The Xbox has come a long way and anyone who tells you otherwise shouldn’t be trusted. We’ve seen Microsoft’s gaming console grow into a media power house and dominate rival offerings from both Sony, and Nintendo. None of that can be taken away from Microsoft, none of that is in question. What is in question is how Microsoft is prepared to deal with the next wave of competitors, Apple, and Google.

Xbox in the living room.

Who would have guessed in 2005 that Microsoft would be the number selling console a year straight? No one. Over the last seven years the guys and gals in Redmond have managed to turn the Xbox 360 into the premiere console for playing video games in your living room. How have they don’t that? Of course it starts with Xbox LIVE. Since its inception the service has morphed into the end all be all for gaming online. Going to pickup Call of Duty? Buy it for Xbox and have access to the biggest installed base of online console gamers in the world. Looking for the latest in downloadable online titles? Look no further than Xbox LIVE Arcade.

Living room entertainment is also a very bright spot for Xbox. Forget the access to unlimited music and music video streaming via Zune Music Pass or a huge library of television shows and movies all available in instant-on 1080p, how about access to streaming content from Comcast, AT&T Uverse, Verizon, Crackle, SyFy, HBO Go, Netflix, Hulu Plus, and ESPN? While Live TV on the Xbox hasn’t changed the way we watch television just yet, its light years ahead of what Sony and Nintendo are doing their ecosystems.

Now here’s where it gets dicey. For all of their successes in the living (and they are aplenty), Microsoft  is approaching a future in which the gaming market isn’t as robust as it once was. The Xbox 360 is beginning to clearly show its age on the hardware side and although they’ve managed to stave this off with yearly Xbox Dashboard updates, there are simply things that new software can’t fix. Games are getting bigger and bigger and so far Microsoft’s had no fix for the issue except for shipping games on more than one disc. Furthermore there is not and probably will never be any multitasking on this generation’s console outside of the Xbox Dashboard’s limited Guide. That means you’ll never be able to fire up Call of Duty multiplayer and stream music for your kill session using Zune Pass, no tweeting about the music you are enjoying while inside Zune.  Pricing models are also changing. Sure, as of today you can purchase a Xbox 360 with Kinect for $99, but that’s with a two-year agreement to Xbox LIVE. Microsoft’s moves in television and movies has made it a defacto choice, but if 50% of all Xbox LIVE activity is spent streaming content and not playing games how long until people want your entertainment services without the extra gaming payload for a cheaper price?

Consumers are also  moving toward platforms that can offer them the benefit of added functionality. I’m of course referring to the purchase of applications, something that the current Xbox doesn’t come close to doing. Sure Apple and Google aren’t offering gaming devices, but both offer a living room entertainment solution, and there’s nothing stopping Apple from doing the same, and Google already does it. Microsoft can’t afford to let either one of these two competitors to get a beachhead. Offering the ability for select partners to create apps was a great first step, now let’s keep it moving.

Xbox in your pocket and on your PC.

If we’re required to describe Microsoft’s moves in the living room as a success (which they are), to say that it’s moves outside of the living room have been nothing short of lame. Games for Windows LIVE has become the butt of PC gamer jokes. Valve’s Steam service has managed to roll them over with just the sheer number of titles they offer. Don’t even get me started on their competing software client. Install Steam with its crazy amounts of content and exciting deals or the half dead Games for Windows LIVE client which sees a new title release every month or so? Clearly the answer is obvious.

Microsoft Studios has began to show its age in this area as well, and has  focused almost exclusively on launches of free-to-play titles like Age of Empires and Microsoft Flight. Don’t get me wrong, I like both. However, neither get me excited about Microsoft’s future In PC gaming. With Xbox being included on every Windows 8 PC and tablet this is definitely going to improve, but just how much? Microsoft seems dead set on these being what they call “companion experiences”. I find that to be code for just Angry Birds and games of that elk.

