In College Station, where I lived for nearly eight years, lives a man named Don Ganter. Ganter is an A&M Graduate and his main claim to fame in the College Station area is that he owns an establishment known as the Dixie Chicken. I don’t recall if the Garth Brooks song of the same name is related, but it was definitely around before the Dixie Chicks rose to fame and infamy. The Dixie Chicken is primarily a bar and local legend has it that it holds the world’s record for more alcohol consumed per square inch than anywhere else. So popular is this establishment that during my tenure at A&M I knew of more than one devoutly religious, ani-alcohol person who would go there to play dominos. There’s even a tradition, “dunking your ring”, wherein you take a very large mug of beer, drop in your newly acquired Aggie Ring, and chug the beer until you can grab the ring with your teeth (this tradition shifted slightly when local law outlawed pitchers). I’m not much of a beer drinker and even I did this with a group of friends the night we got our rings.
In addition to the Dixie Chicken, Ganter owns the Dry Bean Saloon, a shot bar. And he owns Shadow Canyon, a dance hall. And the Hole in the Wall Saloon (another bar), the Chicken Oil Company (a restaraunt), Alfred T. Hornbacks (a pool hall), Satchel’s Bar-B-Q & Steaks, and Brazos Hall (not sure). In all he owns eight establishments and they’re all similar – made almost entirely of wood, rusted old signs nailed to the wall, exteriror signs with more or less the same old western fonts, etc. Really playing up the stereotypical Texan angle.
Now the interesting thing I remember hearing (though I must confess I heard it back before I had learned of the concept of the Urban Legend, so I believed more of what I heard back then) is that every one of Ganter’s establishments loses money. Every one that is except for the Dixie Chicken, which not only makes money, but it makes so much money that it sustains the other seven businesses and then some. When asked why he bothers to own so many businesses when the one is sufficient (i.e., if he shed the other seven he could be even more wealthy), Ganter’s reaction is that he just likes being able to tell people that he owns a bar, a shot bar, a restaraunt, a dance hall, etc. It’s this sort of eccentricity Aggies love (plus it’s good for the local economy).
Stick that little anecdote in your head while we switch gears for a minute.
It’s been a given for many years that the PC can get online. Though a lot of people still use dial-up, PC’s have also had the ability to connect directly to the Internet or to another network with an ethernet port. Consoles have had to take different paths to get online.
The Sega Dreamcast shipped with a 56K modem in tow. The joke was that it was “narrowband”, but in 1999 dial-up was considerably more prevalent than broadband. It still is, but less so. The Dreamcast included a web browser and could do some interesting things, but playing online never really took off. Sega even tried their hand at being an ISP – signing a 3 year contract with them scored you a free Dreamcast.There was a broadband adaptor which had an ethernet port, but few games took advantage of it – not even Phantasy Star Online Episode II, the game that really really needed it.
Oddly enough, though the Nintendo GameCube has an online adapter – two of them, either Ethernet or a 56K phone modem – and the only online title there is is Phantasy Star Online Episodes I & II. One game, and no real strategy. Well, Nintendo does have a strategy – their strategy is basically to not have one. To sit back and watch. To let others figure out what works. While I usually admire Nintendo’s innovation most of the time, this time they want to sit back and let the others do the hard part.
This is more or less the exact same approach that Sony is taking with the PS2. The PS2 shipped without connectivity abilities, but for the price of a Network Adapter, PS2 games can go online as well. The difference between Nintendo and Sony however, is that Nintendo isn’t very anxious to incorporate online connectivity in their games, whereas Sony is (though Sony makes considerably fewer and less popular games). Sony is content to let the individual developers do the legwork to get their game online.
Compare all of this to Microsoft with the Xbox console. Microsoft made big headlines when they announced that they were going to ship the Xbox with a hard drive and an ethernet port, making for the first broadband (only) game console. However, while many games shipped with the ability to network via a LAN connection, none worked over the Internet. It wasn’t until a year later, when Microsoft unveiled Xbox Live, that the ability to play online was realized. Many gamers were mad that, after buying the one console which didn’t require a hardware purchase to get online, they now had to pay to get online anyway.
But Xbox Live affords several things that the other approaches don’t. For one, XBL ensures that there are servers to go to. The work to make games XBL compliant ensures that they all function the same way. And XBL allows gamers to go to one specific spot in which to find other gamers willing to play. For all its differences, XBL is a more sensical way to get online.
