Microsoft to Focus on Delivering a Small Number of High-Quality Computer Gaming Products During Coming Year

REDMOND, Wash., November 9, 1998 — A financial advisor by day, G. Decker Beck often turns to another passion by night-playing games on his personal computer. Beck, a stock market consultant in Philadelphia, has been playing computer games for the past 18 years. Whether it’s action games such as Fighter Ace, strategy games like Age of Empires or simulator games such as Flight Simulator, computer games offer Beck a form of stress relief. “It’s just a great tension reliever and a stress burner,” he says. “I will sit down and play games by myself or online at least once every day.”

Beck is among a rapidly growing number of people who are turning to computer games for fun, excitement and a needed diversion from their otherwise hectic lives. Games account for more than half of all consumer software purchases, according to Ed Fries, general manager of the games group at Microsoft. Three-quarters of all home PCs have at least one game installed. And while playing games is not the dominant reason people give for buying home PCs, it’s how they most often use them once they’re installed. “Despite what people will tell you if you ask them what they do with their machines, if you actually look at software sales, most of the software sales is games,” Fries says.

Microsoft began investing in game software about five years ago. That’s when the company gradually began building up a staff devoted to game development and “really took seriously the job of becoming the leading game publisher,” says Fries. Since then, Microsoft has gradually increased the number of people working to publish game software to about 400 full-time staff and contractors.

In the last two years, Microsoft’s share of the retail game software market has doubled to 8 percent-about three to four percentage points behind the market leader. Microsoft will have 50 retail games available on CD-ROM by the end of this holiday season, 12 of which it released this year. The company offers a wide range of games that are intended to appeal to different interests. These include strategy simulation games like Combat Flight Simulator, strategy games such as Age of Empires Expansion: The Rise of Rome, sports games like Microsoft Golf 1999 Edition and arcade games such as Pinball Arcade.

“We’re trying to produce a small number of very high-quality products,” Fries says. “We’re increasing the size of our group and the number of products slowly to make sure we keep the quality very high.”

Microsoft also offers the MSN Gaming Zone, formerly the Internet Gaming Zone, which allows game enthusiasts to challenge other players to a wide variety of games over the Internet. Launched in May 1996, the Zone brings together users from all over the world to play more than 40 games ranging from chess and scrabble to Fighter Ace and Motocross Madness. Users can also take advantage of the site’s free matchmaking service to play retail games already installed on their PCs, and can enroll in more then 300 game tournaments each month. More than 2.5 million users now visit the Zone, with up to 20,000 people playing games at one time.

In October, Microsoft added the Zone to Microsoft Network (MSN), which provides Internet services such as news, sports and online shopping. MSN users can now click directly from MSN to the Zone, making the Zone visible to a broader number of Internet users. “The Zone has been one of the biggest receivers of new traffic from this portal,” Fries says. “In the first month, it was the number one clicked on link from the main page.”

In addition to its software products and services, Microsoft has become the largest seller of PC gaming devices. Now in its fourth year of producing game hardware, Microsoft offers six products, all of which are grouped under the Sidewinder product line, says Chris Bull, product manager for Microsoft Sidewinder gaming devices. Last year, the company launched the “Sidewinder Force Feedback Pro,” which has since become the number one joystick on the market. The joystick enables users to “feel” the action of a game, such as the vibration of a car driving over a bumpy road. A Force Feedback steering wheel has just hit store shelves in time for the holiday season. Microsoft also recently released the “SideWinder Free Style Pro,” a motion-sensing game pad that enables users to use their body motions to control the action of a game. For example, a user can control the direction a vehicle or character moves on the screen by tilting the game pad to the right or left.

Bull attributes Microsoft’s success in the game hardware arena to the company’s emphasis on quality and innovation. “From an overall quality standpoint, Sidewinder products lead the industry,” he says. “We have also brought pioneering technologies like Force Feedback to market, which has significantly enhanced PC game play.”

The audience for Microsoft’s game products is predictably mostly male. Surprisingly, however, the average player of PC games is in his or her 30s, when most people are well out of school and into their careers. “The average PC gamer is a little older than you might think,” Fries says. “Typically, that younger audience is playing console games, and they move on to the PC as they get older because the PC offers a richer, deeper gaming experience.”

An admitted “hard-core gamer,” Edward Beistle, says he’s been known to “blow a whole weekend playing games.” Beistle, an embedded systems developer in Appleton, Wis., owns more than 100 retail games on CD-ROM and floppy disks. He also enjoys playing games on the Zone, especially given the opportunity it offers to challenge players from around the world. “One time I played a Hungarian, a Turk, an Australian and a Frenchman all in one day,” he says. “It’s pretty neat.”

