The first question you have to ask about the Xbox is: why
bother? Microsoft does not need the money, and like every other
games console, Xbox will initially be sold at a loss. It is a big
investment to make in an unfamiliar market that is already
dominated by a rich and powerful consumer electronics giant:
Sony. Analysts naturally wonder if it is a Trojan horse, like
Sony's PlayStation 2, or a precursor of TV-based systems yet
to come.

Microsoft is very clear about this, and always has been. The
party line from "Mr Xbox" J Allard in Redmond is that the Xbox is
just a games console, albeit one that pushes back the frontiers.
It is the first to ship with a built-in hard drive, and to be designed
for network game playing. But Microsoft has no plans to turn it
into a multi-function home terminal, which is Sony's strategy.

At the moment, it seems Microsoft and, particularly, Nintendo
are right to emphasise "games, games, games". Paul Jackson,
an analyst based in Forrester Research's Amsterdam office,
says consumers are not interested in additional functionality. In
a European survey, Forrester found only 17% of buyers were
interested in playing DVDs on their console, while home
shopping only attracted 6%.

More than half said they already had a device that did the same
thing. Most console buyers own a PC.

With PCs in the majority of homes, Microsoft may not need a
Trojan horse. And while Microsoft denies the existence of
multifunction non-PC devices such as the long-rumoured
HomeStation home gateway, Jackson says: "Xbox already has
nine-tenths of what you would require. Add a TV tuner and you
have a sophisticated PVR" [personal video recorder].

Microsoft is certainly working on what it calls "the 10 foot
experience", which is different from "the three foot experience" of
using a personal computer. Its forthcoming Mira wireless
handheld controller is one way of doing that. But, says Jackson:
"You will have a lot more games consoles than networked
homes or Mira tablets." Forrester's projection is 70m
next-generation consoles in Europe by the end of 2006.

Nick Gibson, games analyst with Durlacher in the City, says the
Xbox is a learning experience for Microsoft, but one that allows it
to exploit its expertise in creating platforms and games.
"Microsoft has been a dominant force in PC games publishing
and the Xbox lets it exploit its skills base and intellectual
property more broadly.

"One of Microsoft's long-term aims is building up a reputation
within the games business, that it will be able to exploit in the
future."

However, Gibson's answer to my question - why bother? - was
"purely financial. Microsoft has seen how successful Sony's
video game business has been over the past five years".

Peter Tyson, games industry analyst with Datamonitor in
London, adds that although Microsoft may not need the money,
it wants the growth. "The PC market is slowing down, and
becoming a replacement business," says Tyson. "If Microsoft
wants to grow more than a few per cent a year, it makes sense
to enter an industry that is proven, that's reliable, and that will be
around for many years to come."

PC users may only buy a new copy of Windows or Microsoft
Office every four or five years, but Xbox owners could buy four or
five new games every year.