Microsoft Gets Ready To Rumble In Games

It's entering the game console fray with the X-Box

Microsoft Chairman William H. Gates III has tangled with tough competitors, federal trustbusters, and even a pie-throwing Belgian. But on Mar. 10, the software king is going to take on some unusual adversaries: a marsupial named Crash, a plumber named Mario, and a host of other video-game superstars. That's when Gates will introduce the X-Box, a game console that will compete with Sony, Nintendo, and Sega.

It's a bold step. While Microsoft has made hardware such as joysticks and game software for computers, the combative $15 billion home-entertainment business is another matter. "You will see us think a little more like a gaming company and a little less like Microsoft," says Robert J. Bach, head of Microsoft's new games division.

The venture won't be cheap. Although Microsoft won't disclose how much it spent creating the X-Box, it developed a custom operating system with graphics that approach photorealism. And it will lay out more than $200 million for ads to win adolescent hearts and bucks when Microsoft launches the X-Box in the fall of 2001. "We'll spend more launching and marketing this than Windows 95," Bach says.

Competitors don't seem worried. Microsoft's strength has been the boring plumbing of computers, not glitzy products. "They'll have to change their corporate culture, and that's very hard to do," says Shigeo Maruyama, president of Sony Music Entertainment and one of the godfathers of the PlayStation. Microsoft has never had to come up with a cute creature to sell Windows, for example. But a mascot is critical for selling games--and games sell consoles. Sega succeeded in the early 1990s with Sonic the Hedgehog, while Nintendo's Super Mario character remains a stalwart. "Who's Microsoft got?" asks Jeremy Schwartz, a senior analyst at Forrester Research Inc. in Cambridge, Mass.

"FRIGHTENING." So far, just a famous billionaire with glasses. But the company is already mining software developers for snazzy games and mascots. Not long ago, Microsoft approached Koji Furukawa, president of Video System Co. in Kyoto, which developed the popular F1 racing game for Nintendo's platform. Furukawa hasn't committed to making X-Box games yet but believes the console will surpass Sony's new PlayStation 2. "Microsoft's advance is frightening," he says.

Microsoft is jumping in now because it thrives when technologies and products are in rapid transition. Over the next year, Sony and Nintendo are launching new game platforms. Sony's PlayStation will soon have fewer new games as it pushes developers to make products for PlayStation 2. Kids could switch to the X-Box, Sega's recently released Dreamcast, or a new Nintendo box due by yearend. "All the horses go back to the gate, and you wait for the starting gun," says John Taylor, a video-game industry consultant at Arcadia Investments Corp. in Portland, Ore.

Can Microsoft win the race? Sony bested Sega and Nintendo with PlayStation, a late entry. In other businesses, Microsoft wipes the floor with the competition. Now we'll see how it fares in mortal combat with Mario and Crash.

Before it's here, it's on the Bloomberg Terminal.