The XBox invasion

XBox goes on sale in the United States at midnight this Monday, and gamers seem excited about it. What's interesting from a business standpoint, however, is what XBox's success says about competing with dominant incumbents in any market segment.

XBox 360 goes on sale in the United States tomorrow (or rather, at midnight tonight, to be precise), and all indications are that gamers are extremely excited about it. Games are a funny gray area in the demilitarized zone that lies It takes a single-minded obsession to take over a market. between the open source world and the proprietary world. People who normally would be rabidly anti-Microsoft make an exception when it comes to games. Games trump politics, and if the games are good, they don't care if the devil himself wrote the code.

I understand the sentiment. Games ARE fun, and in my case, might even be considered TOO fun. That's why game consoles have been exiled from my home for the past five years. When I got a new game, I was the sort who had to spend every waking hour learning to defeat whatever enemy the game threw at me. It's a dangerous obsession, or at least it was.

Today, I'm older and wiser (I won't say I'm more mature ;) ), and so I figure I have enough self-control to end the terms of exile and buy an XBox 360...assuming I can get my hands on one. I'm even shaping my TV buying decisions around the XBox. For a number of reasons, I have no TV (and no, it's not because I don't like television). The XBox, however, has compelled me to buy a high-definition TV.

But that isn't the reason I'm writing this post. What I find interesting about the XBox is what it demonstrates about the nature of incumbency, and what it takes to defeat it.

Everyone knows that PlayStation is the console to beat. That has been the case for awhile, and certainly was the case when XBox entered the market - somewhat late, in relative terms - in 2001. The usual suspects predicted that Microsoft would fall flat on its face with its attempt at entering the game console market. They didn't, of course, and though they didn't displace the market leader with its first version, they made a credible showing.

Enter XBox 360, a console that has, on some estimates, a one-year jump on the PlayStation 3, which is a complete turnaround from the last time the consoles faced each other. Many analysts think this is the console that will take serious share from PlayStation. They don't say that it will become the market leader - and personally, I'm not going to hazard a guess - but clearly, XBox 360 will carve itself a larger piece of the pie than the first version of the product.

This isn't the first time Microsoft has entered a market completely dominated by a competitor. When Microsoft entered the database market, Oracle was the market leader atop Windows machines. Today, SQL Server is far and away the leading database on Windows machines, and I'm sure the fact that Microsoft doesn't do (much) Unix software comforts executives at Oracle. When Windows CE, Microsoft's solution for embedded programming, was released, the intelligentsia were certain that the product would face more laughter than serious consideration. Today, Windows CE is one of the leading embedded operating systems. Pocket PC was predicted never to make any headway against Palm. Now, Pocket PC is considered the dominant handheld operating system, and even Palm is releasing a version of their product that runs Pocket PC. Pundits claimed Microsoft didn't have a chance against Symbian, the leading operating system for Smartphones and owned (at the time) by a consortium of the leading mobile phone vendors. Today, most major vendors apart from Nokia and Ericsson offer phones that run Windows Mobile, and Windows Mobile is considered the smartphone platform to beat. Last, we all know what happened in the battle between Microsoft Word and WordPerfect, or Lotus 1-2-3 and Excel.

There are a number of ingredients to this success. Clearly, there are ecosystem advantages to the Microsoft software universe that Microsoft has leveraged. As I've noted before, though, that isn't an advantage unavailable to third parties - assuming they are willing to commit the resources necessary to properly plug into it. The biggest ingredient, however, is persistence.

Microsoft decides they want to enter a market, and they don't stop until they have succeeded in large fashion. Success rarely is instantaneous. Microsoft has been working at the television market since the mid-90s, yet are only now gaining traction in it (fortunately, no one else has had much success unifying it, either). It took years for Microsoft to make headway against competing office products, competing handheld operating systems, competing databases, or competing game consoles. Microsoft, however, was willing to lose billions in the pursuit of those markets, all in the hopes that one day, they would have a sustainable business that would make it all worthwhile.

A willingness to lose billions obviously assumes you have billions to lose, and that means that to compete in an entrenched market, you need billions in investment capital. That shouldn't be too shocking, though. I'd need billions to enter the automobile manufacturing market, the PC business (assuming I wanted to compete with Dell), or mobile phone manufacturing industry. It takes money to compete with large, well-funded companies, and that's the reality of the marketplace.

That doesn't mean that smaller companies can't pose a challenge for the big guys. Google came from nowhere to take over a market completely dominated by other search engines. It helps, though, if those smaller companies have access to big budgets, either through alliances with larger companies or through backing from well-funded venture capital firms. Google certainly had access to such funds, and has even more access today as a profitable, multi-billion dollar publicly traded company.

Once funding is secured, however, it takes a single-minded obsession to take over a market, as well as a willingness to learn from your mistakes along the way. The current state of Microsoft's office automation products, databases, embedded tools, handheld products, smartphone technologies and game consoles aren't an accident. They are the result of experimentation, evolution in response to customer demands, and even a few mistakes. What didn't change was the continued forward momentum, a momentum that eventually resulted in Microsoft's success in the market.

Others can do that, too. That's why I'm so opposed to the notion that Microsoft's dominance in any one market is "unassailable." Microsoft has demonstrated REPEATEDLY that there is no such thing as unassailable dominance, by entering markets where their success in, say, desktop Windows, has little relevance.

Lots of people seem to think Microsoft can't do anything right. Well, Microsoft seems to manage to strike out into unrelated markets, and do so successfully. If Microsoft can do it, then anyone can do it...right?