The Convergence Game

This week, Microsoft launched the Xbox, a new gaming system that takes the Redmond giant into another market. Today, Nintendo is unveiling the GameCube, their new entry in a battle they have fought with Sony for many years. With these new gaming stations entering the market, a new war is starting and in the end, it is a war that may change the way we all watch TV, listen to music, get movies, or play games.

As many of you already know, the game station is a small box that attaches to your TV and on which you can play video games. However, the firepower of new generation boxes now on the market is now equivalent or higher than that of most computers. The main logic behind this was that gamers wanted a more realistic experience and crunching 3D representation in an ever-changing environment required more and more processing power.

Playstation 2 opens the gate

Last year, Sony introduced the Sony Playstation 2, a new gaming system that included a built-in DVD player and a 3D graphic engine that made computer video card look ridiculously outdated. At that time, Sony admitted that their goal was to go beyond games and control the digital living room. Recent partnerships with Macromedia, AOL, and Real Networks seem to show that Sony has established a clear roadmap as to how it would get into the online market. And with a growing installed base of (8 million so far, and an expected 34 million by 2004), Sony could become a major online player.

Microsoft unveils the Xbox

Having survived the browser wars with Netscape (Internet Explorer now controls 80% of the market), Microsoft is starting to worry. If one could download music and exchange videos via a gaming station, as well as play video games, where would the home PC go? And where would that leave Microsoft’s ambitious .net strategy?

As a result, Microsoft had to play in that field and to do so, it went to game developers. After much discussion, the result is here for everyone to test: it’s called the Xbox, and is essentially a PC packaged as a gaming station. If you read the documentation, the Xbox becomes more difficult to classify as simply a gaming box. For starters, there is a DVD player, which was added just to match Sony’s Playstation 2 DVD player. But Microsoft goes further by building a Dolby decoder within the system as well as adding parental controls to the box.

The second thing they added to the box is the ability to put in a CD, play it, and burn it onto the built-in hard drive (through what they call a music manager). All of a sudden, the Xbox becomes a music stereo box.

Going further is the matter of the Ethernet port and the mysterious broadband network touted by Microsoft. Early inside reports point to the first broadband gaming network that might go beyond gaming. At the current time, there are rumors of a network that would also allow for Internet browsing, email, and instant messaging, as well as gaming.

The messaging portion is an interesting one since it would include and optional plug-in for the box called the communicator, a headphones and microphone device people would use to communicate either via IM, or while playing online games. The unit includes a wireless headset with microphone, which could easily be used to make phone calls if Microsoft uses some of the technology it is currently building into the Microsoft Messenger. Long term, the Xbox could become another entry point into MSN, and into the web as a whole.

Moving forward: the Playstation 3

Sony, however, is not resting on its laurels. Now that Microsoft is entering its turf, the company is seeing its dominance on the digital living room being challenged.

With the PS3, originally slated for mid 2003 but possibly being released earlier, Sony plans to integrate offerings from its music and movie divisions into the system.

Considering the fact that the company already offers a suite of MP3 players, it is easy to see that the company will build that functionality into the next box.

Rumors are that the company will build a large hard drive within the box, which would make it a perfect storage area for an MP3 collection.

But going beyond music, the company is also looking at packaging a digital TV recorder within the unit, turning it into a device that would compete with Tivo and Replay in the market for customized television.

Also built into the box would be a TV tuner, and rumors has it that the system would also include a satellite TV decoder. In order to counter the online capabilities of the Xbox, Sony will release an online pack for the PS2 but will build that functionality directly into the PS3 box.

The unit would be offered in two different version: a light version, which would focus on gaming and be sold for around $250-$300 and a more expensive full featured convergence version which would retail for $400-$500.

Games Only: The Game Cube

Meanwhile, Nintendo believes that games and only games is what consumers want out of their boxes. As a result, the GameCube is a smaller, less pricey gaming box. However, this does not mean that it is offering less performance. It’s just that it’s a different take on the world. As far as Nintendo seems to see the world, gamers will want to pay no more than $200 for a gaming box but may be willing to pay extra for new features.

In a concession to Microsoft and Sony, the box will soon sport two different modem adapters: a 56k module for people who use a phone line and a faster broadband module for people who have a network at home. Rumor has it that Nintendo is preparing a membership network with services like online video game, full Internet access, and the distribution of music data. Since the GameBoy advance can interface with the GameCube, it seems that Nintendo is working on a hardware strategy that will make the gamecube a connecting station into the home, while the GameBoy will become a roaming device that can get updates from that box.

Convergence is here

Based on those recent developments, it seems pretty clear that hybrid boxes are now starting to pop up and that we will soon see more applications (initially in the gaming world but eventually in other areas) become the norm. I would strongly recommend that readers who are involved in developing online consumer applications pay attention to the gaming space as it is the next arena for which we might have to format our outputs. Based on early showing, I would say that Playstation 2 will keep its predominant position for the next year or so but may be getting some competition from the new underdog in this arena: Microsoft.

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