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Xbox's Online Community Stronger Than Any Price Cut

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Despite all the mojo that powers the Wii, Microsoft has one thing the Wii doesn't that gives them a shot at coming out on top: a robust online community.

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Ok, so Microsoft (MSFT) lowered the price of the Xbox 360 by a few bucks--the thing is still expensive. Let's face it, a $50 decrease of the standard model still has you forking over $350 to the Best Buy check-out dude. The 'cheaper' core system is now down to $279, a whopping savings of a coupla sawbucks.

But let's not be so pessimistic here.

The 360 is now even more price friendly than the PlayStation 3 ($500), and essentially peforms the same (but doesn't include a high def DVD player). A close look at a graphics comparison shows little difference. Some gamers even consider the 360's less powerful engine to produce better graphics and run at a more stable frame rate. To be fair, developers are still getting used to the PS3's hardware so we can expect performance to improve and most likely surpass the 360, though more and more developers that were producing exclusive titles for the PS3 are now either switching to the Xbox or producing versions for both systems.

But despite a weaker engine, an existing strong base of PlayStation 2 users and a $1.5 bln slap in the face for hardware failures, Microsoft's head start looks like it may be too much to overcome. In a world where units sold is paramount, the price drop, although small in stature, can only help stretch its lead over Sony (SNE).

So what about the Wii?

At $250, its still a more savory choice for a casual gamer, and hasn't that been one of the biggest lessons we have learned from the console wars?

Until the Wii came along, one could argue that casual gamers have been a casual concern to a console maker. After all, hard core gamers are the ones that suck up all the games and spend countless hours playing them. However, through unique interactive design, an Apple-esque branding approach and consumer friendly pricing, the folks at Nintendo were able to get people off their couches (literally) and cultivate the segment. As a result, the Wii is coolly ahead in recent sales figures and the new celebrity of the gaming world. Microsoft has never been a player in Asia and the Wii will ensure it will stays that way for the foreseeable future. Plus, who doesn't love a classic underdog story? If only they could make enough to go around.

But despite all the mojo that powers the Wii, Microsoft has one thing the Wii doesn't that gives them a shot at coming out on top: a robust online community. And it seems like no one is talking about it.

Xbox Live is 7 mln strong and growing. Gamers from around the world are linking up every night to play their favorite games, creating a brand new experience. Users can chat, email and download TV shows, movies and classic arcade games. Heck, gaming leagues are now popping up on TV. But let's set aside the non-gaming features for a moment. Microsoft has managed and cultivated this community so well that game developers are beginning to incorporate social networking into their games. Take Electronic Arts (ERTS)' Tiger Woods PGA Tour 08, due out this month, where you can play alongside a virtual Tiger and shoot a 65 instead of your usual 95. Electronic Arts has created a service called GamerNet, which allows players to upload their personal 'greatest hits' to the greater community. This, coupled with the ability to map a picture of yourself to the in-game character, has all the makings of a video game YouTube.

The PS3 will also have a GamerNet service, but its slipping sales and late start hinder its success. The Wii is far behind in the online space and many games don't even offer online play, the ones that do are limited. As these services grow more robust, the limited power of the Wii hardware will become an issue.

While its true that you can play Tiger Woods--and a host of other games--on the PS3 and Wii, Microsoft is the best at servicing the next-generation gamer. It has even begun to integrate its vast PC gaming community with the Xbox to widen this virtual world. And let's not forget Halo 3--the biggest online gaming title in history--is coming exclusively to the Xbox this fall. Microsoft even developed it through its subsidiary, Bungie.

Imagine the mainstream accesibility of the Wii coupled with the online reach and functionality of the Xbox. As the battle continues, we may never get the perfect product. But, in the meantime, we can be sure the software developers and specialty retailers stay in business and realize growth, with Activision (ATVI)and Gamestop (GME) making some of the greatest leaps over the past year. One could add Take Two (TTWO) to the list if it could get its act together.
Position in ATVI.
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