With the next generation of Xbox due to arrive in 2005, Microsoft is taking a huge gamble on the power of first-mover advantage - but the company's faith in the importance of being first to market may well backfire catastrophically.

There's been no shock announcement, no official confirmation and no stunning leak that made the headlines - but over the past few weeks, the industry as a whole seems to have accepted that Microsoft is planning to try and bring the current console generation to a close prematurely, with the launch of a next-generation console in the USA by the end of 2005.

There are a number of reasons for Microsoft's decision to bring about a swift end to the current-generation Xbox - which will have been on the market for under four years when its new younger sibling appears to usurp its position. The company's continuing losses on Xbox hardware sales and resultant bleeding of investment in the current generation is something it would obviously like to stem as soon as possible; after all, while Nintendo and Sony are reaping huge profits from this generation, it's easy to see why Microsoft, bleeding cash with every Xbox sold, would be champing at the bit in its eagerness to move on.

More important, though, is the company's desperation to enter the next-generation race with "first mover advantage" - establishing a strong beach head before its competitors can launch their own fifth generation (counting from the NES) machines. Despite its claims to be delighted with the performance of the Xbox, the fact is that many within Microsoft have been bitterly disappointed with the console's market share. Prior to launch, there was a genuine belief that they would deliver a system which would be neck and neck with Sony in the global marketplace; managing to come neck and neck with Nintendo instead, while both companies are being trounced by Sony's PS2, is an achievement in its own right but not what Microsoft had hoped for by any means.

The belief within Microsoft's top Xbox executives, according to company insiders, is that the main reason that Xbox has failed to seriously challenge the PlayStation 2 is because Sony had first mover advantage - a gap of a year in which to build up its installed base and convince consumers and industry alike that it was the key platform of the next generation. Hence the urgency around launching Xbox 2 well ahead of its competitors; if, as seems increasingly likely, PlayStation 3 doesn't arrive until late 2006 or even early 2007, Microsoft believes that it will have won a huge competitive advantage by being to market as much as two years earlier. This, the conventional wisdom says, is how Microsoft will crush Sony.

It's a plan that makes sense on the surface, but probe a little deeper and you encounter serious flaws in the logic - and hints of the old Microsoft arrogance which the company has tried desperately hard to hide since the early days of the Xbox. The single biggest problem is that developing for Xbox 2 is going to be a major leap for game creators - and Microsoft is effectively asking them to make that leap while the current generation is still profitable, and the biggest contender in the next generation is still years away.

To be entirely fair, Microsoft sees this problem, and that's why XNA exists - but no game programming framework is ever going to get around the fundamental problem, which is that creating games for next-generation systems is going to require tools, technologies and resources which simply don't exist yet, and which will be hugely expensive and time-consuming when they do arrive. Studios which focus on cross-platform titles, as many of the largest publishers in the world do, face a gigantic problem - while developing a title on PS2, Xbox and GameCube is an easy prospect as code, art and audio can be effectively reused on all three platforms, adding a next-generation platform to the mix will require complete re-development.

In other words, studios are being asked to invest in next-generation R&D two years before it's required for PS3, and to spend more money developing an Xbox 2 version of a cross platform title - for an audience of a few million people - than they'll spend developing all three current-generation versions of the game - for an audience of well over a hundred million. Faced with this prospect, huge companies like EA may be able to throw money at the problem, and some small independent developers may be able to make a go of it by switching entirely to Xbox 2 development; but the simple fact is that nobody is going to stop supporting PS2 for Xbox 2, and the cost of supporting both may be prohibitive for a great many publishers and developers.

Microsoft may be making a colossal mistake by trying to force the industry into a next-generation cycle before it is ready to move. Sony, with its enormous dominance of the market, could probably just about get away with it - if it moved, the industry would have to move with it, however much it hated the idea. But Microsoft, still a relatively small player in the games industry, just doesn't look like a company that has the influence needed to force a shift like this. It may be backed up by the biggest software company in the world, but publishers will still look at the bottom line - in this case, installed base and cost of development - and base their decisions on that alone. Herein lies the arrogance; Microsoft isn't used to making decisions as an industry small-fry, and it's trying to act like an industry leader in an industry it simply doesn't lead.

It would also do well to remember that in fact, PlayStation 2 didn't have first mover advantage in the last generation; that dubious honour fell to Sega's Dreamcast, which launched well ahead of its Sony competitor and was completely crushed by a combination of consumer anticipation for the Sony console, and publishers being perfectly happy to stick with PlayStation 1 and wait for its successor. Two years later, Sega was out of the console business for good; and while that seems unlikely to happen to Microsoft, a defeat on that scale in the next generation would be a crushing blow to its ambitions in the console space.

This editorial originally appeared in the GamesIndustry.biz News Digest, a free email news bulletin which is distributed to subscribers every day of the week and features a round-up of the key headlines of the day, the latest major share movements from industry companies, and the day's new job postings. Each Thursday afternoon, this digest is presented in a special omnibus form with the week's game charts and an editorial focus piece.

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Source: gamesindustry.biz