The Xbox Strategy

The console's director of platform strategy talks about the road ahead

Now that it has some real competition, Microsoft must face tough questions about its granular strategy for Xbox 360. How does it compete with the newer Wii and PS3? What does it do about pricing both of its hardware and of services like Xbox Live? How does it keep innovating?

Scott Henson is director of platform strategy and has been involved in the Xbox project for six years. His job gives him access to all areas of Xbox’s strategy, but most particularly with Microsoft’s relationship with third parties, and with Xbox Live.  These are the questions that he has to work with every day.For now, Xbox 360 is enjoying the benefit of having been onto the market first, with a year’s worth of growth from which to draw upon. Part of the benefit is reaping hardware sales that might have gone to competitors were they not hampered by shortagesThe competitionSpeaking of the competition, he says, “Now we’re dealing with reality and not with spec sheets. People are putting the options side by side and they are realizing what we’re delivering, what Sony’s delivering and what Nintendo’s delivering. Shortages of PS3 and Wii can’t help but benefit us but I fundamentally believe that we have a better product at a better price and that’s the real advantage for us.”But consumers, especially videogame consumers, are attracted to the new. How will Microsoft counter the feeling that its product is, well, older? “The best way to fight against that perception is by looking at the reality. Consumers are smart. They know what they get for their money. They’ll realize where the better value proposition is. Our portfolio in 2007 is incredibly strong. We have more great games. Our online certainly is extremely strong and our price is extremely competitive.”

Xbox LiveXbox Live is clearly Henson’s pride and joy, so we talk about that service’s achievements, and its future. “The decision to focus on online looks really obvious now, but six years ago people were really questioning the bets we were making on broadband, on voice, on giving every game an online component. We really believed that that would transform the expectations people had of consoles and it’s awesome to see, six years on, how we’ve changed the entire industry.”For Henson and Microsoft, it is an article of faith that the company’s online work has driven the industry forward, and changed everyone’s attitude towards online play. “All three next-gen consoles have some kind of online offering and it’s clear that [online] has become a defining characteristic of the next-generation. That’s extremely satisfying for us.”I ask about the future of the service, and, although there is an inevitable reluctance to talk details, he offers some hints about the company’s directorial thinking. “We used to dream about scenarios where we could blend offline and online together,” he says. “Over the last few weeks that’s exactly what Gears of War has been doing with great success.  I can go play a single player campaign and my friends can drop right in with me and participate in that single player campaign just as if they were sitting next to me on the couch.  It’s exciting to see those scenarios come alive.”The MainstreamThe big challenge for Microsoft is making sure its impressive rate of Xbox Live players is sustained as its user-base becomes more mainstream. "We’re redefining what online means," he says. "It's not just for the hardcore, competitive, multi-player crowd but for everyone and is accessible to everyone. Our goal is to get this word out to everyone so that they realize there's something in it for them no matter who they are."Xbox Live Arcade He says the firm will focus on social communities and offering consumers the chance to express creativity via Xbox Live.

But there are some specifics that need facing up to, such as the limit on the size of games on Xbox Live Arcade. Henson says, “We believe in keeping things small, simple and accessible. The rationale behind the size limit right now so to make it available to anyone who has either a memory unit or a hard drive. Another motivator is overall download size and it tightens up the development coding efficiency.”But this is not to say that the limit is immutable. “Obviously we have a huge install base of Xbox 360s out there right now. We look at how many people have hard drives, we look at the large sizes of things like the movies and demos and we think ‘well maybe we could open that up’. It’s something that we’re constantly evaluating. But there are pretty good benefits in the size limitation.”

Bigger Hard DriveAll this leads onto the bigger question of the hard drive itself – the option of offering a larger hard drive is one that the company must embrace at some point. “We’ve built this system to be really flexible. We built the hard drive [so users can] snap it off and snap on another hard drive as we add new services and we see the adoption of the services start to take off. As there’s more demand, we’ll certainly continue to assess those things. So in terms of exact SKUs there’s all kinds of flexibility.”

Core System and HD-DVDOne area where the company is holding firm is on the question of the less popular, but lower priced Core system. In an environment where hard drives are seen as desirable, nay essential, could the Core system be allowed to wither on the vine?Henson is clear. “No. We always knew it was going to be the really engaged early adopter crowd who were going to want a hard drive. But we think about this program in terms of five, seven, ten years. We ask ourselves ‘how do we get to the really big volumes?’ Cost is the number one issue, so having a core SKU, especially in territories where there’s a lot of price sensitivity is really important to us. So I don’t think it’s going to wither on the vine at all. Our prediction is that it actually will pick up in the later years.”I ask about an internal HD-DVD drive as one option for Xbox 360. Henson says, “It’s certainly something that we wouldn’t rule out but no specifics on that yet.”GamesBut enough of drives and hardware options. What about the games? Microsoft is celebrating a million sales of Gears of War. What forthcoming or recently released titles could reach those kinds of numbers? He mentions Rainbow Six Vegas and Splinter Cell: Double Agent (Ubisoft), Call of Duty 3 (Activision),  Bioshock (Take Two), Lost Planet (Capcom), Mass Effect (Bioware)  and, of course, Bungie’s Halo 3.  Also, somewhat surprisingly, Viva Piñata. He explains, “Over the longer term that game has a massive opportunity. Xbox 360 is expanding into new demographics and games like that really appeal to women and children as well as traditional gamers. Viva Piñata can get to the big numbers in terms of sales but it may take time. It’s another one of those perception shifts that we’re going to have to continue to focus on as the Xbox brand expands its meaning.”Platform exclusives Some of the games mentioned are platform exclusives, but the number of third parties willing to take this route is inevitably going to dwindle. What is Microsoft doing about making sure the games on its platform are distinctive? “I understand the practical realties of having to sell into a cross-platform install base,” he says. “So we want to make sure that it’s really easy for gamers to get the most out of Xbox 360 whether it’s custom soundtracks in every game, high definition in every game, achievements and gamer scores in every game.”He adds, “We want to make sure that every game, no matter whether it’s an exclusive or a cross platform game is unique on Xbox 360. There’s a lot of behind the scenes things that we are doing that consumers will never see, that makes it easier for developers to deliver unique experiences and value.”NumbersFinally, it all comes down to numbers. Henson is confident of hitting that worldwide base of 10 million by the end of the year, with another three to five million in the subsequent six months. And pure numbers have additional benefits. “Everything is that much easier when we have a really large install base. We can reduce the cost of development and it just opens up more opportunities for exclusives.”