TiVo's monthly fee subsidizes their price. You can buy a TiVo for $299, so you'll certainly be able to buy XBox2 for that.
"“Do we really know that you have to have a disk to do online?” Mr. Gates wrote. “I think it’s probably right, but say Sony tries to do online without it — how bad will it really be?”"
Yes, Bill, you have to have a hard drive for online, and Sony knows it better than you do. What would be the core profit center for a Sony online service? A PS2 port of EverQuest. I guarantee you, any Sony exec who suggests to Verant that they create a version of EQ that can never be patched would get savagely beaten.
"Mr. Gates also tossed out a thought he described as “heretical,” wondering whether Microsoft will have to “back down” from its plan to offer online gaming only over high-speed Internet connections."
Yes, Bill, you have to support modems. The Axis of Stupid (comprising the RBOCs, the cable monopolists and the FCC) have so totally botched broadband that we're stuck with modems for at least five more years. Note that the TiVo business model relies on its modem; either XBox2 will copy that business model for its PVR software, or Microsoft will simply buy TiVo out of the petty cash fund and fold the two together.
Perhaps. But you're forgetting about one thing: the recession and still-increasing unemployment. Motorola is laying off 10,000 more. Most of the 80,000 WorldCom employees can kiss their jobs goodbye. Even IBM is chipping away at workers - 5,000 here, 2,000 there.
Even if Microsoft is 'practically' giving the Xbox away, I think we're going to see this Christmas season the worst ever for retailers. Heck, I have a job and I still consider the Xbox an unneeded and extravagent luxury. I am focusing on the basics: food, house, and basic utilities. Everything else is going into a rainyday savings account.
And you can bet there are millions of people out there in worse straits then me. I would say none of the console makers are going to make much money this year.
It's a game console. No, it's a PVR.
Game console! Pee-Vee-Are!!
So where would you put it? Living room or basement? Yeah, I don't know about this...
There is the report that that Apple boxes are piling up in the warehouse. New tech doesn't seem so necessary when you're making monthly payments on this and that and wondering if the income will continue. Some are even going so far as to try to pay off their Visa/MC. New stuff isn't so important these days.
In any case, the PS2 is not going to be $199 two years from now, and neither will a standalone Xbox if there is one, and the Cube will probably be even lower than that. So the question is, in two years, do you pay ~$79 for the single-purpose Gamecube, ~$119 for a dual-purpose PS2/XBox that does DVD also, or ~$300 for this Swiss-Army knife thing?
The objective would be to own 30% of the basements and 80% of the living rooms. This makes tremendous financial sense, inasmuch as there are more living rooms than basements out there.
The plan would be to have enough current gamers buy it as a game console that it holds second place to Sony and maintains a large pool of developers. Then attack the vastly larger audience of people who don't play console games. A PVR-enhanced XBox2 will probably sell for a premium over Playstation3, but it will sell for the same price (or even less) than any other PVR. Therefore, Microsoft can hold a third of the console game market while dominating the PVR market—after all, given a choice between a PVR that just does that, versus one with superior visuals that also plays games and costs the same or less, most people are going to opt for the latter.
Putting a game console onto the TVs of people who don't currently play console games is the real motherlode. "Casual gamers"—people who will play games given the opportunity, but who don't trick out their PCs for game-playing—completely dominate the PC game market. These people will never buy consoles, but if you sneak a console onto their TV they will buy games. But only Microsoft can pull this trick off, because the developers who currently understand the casual gamer market all work on the PC. Those developers aren't going to become Sony licensees on spec, but the learning curve from PC to XBox (particularly for less graphically demanding games) is very affordable.
The previous generation machines can be ignored, as they sell to a completely different (poorer) market. Playstations cost $50 now, but that doesn't cut into sales of GC/PS2/XBOX—or rather they do, but in a way that's entirely consistent and already factored in. (Basically, those late-cycle sales the Playstation enjoys at $50 are Sony's payoff for the market-share it seized early on by selling the first Playstations well below cost.) The relevant choice will be to buy XBox2 at $300, or wait a year to buy PS3 for $250—just as the choice in 2000 was to buy PS2 for $300 or wait a year to buy XBox for $250.
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