EA, however, has decided not to support XBL in any of its games. This is significant, since EA is one of the biggest game publishers in the world. Their Xbox port of Battlefield 1942 was cancelled for this reason, and their Madden franchise is fanatically popular. The reason boils down to simple economics and gamer mentality. Since gamers pay $50 per year to be on XBL, they don’t usually want to pay any extra for other games online. That being said, the Xbox port of Phantasy Star Online Episodes I & II requires an $8.99 monthly fee to Sega, so it remains to be seen whether this will work at all. The financial reasoning is that it’s not clear whether the expense to add XBL support to a game is worth it.
Pretend that EA’s Madden 2004 costs $1,000 to develop, manufacture and publish (we’ll keep these numbers easy to manage and completely unrealistic). And pretend that they sell 1,000 copies at $2 each. By this I mean, pretend that there are 1,000 Xbox owners who will definitely buy a football game, and Madden 2004 is the only football game on the Xbox. These 1,000 gamers buy the game at $2, meaning that the game makes $1,000 after expenses.
Along comes Sega’s new game ESPN NFL Football, which also costs $2. And let’s say that, unlike Madden 2004, Sega’s game is XBL compatible. And let’s also pretend that these 1,000 football Xbox customers won’t buy two football games. So let’s say that 150 gamers would buy Sega’s game instead of EA’s. This means Madden 2004 would only pull in $700 profit instead of $1,000 – due to XBL incompatibility.
So EA does the research and figures out that it would add $400 to the development costs of Madden 2004 to add XBL compatibility, meaning that if they could lure those 150 gamers back they would make $600 profit. In this case even though it sucks to lose those 150 gamers and the $300 profit associated with them, it’s still more beneficial than losing that $400.
That is, unless Sega lures 250 gamers to buy their game, in which case EA would lose $500 by not being XBL compatible, making XBL compatibility, at a mere $400 loss and in fact additional $100 profit, financially worth it.
So that’s one of the reasons EA has decided not to support Xbox Live. The other is that EA doesn’t stand to make any money off of XBL itself. Microsoft, who has undertaken the task of creating XBL, isn’t sharing any of the profits. Part of this is Microsoft business sense – they just don’t want to share profits. But the real reason is: there aren’t any profits. Microsoft has not made any money off of XBL. Actually, I don’t know that, but I do know that Microsoft hasn’t made any money whatsoever off of Xbox. In fact, they’re predicted to lose $2 Billion on Xbox before they start headed back to the black. Like manufacturing cars (again with the automobile analogies), the console business is prohibitively expensive to get into.
So why then is Microsoft in the console business at all? Well one would say that Microsoft plans to eventually turn a profit with Xbox (witness how PlayStation accounts for 45% of Sony’s income as a corporation), but a seemingly authentic memo leaked from Microsoft last year which claimed/admitted that everything Microsoft does or makes loses money. Everything except for Windows and Office, which not only make money but make enough money to keep just about everything afloat.
Sound familiar? Yes, it sounds like Don Ganter. Microsoft really just likes to have a console, even if it loses money. They want to have certian markets cornered, even if they lose money. Ever notice how you wind up paying $10-$15 for Microsoft Money every year after rebates? There’s things Microsoft’s not worried about losing money on, both on the vague premise of eventually turning a profit, and also because they just can.
So what does this afford Microsoft? The ability to innovate with less fear of going out of business. Namely, they won’t be. So they can try something crazy like XBL. Maybe it will work, maybe it won’t. Even if it tanks, they’ve got Windows and Office to fall back on.
Which leads back into Nintendo. Microsoft makes software, hardware, services, etc. Their game console is just one business of theirs. Nintendo makes games and game systems. Period. They do have some money in the bank and, to be fair, they make a mint off of all things Game Boy, but Nintendo doesn’t have tons of other businesses to fall back on. They’re not interested in losing billions in the quest to have their hardware in every home in America – they’re interested in doing what they know or at least strongly believe will work. And they can’t be convinced as of late that online gaming will work as a business model.
They’re working on Mario Kart: Double Dash, the GameCube incarnation of the venerable Mario Kart franchise. However, while it will be LAN playable with a network adapter, it won’t be playable over the Internet. Not all hope is lost however, since like they did with the Xbox, GameSpy and others are working on “tunneling” software which will allow people to play LAN games over the Internet. It requires a fast connection and it relieves the game developer of having to program the game with lag in mind, but I hear it works.
In any event, a lot of people can’t understand why Nintendo doesn’t want to go online with GameCube. Many can’t understand why EA doesn’t want to be on XBL. Maybe now people will instead wonder why Microsoft wants to be online at all.