After launching itself into the games market late last year, Microsoft will move the experience to the internet this year by investing over $1bn in an online game service called Xbox Live.

According to a report in the New York Times, the company will open three data centres in London, Seattle and Tokyo to handle the expected traffic for its "online Disneyland" of Xbox games. The entry fee will be approximately $50 (£34) for the necessary software and another $10 for a monthly subscription.

The paper reported that Xbox Live will allow gamers to play Microsoft's pantheon of games with partners world wide.

Microsoft has been struggling to shift Xbox consoles against the overwhelming popularity of the Sony's PS2 system and the recently-launched Nintendo GameCube. Xbox has slipped into third place with 3.5m consoles in use, the New York Times reported, behind GameCube at around 4m and PS2 at 30m.

Today Nintendo ratcheted up the competition by announcing a price cut on GameCube in the US, taking the cost down to $149 from $199. Nintendo has also announced that it intends to introduce an online GameCube service this autumn in North America, although its online plans are far more cautious than Microsoft's huge investment.

Sony has announced similar plans for its PS2.