Microsoft's Wii-killer

October 24, 2007: 10:09 AM ET

By Yi-Wyn Yen

The Nintendo Wii won't be the only family-friendly game console on store shelves this holiday season. On Tuesday, Microsoft unveiled the Xbox 360 Arcade, its answer to the hot-selling Wii.

The $280 Arcade is relatively cheap (like the Wii), has a wireless controller (like the Wii), and comes with a packaged set of games (like the Wii). The new, low-end Xbox is also being heavily marketed as the "family-friendly" gaming machine. But will the Arcade capture the same audience as the Wii?

"Breaking through will be difficult. I think Nintendo's got that crowd nailed," says IDC analyst Billy Pidgeon. "Microsoft can widen its demographics, but it's still identified as being part of the traditional core gaming demographic. Nintendo's done a great job stepping outside that market." Pidgeon called the Arcade "an aspirational product" for younger kids who want an Xbox because the older, cooler kids play the console.

Nintendo has admitted that it won't be able to ship enough of its $249 consoles to meet U.S. demand this holiday season. But a competitively-priced Xbox Arcade may not win over consumers holding out for a Wii, says Pidgeon. "I can see some people settling for the 360, but it's still $30 more. And for the mass market, that can be a big factor."

Microsoft's (MSFT) move to capture a broader audience comes amid the company's campaign to position itself as the premier console for hard-core gamers. Last month's release of Halo 3 helped push Xbox sales ahead of the Wii in September. It was the first time this year that the Xbox beat the Wii in a single month.

But the mass appeal of the Wii and software titles like Guitar Hero have begun to change the landscape of the console market. Xbox has built its success as the console of choice for hard-core gamers with a lineup of titles like Madden NFL 07, Halo 3, Bioshock and the highly-anticipated Mass Effect, due out in November. Now the software giant is going after the masses by packaging classics like Uno, Pac-Man Championship Edition and Boom Boom Rocket into the Arcade.

"Microsoft knows it has to have a broader church," says David Gosen, CEO of mobile gaming company I-Play, who previously ran the marketing and sales division of Nintendo Europe. "They're looking at other content like TV and casual games. They're waking up to be mass market versus niche market."

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