CORPORATE CASE STUDY: Microsoft adjusts its game plan to market the Xbox

With fierce competition in the video game world and in the unfamiliar position of not being the dominant player in the market, Microsoft is altering its PR tactics to sell gamers on the Xbox.

With fierce competition in the video game world and in the unfamiliar position of not being the dominant player in the market, Microsoft is altering its PR tactics to sell gamers on the Xbox.

A country whose attention is currently consumed by war has a "braking" effect on the marketing of computer and video games, of course. But escapism also plays a part in the market. Since its introduction 17 months ago, some 8 million Xbox consoles have been sold, primarily in North America, Australia, New Zealand, and many parts of Europe and Asia, including Japan - 14 countries in all, says Charlotte Stuyvenberg, PR director of Microsoft's home and entertainment division. The Xbox has been fighting for market share since Bill Gates and The Rock, the well-known WWE wrestler and movie star, unveiled it for the trade press at the Consumer Electronics Show in Las Vegas in January 2001. "By last August, before a single dollar had been spent on advertising, the game console had reached a 74% awareness level, research showed," says Graham Crow, a VP at Edelman, Microsoft's agency for that division. Today, he says, awareness is more than 90%. That, coupled with the aggressive promotion of Xbox's online offering and a greater commitment to marketing the video game way - not the traditional Microsoft way - will be crucial in the company's attempts to win the war against Sony and Nintendo. Going live with a new PR plan This year, the focus of the company's usual May kickoff of its Christmas holiday PR program at the Electronic Entertainment Expo (a.k.a. E3) in Los Angeles will be on Xbox Live, the online gaming service. Introduced to the North American public last November, it has about 350,000 subscribers, and has just launched in Europe and Japan. "It's changing the face of video gaming," says Stuyvenberg, who has been in the entertainment industry for some 20 years, most of it in the video game segment. "It allows people to play games via a broadband connection on which they can talk to people live." At $49.99, the subscription fee "has met less resistance than pundits predicted," she adds. One of the PR challenges Microsoft faced with Xbox Live, says Stuyvenberg, was getting people to understand it. It's a little complicated to explain without seeing it in action. So product demonstration, as well as branding, was one of the company's main objectives. "Before we launched this product," says Stuyvenberg, "we started with an education tour in which we went to members of the analysts community, the gaming press, and the consumer press. We also put together a group of consumers, taught them how it works, and let them beta test it. "From a PR standpoint," Stuyvenberg adds, "it worked very well because they eventually became advocates." At the launch, the company did something unusual for Microsoft, says Stuyvenberg. "We went down to Hollywood and threw a premiere party at the Sunset Room, inviting actors, the paparazzi, and a lot of the media that cover Hollywood. We rolled out the red carpet for the stars to walk down, and introduced them to Xbox Live that evening." (Nintendo took a similar approach for its launch of the GameCube in late 2001, signaling that video games had gone mainstream.) But there's considerable risk for Microsoft in such a venture, Stuyvenberg admits. Since the company was hardly associated with the entertainment industry and the Hollywood scene at that point, she explains, there might have been some confusion in the mind of the company's typical customer. "Fortunately," Stuyvenberg adds, "all of the pre-work we had done was really successful in building ties. By the time we got to Hollywood, many people knew of Xbox Live, believed it was going to be a success, and wanted to be associated with it." Without being specific, Stuyvenberg says the Xbox system has a multimillion-dollar, worldwide budget. And that's likely to increase, she adds, "because Microsoft considers PR a very, very important tool for marketing and branding. I've worked at companies where PR was considered an afterthought. In fact, both Bill Gates and Steve Ballmer are quite engaged in this end of the business." Making inroads in difficult markets On the other hand, Japan remains a difficult market for Xbox to break into. Sony and Nintendo are very ingrained in the market, and still lead the way there. In fact, as a member of Sony's PlayStation team, Stuyvenberg helped the company gain its leadership position in the industry before she joined Microsoft 18 months ago. "It's important," says Stuyvenberg, "for us to develop a unique focus for Japan, unlike any other market in which we distribute our products. In Japan you have to be very consumer-focused. You also have to be very specific about what your offerings are. With some products in some markets, customer service and customer feedback are usually among your priorities. In Japan, the strategy is to make it the number-one priority. "We're developing a new game plan for growing the business there," Stuyvenberg adds. "But we're still about nine months away from divulging details about it." Asked if the Xbox crew had made any mistakes along the PR way, Stuyvenberg says, "Rather than following Microsoft's customary way of marketing a product, we really had to learn to take more time in the beginning, to educate the media about our objectives - why we were in this business," she explains. "Our people, who had no marketing background, had to quickly learn how to do consumer marketing. We had to take a look at this business in a very fresh way. "We also got so excited about the products that we showed them to the media prior to E3, and then didn't have enough new products to introduce at the show itself, which is a premier event for that industry. So now our strategy is to hold back, as many companies do, for the main event," she says. For the first time in years, Microsoft is competing in markets where its dominance - if not monopoly - in the operating-system and desktop-applications segments don't help. CEO Steve Ballmer has positioned the company to pursue new growth markets such as video games and home entertainment, as well as consumer-relationship management software. Stuyvenberg is supremely confident in the future of Xbox, and points out that after only 18 months, it has just surpassed Nintendo in terms of market share. And both Nintendo's GameCube and Sony's PlayStation2 lack Xbox's powerful hard drive and graphics technology. But according to analysts cited in a recent Wall Street Journal story, Microsoft lacks exclusive game titles, adding that Microsoft and video game giant Electronic Arts were separately trying to buy all or parts of faltering Sega, which now creates titles for the three industry leaders. Acquisition of Sega's Visual Concepts could give Microsoft "access to exclusive game titles" that could help fill that void, and also "give Microsoft a strong boost in Japan, where a dearth of Xbox titles that appeal to gamers has left the company with a vast stock of unsold machines," according to the Journal story. However, Stuyvenberg declined to comment on the story, dismissing it as "total rumor." Xbox will evolve Meanwhile, Microsoft is hosting more than 3 million Xbox Live game sessions a week, and users spent more than 15.7 million hours playing online in the service's first three months. Those numbers may change, analysts say, as Xbox evolves - ultimately to include digital-media capability, perhaps only a year or two down the road. Matt Russo of Directions on Microsoft, a Kirkland, WA-based independent researcher and analyst of the company, says, "The next version of Xbox will probably be loaded with digital-media capability, including video recording or the ability to store video and audio clips downloaded from the internet or another PC. Microsoft wants Xbox to be a more diverse entertainment console. But that won't happen before at least 2004." Nevertheless, Microsoft will keep on fighting until it's game over for the competition. ----- PR contacts Director of PR and events, Home & Entertainment Division Charlotte Stuyvenberg Corporate PR manager Molly O'Donnell Corporate PR manager Stacy Drake Director, corporate PR and PA Mark Murray

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