Building Microsoft's gaming empire

In mid-November, both Sony and Nintendo plan to release their next-generation game consoles, the PlayStation 3 and Wii, respectively.

But as the game world welcomes these new consoles — and the first round of games for them — Microsoft's Xbox 360 will be reaching its first birthday with a year's head start in games and accessories. Further, while the Wii is getting a lot of good press for its $250 price tag, Sony's decision to put Blu-ray players in the PS3 and thus price its high-end console at $599 has resulted in a lot of criticism. Microsoft's "premium" Xbox costs $399.

Since the Xbox 360 launch last November in the Mojave Desert, Microsoft also has put a great deal of effort into bolstering its Xbox Live service and has recently unveiled its XNA Game Studio Express, which will enable small teams of developers to make games for the Xbox or for the PC, and have those games made available to the public.

At the same time, the company has been touting its Xbox Live Arcade service, through which the company is regularly releasing hit games of the past such as "Pac Man", "Galaga" and "Defender". Those games cost less than $10 to download and have become a hit on the service.

Throughout it all, Microsoft vice president Peter Moore has presided over the growing Xbox 360 empire. The company has said it eventually intends for a billion people to be connected in some way to that empire. And although that goal may be a fantasy, it's not hard to imagine Microsoft doing all it can to try to get there.

We sat down recently with Moore at Microsoft's Xbox headquarters in Redmond, Washington, as he was preparing to head overseas for the Tokyo Game Show and then, among other things, a trip to India to launch the Xbox there.

Q: Why release the Xbox 360 in India?
A: It's an incredibly fascinating market. India's growing, finally getting a middle class that's of a proportion that you really feel you can grow some business with.

How much does Xbox cost in India?
Obviously, it's in rupees. It's probably the dollar equivalent of where we are today here. In some instances, we will price down a little bit for the marketplace, but it's a premium product. And as I mentioned earlier, there is a middle class there, and clearly we have to market to them. Not only do you want to market to the consumers who buy the console, we want to market to the consumer who can connect online. And broadband penetration is growing fast there. Plus, the business model is about selling software. The software pricing is where we could look at being a little more market conscious.

Given different costs of living, the price of an Xbox 360 is not the same in San Francisco and Topeka. How do you deal with that?
It's more expensive in Topeka. But we don't just look at the console cost in isolation. We look at what it takes to be up and running and have the best experience. We call it "TCO" — total cost of ownership.

You look at hardware cost itself, and then you look at what software costs, you look at game subscriptions and peripherals. It is something that companies like ourselves, Sony and Nintendo spend a lot of time figuring out. Where is the sweet spot? You're not going to make any money on the hardware in the early going.

When you look at an ideal Xbox consumer, who is that person?
He is a male. He is connected. He is very, very used to going online for community. He's probably played PC games online. He's part of a "Halo 2" clan and has been for two years. That comes from him playing "Halo" in college — so he's 23 or 24 — with his buddies. He still loves to go out on a Wednesday night with them, even though they're spread all around the US. But they all come together on Wednesday night to relive the days in the dorm room.

What else does he want?
He also expects instant gratification, the delivery of game demos to his hard drive via his broadband network. And he's popular enough to have his profile online and he's pretty competitive, so he loves [Xbox game] achievements. He'll stay up all night to get achievements…