GAMES: The Xbox makes its foray into the Irish market but faces stiff competition from Sony and Nintendo

Thirty years after Atari developed the first home-video game, Pong, US software giant Microsoft is launching its assault on the $20 billion (€22.8 billion) games market with a new console, the Xbox.

The Xbox, which went on sale here yesterday, will be promoted with a $500 million marketing campaign and is designed to extend the software giant's reach into living rooms across the globe.

"It's another avenue for Microsoft to build out in new devices," says Mr David Mulligan, director of product development at Microsoft's European centre in Dublin."The Xbox is a great entertainment platform for us to build out. For the first three to five years it will be aimed at hardcore gamers and then we will expand this out."

About 100 staff at Microsoft's European product development and operations centres in Dublin have been working on the Xbox project for two years. And the Republic would benefit from tax intake and employment growth if there were strong sales of software for the new console.

But, despite all the hype surrounding this week's launch, most observers, including the influential Morgan Stanley analyst Ms Mary Meeker, believe Microsoft's first foray into the hardware market is a huge gamble.

Ms Meeker has predicted Microsoft could lose a billion dollars by 2004 in a games market dominated by Japanese firms Sony and Nintendo. The US company is subsidising the cost of its Xbox console to the tune of $100 a unit in the hope that it will grab a slice of the software market worth about $20 billion per year.

"The games business is a huge industry and is competing with film now . . . We already have hit games on PC so we're in a good position," says Mr Mulligan.

The Xbox, apart from some customer complaints in the Japanese market, has been greeted well by customers in the US, and has been generally praised by reviewers. It has shifted about two million units in the US and is hopeful of meeting its target of achieving 4.5 million to six million sales by June.

Its specifications (see review) make it the most powerful gaming console on the market, and a built-in broadband connection and DVD player will broaden its appeal.

But Microsoft faces stiff competition from Sony's Playstation 2 (PS2) console and the GameCube, which Nintendo will introduce in Europe on May 3rd.

A third of Irish homes already have a Sony, and the huge number of game titles already available for its PS2 platform make it the clear leader in the race to build a loyal customer base.

The low price of the PS2, which costs just €330 in retail outlets compared to the €479.99 price of the Xbox, will also turn off potential Microsoft customers. Customers will also have to purchase a separate DVD controller if they want to watch movies using the Xbox.

It's not surprising, therefore, that Microsoft is aiming its new console at a generalist market that includes wealthy professionals in their 20s and 30s.

"Gaming is no longer a kid's activity and is very much an area of entertainment for a wide variety of age groupings," says Mr Roger Bennett, director general, European Leisure Software Publishers' Association.

"Sales of gaming software in western Europe totalled $8 billion to $9 billion last year and a top video game can now expect to outsell a blockbuster movie."

Mr Bennett predicts the Xbox will not be a loser and will boost the entire games industry, which has experienced 120 per cent growth over the past three years.

"It's a question of degrees. Each product will be marketed in a way to find its own sector in the market. The GameCube will be aimed at hardcore gamers, while the PS2 and the Xbox isn't the same package."

Microsoft will be hoping that its European launch will mirror its successful US introduction last autumn, rather than its experience in Japan, which has been dogged by customer complaints. Last week the firm agreed to replace some consoles in response to customer complaints that certain Xboxes were scratching software discs.

A similarly bad start to the Xbox's European launch would undermine Microsoft's attempt to become a centrepiece of home entertainment.

But then again, would you bet against Bill Gates and Microsoft's billions?