The software giant has plotted an entry into the $7 billion interactive entertainment business for months, meeting with game developers and other partners as it prepares to challenge market leader Sony Computer Entertainment America's popular PlayStation.
ZYMAN CONSULTANCY AIDS MICROSOFT
The Z Group, Atlanta, a consultancy run by Sergio Zyman, Coca-Cola's ex-chief marketing officer, is assisting Microsoft with brand strategy and had been involved with the agency search process. Mr. Zyman didn't return phone calls by press time.
"Microsoft sees entertainment in general moving more toward the living room and away from the PC," said Matt Gravett, game research analyst for tech researcher PC Data.
Microsoft, convinced of the supremacy of the PC, attempted to sell its PC/TV strategy to consumer electronics marketers for several years during the mid-90s with little success. Interactive content delivered by TV has proven to be a more intuitive, consumer-friendly entertainment medium.
With Sega of America ramping up its Internet-ready Dreamcast Network, Sony adding a DVD drive to PlayStation and Nintendo of America's next-generation system -- code named Dolphin -- coming to market, Microsoft needed to join the party in the living room, Mr. Gravett noted.
"Sony is a competitive threat to Microsoft in the home," said one person familiar with Microsoft's plans.
The company's entry into the videogame market is aimed squarely at Sony, which last week launched the PlayStation 2 in Japan.
A HOME ENTERTAINMENT HUB
The more advanced system is positioned as a digital home-entertainment hub. It includes a DVD drive for movies and eventually will facilitate e-commerce transactions and digital downloading of music and movies.
Sony is rapidly preparing for the U.S. deployment of PlayStation 2 this fall with a marketing arsenal that's expected to approach $200 million; TBWA/Chiat/Day, San Francisco, handles.
Sony executives declined to comment on the company's plans for the U.S. launch or on Microsoft's foray into the console market.
As the PC-centric era wanes, Microsoft has aggressively sought new platforms and distribution vehicles for its Windows operating system and software. Web-distributed software is a linchpin of its new business strategy. As the No. 7 PC videogame publisher in January, according to PC Data, Microsoft wants an e-commerce pipeline to the family. Sony has already begun its own with cable and telco deals.
Microsoft reportedly will show the X-Box at the Game Developers Conference in San Jose, Calif., this week and is said to have tentatively lined up Gateway and Dell Computer Corp. to build the console -- likely to be co-branded, according to a person familiar with the situation.
Several months ago, Microsoft approached PlayStation agency TBWA about handling advertising for its videogame console business, according to one industry insider.
Don Coyner, director of marketing for hardware in Microsoft's Consumer & Commerce Group, declined comment on the search and X-Box details.
Entering the videogame console space won't be that easy, even for Microsoft. As of January, Sony's PlayStation commanded 55% of the U.S. videogame hardware market, according to PC Data. The Nintendo 64 boasted 31% and Sega's Dreamcast snared 14% of the market.
"This [next] generation of consoles is going to be unlike any other. It's a totally different realm," Mr. Gravett said. "They're more than just game machines, and Sony has the advantage going into it because of all its entertainment resources."