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Xenakis on Technology:Squandered Opportunities

While an explosion in computer games provides many marketing tie-in opportunities, most are not exploited.

Go to the Microsoft gaming zone (www.zone.com) on the Internet, and play the game “RadioShack RC Riot,” and you’ll be able to play a car-race game in which all the cars are graphic duplicates of remote- controlled cars that are available in Radio Shack retail stores.

But why bother to head out to your local Radio Shack, when a mouse-click or two lets you order one of the Radio Shack cars online?

Or play “Adrenaline by Toyota,” and race a Toyota Truck around the Track—and enter a contest that lets you win a truck.

“Toyota went back and tested people who played the game, and brand recognition was much higher than for people who just saw a TV ad,” brags Ed Fries, Microsoft’s VP of games publishing.

These are just two examples of advertising and tie-in opportunities with games that are starting to appear, now that we’re entering a year where the size of the computer games market is expected to explode.

Computer games go through cycles of about five years, with the duration of the cycle determined by the relative success of game consoles that you hook up to your TV sets. Different companies have been the market leaders in each of the last few cycles—Atari, Nintendo, Sega, and Sony have all been leaders in previous Cycles.

This year, Sony is looking to repeat its past success with the PlayStation console with the PlayStation 2, which was just released a couple of months ago, and so far they seem to be succeeding.

“When the PlayStation 1 was launched in September 1995, they sold half a million units by year-end,” says Edward Williams, investment analyst with Gerard Klauer Mattison, a New York City-based investment bank. “By contrast, Sony will sell over one million PlayStation 2 units by year-end, so they’ve sold twice as many units in significantly less time.”

That’s true despite the fact that a chip shortage has kept the PS2 in limited supply, he noted. “The raw demand for the PS2 game system is huge, and they’ll have shipped over three million units by March,” says Williams.

But Sony doesn’t have the market to itself. Microsoft will be shipping its new X-Box console in the fall of 2001. It also plans a massive marketing campaign with the intention of having the X-Box console dwarf the PS2.

And analysts expect Nintendo to come out with its Game Cube—a video-games console—early in 2002. Nintendo targets a different demographic, young children, as opposed to the children in their 20s that are targeted by Sony and Microsoft. The three companies combined are expected to create a surge in gaming an order of magnitude larger than we saw in the last explosion, in 1996.

A new game-console cycle means a lot of new business for game developers, and that means lots of games—not only for game consoles but also for online gaming systems and standard PCs. This means that there will be an explosion of new games coming out in the next two years.

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