Underdog seems an inappropriate tag for software giant Microsoft. In 1980 IBM was the Goliath to Microsoft's David, as Bill Gates' 40-strong team of upstarts took advantage of Big Blue's lack of foresight.
Last Thursday saw the Seattle-based behemoth begin an unlikely reprise of that long-forgotten role, as it began worldwide sales of its Xbox video game console. The Xbox is now involved in a billion-dollar sales, marketing and branding battle with market leader Sony and its PlayStation 2 in an industry that now outsells films.
'There is a revolution going on in entertainment right now - digital technology is changing everything,' says Robbie Bach, Microsoft's chief Xbox officer. 'Think about Shrek, the best selling US movie of the past year. I know Eddie Murphy is there, Cameron Diaz too, but it's an all-digital experience, and you forget it's an animated movie the minute it starts.
'Think about music: 20 years ago the quality of your voice used to matter. Now it's the quality of your producer and how well you can dance.
'And Halo [an Xbox game] for me is a symbol of what could happen in video games. It has a plot, a story, a plot twist - it's like a movie. There's already a book, a prequel to Halo. So the Halo franchise develops as a world.'
Bach dropped into Microsoft's campus at Reading in Berkshire to meet City analysts, the UK's world-beating games developers and motivate his sales team ahead of last Thursday's launch. Not surprisingly he was confident that the huge sums invested in the project would reap rewards.
'The finances are tricky, it's billions of dollars of investment, and ultimately what Bill [Gates]and Steve [Ballmer, Microsoft CEO] have decided is that we're not doing this just because we want to be in the video games business. We're doing this because Microsoft wants to be a leader in the consumer marketplace,' says Bach.
He is proud that his team took just 18 months to turn the Xbox from an idea at a brainstorming session to a tangible global reality. 'The video games industry is unique so I've learnt a lot over the past two years, as has Microsoft. We went from 20 people working on the project to 2,000 people in a little less than two years, which is phenomenal,' he says.
Bach is a marketing expert rather than a technician. But in early 1999, he noticed that some staff at Microsoft headquarters in Redmond, near Seattle, were doing what he calls 'garageshop skunkwork' in their own time, toying with whether the PC software company could take on Sony at games.
At an executive retreat that March, Bach and his colleague Rick Thompson, who then ran the hardware business, suggested the topic: 'Should Microsoft build a games console?' A dozen other ideas were pinned on a wall. The executives had to stand under the one they wanted to discuss, and then the groups went off to talk.
'Bill had proposed his own topic - some gobbledegook I couldn't follow - but he decided not to do this and he came to our group,' says Bach. After a three-hour discussion, everyone was convinced in principle.
'The financial decisions were hard and involve a lot of money but the strategy around building what I call a "core pillar" in the consumer space and in the home was clear,' says Bach.
So what's in it for Microsoft? The newcomers have flattered Sony by adopting its model for setting and collecting royalties. The Xbox's cut of the price of every game sold is believed to be around 30 per cent. Then there is the large stable of Microsoft games. Halo has already sold 1 million copies in the US.
The Xbox has a strategic value, too. It gives Microsoft a presence in the world's living room. With a hard disk, a broadband connection, and four USB ports, functions beyond gaming can be added.
That is not the strategy now, however. The Xbox needs to establish its credibility with gamers, and there is a conscious effort to separate it from its parent.
'People know it's from Microsoft, but Sony didn't go out and doesn't make a big deal that PlayStation comes from Sony,' he says.
'Look at our launch advertising. Three years ago would you have ever thought we would have brand advertising of a baby being fired through a window, travelling through space and crash-landing in a graveyard? I would have said, "You're crazy" then, but this market is an entertainment space, so the group has a little bit more of that entertainment culture,' says Bach.
Consumers' wish to stay at home after the 11 September attacks has helped the Xbox to do phenomenally well in the US. 'We could have sold a lot more.' he says. The firm couldn't produce enough, and nearly four games are being sold with every new Xbox, suggesting a surge of wealthy, older buyers.
But it is outside the US that the Xbox faces its most serious challenges. Japanese sales have been slow, though Bach says the company has met 'appropriately lower' targets. Success in Japan is vital to retain strong support from the innovative Japanese games developers.
In Britain the fight between the Xbox and the Playstation 2 will be more interesting. Sony's machine already has 2 million users.
Bach says the Xbox's superior graphics and sounds - in a racing game you can hear an opposing car creeping up behind you - will sell it. The ability to connect to broadband will offer a new world of competitions and 'episodic gaming', where you receive a portion of a game every week. PlayStation 2 will have this from the summer in the US.
The relative merits of these services could decide whether Microsoft becomes a serious contender for Sony's crown, or remains an underdog competing for third spot with Nintendo's GameCube.