Speaking of games with cheesed-off fowl, no where is Microsoft’s “companion experiences” mantra more  prevalent than in the so-so functionality included with Windows Phone. Do you have an Xbox LIVE Gold subscription? Great, that’ll get you nothing with a Windows Phone. Do you love streaming all of that content you’ve paid for on Xbox’s servers like you do at home? No dice. Cloud saves? Nope. Multiplayer? Meh. Don’t  ask me about any other titles besides casual games. No, seriously don’t. There’s are none.  I don’t want to belittle their efforts in this arena. Having any mobile titles that I can earn achievements is great, and being able to instantly look up information on games I’m playing on my Xbox is the stuff product preview videos are made of (no really, see here). We need more substance, more -beef, if you will. Right now the iPhone is taking that mobile gaming money and running with it like a torch in a Olympic Summer Games relay. Whether you believe in the power of dedicated consoles or the convenience of gaming on an iPhone, one thing is for sure. Microsoft isn’t even close to being first, second,  or third in this race. For a company that declared “Windows Phone is our mobile console”, I’m having a very hard time being able to see the different been “mobile console” and “oh yeah we hit that check box.” and Xbox LIVE. has become an excellent companion for the accompanying service. I can use it to browse television shows or purchase gaming content to watch later on my Xbox console, or on my PC via the Zune Software.  You can preview videos, get details on the latest games coming to the service and redress your avatar. That’s great. What’s not there is the ability to stream any of that Zune Music Pass content even though you can browse Zune Video content. Additionally you can’t stream anything in its full form, and in order to enjoy previews you are required to have Siliverlight installed. That means in a world where Microsoft is pushing HTML5 technology, openness and being able to enjoy your content from anywhere, I can’t do so with a PC without the Zune client or Sliverlight installed. That’s just plain wrong.

Speaking of Zune, let’s clear the air right here and right now. Zune is a terrific service that allows user’s of Microsoft devices to enjoy unlimited amounts of music and music videos for a very reasonable monthly price. The service really changed the way I look at music and the way I enjoy it. Now here’s the problem. It’s still named Zune. Rename it, rename it now.  You’ve convinced me that Xbox should be your brand and THE place for first-class content. Now go ahead and complete the transition already.

I can’t and won’t bother listing the ridiculous amount of ways Xbox LIVE trumps any other service available. We’ll just agree that it’s the best. We’re not here to bask in the glow however, there are still things that need a little TLC.  Xbox LIVE is a terrific service if you own an Xbox. However if you’re one of the millions of people who will purchase a Windows 8 PC an Xbox LIVE Gold subscription will -as far as we can tell from the Windows 8 Consumer Preview, add nothing to your experience. Ditto for users of Windows Phone as well.  Not only is that ruining the value prop, how long until Xbox on Windows 8 and Windows Phone users demand a more Xbox 360-like LIVE experience for gaming. If you then go and add those immersive features how do you sell those users on the price of Xbox LIVE Gold? At what point should these things go from “companion experiences” to full Xbox LIVE enabled products? I’d love to be in on that meeting.

And there we have it. A nearly complete breakdown of where Xbox is. Most won’t be hard for the company to address. That being said, it’s issues in mobile gaming and PC/tablet gaming are important now more then ever. There are also business concerns to think of as well. In a market that’s showing big signs of financial strain, how long can you continue to make $60 the go-to price for retail games. Furthermore how long can you continue to grow the number of Xbox LIVE subscribers when you aren’t offering anything more to those outside of your home console business? How long do you have to fortify your lead before Google’s Android televisions, and Apple’s Apple TV come after you? How will the core gamers react if they feel Microsoft is starting to care less about gaming and more about entertainment? None of these, nor the questions I’ve posed earlier are puzzles we can solve here. It’ll take an army of engineers, business managers, project managers, and coders to come close. It will take thousands of members from various product groups to pull of a near perfect execution of their plans over the next two years. I believe they’re up to it. At least, I hope they are.

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