Jackie McGovern of Waynesville, N.C. says she enjoys the social aspect of playing games on the Zone. McGovern used to venture onto the Internet to chat with other people, but since she’s discovered the MSN Gaming Zone, she now socializes with people in a way she finds more fun and challenging.

“I’m not so much into the win-lose part of the gaming,” she explains. “But with other people, I think that’s a big part of it. Let’s say they’ve had a bad day, for example. They want to go and play a game they are good at, and it will help build up their self-esteem again.”

McGovern also plays retail games such as Age of Empires and Frogger against her computer. The PC was the natural device for her to use for games, she says, because she already owned a computer for other purposes. “I think PCs are becoming so common in households-especially families with children already have computers,” she says. “And it becomes simpler to just go ahead and buy another CD for the PC to play your favorite game rather than buy another $200 piece of equipment, and then fork out the exact same amount of money that it’s going to cost you to buy games for that.”

The PC and the console each have advantages as a platform for games, Fries says. The advantage of a PC is that it provides a more powerful game experience than a game console. The typical computer now has 32 megabytes of RAM or more as opposed to the two to eight megabytes typical of game consoles. It has a a much higher resolution display than the TV, and allows users to attach keyboards, joysticks and steering wheels for a more interactive experience. It also has a modem that allows people to play games online, and 3-D accelerator cards that makes it possible to view realistic, three-dimensional graphics. “So there’s really a lot more that you can do on a PC than you can do on a game console,” Fries says. On the other hand, game consoles are easier to own and use, Fries says. “You take a game, you stick it in and it runs,” he says. “We know that a PC is just more complicated than that right now.”

To provide a simpler option for users, Microsoft’s Windows CE group is working with Sega Enterprises Ltd. to develop Dreamcast, a game console that runs on the Windows CE operating system. The console, which will be available in Japan later this year, will provide an easy-to-use platform for playing games while making it possible for developers to build games for multiple platforms. “The operating system on the game console will be similar to what’s on the PC,” says Fries. “That makes it easier for me, as a game developer, to take my PC game and port it to the console.”

Despite the advances Microsoft has made in the game industry during the past few years, developing games poses its share of challenges. First, the technology underlying PC games is rapidly advancing and becoming more complicated, making games more expensive to develop. “Everybody in the industry is struggling with this,” says Fries. “The technology changes every year. So how do we produce a set of products that takes advantage of this latest technology and make it run on as many machines as possible, so people don’t have to upgrade their machine every year to run the latest games?”

A second challenge for Microsoft is raising awareness that the Zone exists and that game enthusiasts don’t have to be in the same living room to play against an opponent. “The PC gaming business, for the most part, has always been a solitary experience-kind of like you against the machine,” says Fries. “We’re trying to bring the social factor back into it and say, ‘Hey, it’s only so much fun to play against a computer. But to play against other people, that’s where all the challenge is.’ ”

During the coming year, Microsoft will continue to focus its attention on producing a small number of high-quality software products, while keeping costs down, Fries says. The company will continue to develop partnerships with some of the best game developers worldwide, while striving to makes its products accessible to the broadest number of PC users. It plans to attract more users to the Zone by sponsoring an increased number of tournaments and by expanding the community features of the site. It will broaden its hardware product line with at least five new products next year. And it will work with Sega to bring Windows CE-based console games to the U.S. market by next year.

So what does the future hold for gaming? Will online games eventually replace the use of retail games? No, at least not in the near term, Fries predicts. “It’s going to be a while until people really have the bandwidth in the home where they could download a full CD’s worth of data. Also, there’s kind of a shopping phenomenon where people like to pick up boxes, look at them and buy them. We don’t think that’s going to go away any time soon.”

If game enthusiasts such as Beck are any indication, that assessment is right. Beck owns “a whole stack” of retail computer games and continues to purchase new titles as they are released. Once he becomes good at a game, he turns to the Zone for the bigger challenge of playing against opponents. “If it’s out there, I’m willing to try it,” he says. “I’ve played just about every kind of game there is, and I’ve enjoyed every moment of it.”

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Scott Oki, former senior vice president for sales, marketing and service, recounts the growth of Microsoft’s international business, while Ed Fries, vice president of games publishing, talks about his love for games, whether they’re played on a computer or in the halls of Microsoft offices.