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xbox1Next Tuesday, May 21, is a Very Big Day for Microsoft. With the rest of the technology world watching, the company will take the stage at 10 a.m. Pacific time in Redmond to reveal the new generation of Xbox, whatever form (or name) it may take.

xboxgenThis is the world into which this new Xbox will be born: Windows Phone is in single digits. Windows 8 is still trying to find its footing. The PC market is declining. The iPad is soaring. Apple, Google and seemingly every other tech giant — even Amazon — wants a piece of the living room.

The Xbox franchise, now entering its third generation, hasn’t yet become a profit center on the level of Windows, Office and Microsoft’s server businesses. But with more than 77 million Xbox 360s sold to date, the console has given Microsoft a strategic beachhead in home entertainment.

Microsoft needs to build on that position to become more relevant in the broader market for consumer technology, and maybe even breathe new life into other areas of its business.

pcshipmentstabletsThe Xbox “continues to be a powerful strategic tool for Microsoft to demonstrate innovation, capture imaginations, and serve as a Trojan horse to usher other Microsoft hardware and software to consumers,” says Rob Sanfilippo, an analyst at the independent Directions on Microsoft research firm and a former Microsoft engineer who worked on products including Xbox Live.

xboxmatteSanfilippo says the Xbox business has the potential to create a halo effect for other Microsoft products, generating interest in the Surface tablet, Windows 8, Windows RT and Windows Phone through the “SmartGlass” second-screen experience and a common user interface style, in addition to better compatibility of apps across all of those platforms.

“The new Xbox is likely to exploit all of these opportunities beyond what was done with the Xbox 360,” he says. “For example, the application store offered through Xbox Live, which is currently an outlet for third-party video and music apps, is likely to expand to offer more general purpose applications and could integrate better with the Windows and Windows Phone stores. The developer experience is also likely to have more commonalities with Windows than it does now, perhaps through compatibility with WinRT APIs.”

Paul Thurrott, a longtime Microsoft beat reporter who has had an inside line on Microsoft’s Xbox plans, reported in April that the new Xbox runs on a “base” version of Windows 8. “This suggests a common apps platform or at least one that is similar to that used by Windows 8,” Thurrott wrote.

Among other predictions, Thurrott wrote that Microsoft “will initially offer two pricing models for the console: a standalone version for $499 and a $299 version that requires a two-year Xbox LIVE Gold commitment at an expected price of $10 per month.”

The Xbox 360 has been dominating the U.S. console market, although the market overall has been declining and the worldwide competition with the Wii and Sony’s PlayStation3 has been much tighter than in the U.S.

xbox2Like its competitors, the Xbox has steadily grown beyond just video games to offer a much wider range of home entertainment options, including video streaming and music.

Don Mattrick
Don Mattrick

During a discussion with reporters in March, Don Mattrick, the president of Microsoft’s Interactive Entertainment Business, acknowledged that the competitive landscape is expanding significantly.

“Absolutely,” he said. “I think we’ve got a broad range of competitors. Nintendo, Sony, Apple, Google would be the top-of-mind companies that we think about in terms of benchmarking our products, benchmarking our offerings.”

Xbox is also at the leading edge of Microsoft’s push into “natural user interfaces” through the Kinect sensor, which will get an upgrade and could be integrated directly into the next generation Xbox console.

So what else could the new Xbox deliver in the way of specific product features? We’ll have more on that early next week in advance of our coverage of the unveiling in Redmond on Tuesday morning.

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