Microsoft Notebook: Gates hints at sharing Xbox secrets

By TODD BISHOP
SEATTLE POST-INTELLIGENCER REPORTER

In its quest to gain ground in the video-game world, will Microsoft's Xbox business take a page from the company's Windows playbook?

That's the lingering question after Bill Gates, in a recent interview with a Japanese newspaper, didn't rule out the possibility of someday making the underlying Xbox technology available for other companies to offer in their own hardware, not just in Microsoft's own console.

The interview in Japan's Nikkei newspaper fueled reports speculating that Microsoft might attempt to spread the infrastructure for playing Xbox games in much the same way that it has made Windows ubiquitous on computers -- by licensing it out to a variety of hardware makers.

Gates cautioned in the interview that "there is nothing concrete." Microsoft representatives declined to go into detail, saying any speculation on the subject was premature.

However, the interview with Gates wasn't the first time that a Microsoft executive had publicly acknowledged the possibility of spreading the Xbox technology to different types of hardware. And the earlier comments, while not widely noticed at the time, contained key clues about the potential course the company might follow.

Those previous comments came from Bryan Lee, chief financial officer in Microsoft's Home and Entertainment Division, during a session between Xbox executives and financial analysts at the E3 video-game convention in May.

Lee told the analysts that the company first needs to make sure it no longer loses money on the overall Xbox business. That's one of Microsoft's key objectives with its second-generation game console, which begins with the scheduled launch of the Xbox 360 later this year.

But assuming that the profit goal is reached, Lee said, Microsoft would then be in a position to take "a much broader platform approach."

The idea, he explained, would be to "partner with people to take your core architecture, weave it into derivative products, think about partnerships with consumer electronics companies, think about partnerships with broadband companies, think about a lot of kind of leisure activities that can use the technology."

Lee described it as "a tremendous opportunity." Neither he nor Robbie Bach, Microsoft's chief Xbox officer, went into further detail on the subject during the session with analysts.

"There are certainly a multitude of opportunities when you take a platform approach, which was what Bill was articulating in his interview with the Nikkei," Xbox spokeswoman Molly O'Donnell said last week, noting that the company "consistently examines new avenues to make the Xbox platform more successful."

O'Donnell said the company doesn't have any more specifics to share on the subject at this point.

Microsoft is attempting to come from behind in the video game console business. Sony's PlayStation 2 dominates the worldwide game console market, outpacing both the Xbox and Nintendo's GameCube.

At the very least, analysts said, the discussion illustrates Microsoft's willingness to consider unusual strategies to gain ground in the console business. Offering the underlying Xbox technology to other hardware makers would be a departure from the typical practice in an industry accustomed to seeing a dedicated console from a single company, such as Microsoft, Nintendo or Sony.

The strategy could make business sense for Microsoft by broadening the market for Xbox games.

But it's not clear whether there would be much demand from other hardware makers to tap into what amounts to the less-profitable side of the business, said industry analyst Michael Gartenberg of Jupiter Research.

"The console game business is all about software," Gartenberg explained.

"No one makes a lot of money, if any, on the hardware," he said.

At the same time, Microsoft is turning the Xbox 360 into much more of an entertainment hub than the first Xbox is.

With that in mind, if Microsoft licenses the underlying technology to other companies, one goal might be to encourage development of multimedia products to work in conjunction with the new console.

Examples could include an add-on for recording TV onto the console hard drive, said Michael Pachter, Wedbush Morgan Securities analyst.

But without further word from Microsoft, it's all speculation. Pachter said the company might just be leaving its options open to consider what might be possible if it brings additional companies into the picture.

"You're going to get innovation if you create an open platform," Pachter said, noting that the Xbox 360 is slated to be more powerful than most home computers.

"This box is a monster -- it's a screaming monster. God knows what people could do."