The latest update to Microsoft's (NASDAQ:MSFT) Xbox Live kicked in yesterday, and with it comes a nod to social networking. The new interface integrates Twitter and Facebook into the Xbox Live gamer experience.
With Twitter and limited Facebook functionality available, the Xbox 360 just became that much more essential as home entertainment's centerpiece. Just as Microsoft beat Sony (NYSE:SNE) by a year in offering Netflix (NASDAQ:NFLX) streaming, the Xbox 360 has also landed the pole position when it comes to social networking. Sony's PS3 promises Facebook and Twitter access with its next firmware update.
This may all sound great for Microsoft, but there are two things royally wrong with this scenario.
- It is widely assumed that Microsoft sells Xbox 360s at a loss, seeking to more than make up the difference in title royalties from software sales. If Xbox Live users find themselves spending more time browsing through Twitter feeds or posting Facebook status updates, won't that leave less time for gaming? Isn't that going to translate into fewer games being purchased?
- Now that the Xbox 360 can do a lot of the browsing and multimedia streaming that a computer or laptop can do, isn't that going to soften demand for Windows-powered desktops and portable devices?
There are logical counterarguments, of course. If folks are spending more time on their Xbox Live accounts, it will improve the $50-a-year gold memberships. This will also allow Microsoft to more effectively monetize ad-supported initiatives in the future.
As for axing computers, obviously a video game console isn't going to be a perfect replacement. You don't see word processing applications on Xbox Live, though one can argue that keyboard attachments and Internet access will eventually segue to free Web-based word processing apps by Adobe Systems (NASDAQ:ADBE) and Google (NASDAQ:GOOG). Even before then, though, it may still kill off the need for a spare netbook or entry-level laptop around the house.
Microsoft is taking an evolutionary step with its Xbox 360. Unfortunately for Mr. Softy, every evolutionary step forward threatens to take its very fundamentals backward.
