Microsoft Releases Xbox, its `Hottest Product' Ever, Says Gates

Nov. 22 (Bloomberg) -- Microsoft Corp. released its Xbox 360 video-game console across the U.S., a machine Chairman Bill Gates says will enable the company to wrest control of the $28 billion industry from Sony Corp.

Microsoft, which spent more than $12 billion developing its Xbox machines, began selling Xbox 360 in stores last night, in time for the holidays and before Sony's PlayStation 3. Those two advantages will give Microsoft ``the hottest product we've ever had,'' Gates said in a telephone interview yesterday.

``We see ourselves having a higher share,'' Gates, 50, said before his planned trip to a Bellevue, Washington store for the Xbox release. ``We're not going to name some magic number but we're out to give the best gaming experience and hope to get a really high market share out of that.''

Gates is also betting Xbox will help Microsoft's plan to bring the Redmond, Washington-based company's software into the living room and lessen its dependence on Windows and Office programs for personal computers. Microsoft, the biggest software maker and No. 2 in video-games, released its first machine after Sony's PlayStation 2.

``Last time we were the new entrant, we didn't have credibility, we came in late,'' Gates said. ``Everyone agreed we had the better box. Here we think we have the better box but we're shipping first.''

That first Xbox failed to gain share of more than 18 percent. This time San Diego-based DFC Intelligence says Microsoft may reach as much as 40 percent. Sony has about 67 percent and Nintendo Co. has 15 percent.

Freight Planes

Microsoft used Boeing Co. 747 freight airplanes to rush the machines to the U.S. from factories in China. The Xbox will go on sale in Europe on Dec. 2 and in Japan on Dec. 10.

Gates plans to appear with Best Buy Co. Chief Executive Officer Brad Anderson at a store in Bellevue. Gates, whose interests include bridge and reading, will play against fans and sell the first console at 11:45 p.m. Seattle time.

Richfield, Minnesota-based Best Buy, the largest U.S. electronics retailer, is opening all its stores at 9 a.m. today and will issue tickets to customers waiting in line.

More than 200 customers waited in the rain outside the Best Buy store on Fifth Avenue in New York for a chance to buy one of the first Xboxes.

``Hardcore customers want the games right now,'' said Carlos Serrano, a store manager.

The Xbox is available in two versions: a basic model for $299 and a $399 version that has a hard drive and a wireless controller. The devices connect to digital cameras, portable music players and Windows PCs.

``We're just making these things as fast as we can,'' Gates said. ``We think demand will continue to exceed supply for quite a while.''

1,700 Parts

The Xbox 360 contains 1,700 separate parts and its release around the world in the space of three weeks leaves little room for error.

``For the last six months, we've been on the edge of our seats,'' Gates said. ``I hope I don't get an e-mail saying `Gosh, processor yields are too low, or this plastic factory burned down in Malaysia, so we'll have boxes but no controllers.'''

Manufacturers Flextronics International Ltd., Wistron Corp. and Celestica Inc. are building the machines.

``With software at least, the people who determine your fate all come to work here at Microsoft,'' Gates said.

Xbox Bet

Microsoft shares have fallen 16 percent over the past five years as sales of personal computers slowed. The stock rose 9 cents to $28.16 at 4 p.m. in Nasdaq Stock Market composite trading and have risen 5.4 percent this year.

Gates is betting the Xbox, Microsoft's only unprofitable unit last year, will help bolster other sales by Microsoft to consumers. The Xbox 360 will also be profitable over the life of the machine, unlike its predecessor, he said.

The Xbox is ``absolutely one of their key growth strategies,'' said Evan Wilson, an analyst at Pacific Crest Securities in Portland, Oregon. ``It's a Trojan horse to get a Microsoft product into the living room.''

A winner between Xbox and PlayStation may take two years to determined, Gates said.

``By the end of 2007, you'll have kind of a sense of how much did Microsoft increase its market share: dramatically, not so dramatically, did Sony mess up, what happened?,'' Gates said.

To contact the reporter on this story: Jonathan Thaw in San Francisco at jthaw@bloomberg.net; Anthony Massucci in New York at amassucc@bloomberg.net; Peter Robison in Bellevue, Washington at robison@bloomberg.net

To contact the editor responsible for this story: Emma Moody at emoody@bloomberg.net.