(FORTUNE Magazine) – MICROSOFT XBOX 360

GEAR REVIEW

Microsoft's got game. After plunging an estimated $4 billion into the development and marketing of its Xbox videogame console, the centerpiece of its strategy to expand from the office to the living room, Microsoft has taken the wraps off its next-generation game box, the Xbox 360. And judging from the features Microsoft has packed into the new box, it's clear the company is playing for keeps.

Despite a relatively steep pricetag of $400 for the complete hardware package, an initially sparse selection of new games at a typical hit of $50 each, requirement of a broadband Internet connection, and online fees that can be as much as $8 a month, we expect the Xbox 360 to be the techie toy of choice for gamers this holiday season.

The $400 Xbox 360 "premium" bundle includes the completely redesigned game console; a wireless controller; cables for attaching the Xbox 360 to a TV set; a removable 20GB hard disk; a headset; customized face plates; a monster-size AC power adapter; and a free pass for a basic subscription to Xbox Live, the online gaming network that is rapidly setting Xbox apart from its main rival and the market leader, the Sony PlayStation 2.

Microsoft will also offer a basic Xbox 360 system for $300, consisting of just the console itself, a wired controller, and the basic Xbox Live service. However, the experience of using the full system is so compelling that most consumers are likely to opt for the premium package.

To recoup its investment--$4 billion is a big ante even for a company with $40 billion in cash--Microsoft has to sell its Xbox 360 as not just a hard-core gaming machine for testosterone-addled men 18 to 34 years old but also as a family entertainment and communications center for boomers, soccer moms, and casual gamers.

To broaden the appeal of the 360, Microsoft is going from wild to mild. The first-generation Xbox, introduced four years ago, was big and black and brutish and boxy, just the sort of design that would appeal to boys who like to blow things up. The new Xbox 360 design is more Martha Stewart. That's not to say Ms. Stewart doesn't like to blow things up; perhaps she does. But the new machine is an upright tower with gentle curves and pale plastic. Microsoft says the design is "more Porsche than Hummer," but I find it more ho-hummer, even with the giant, toxic-green, eyeball-like power button that's one of the few design holdovers from the original.

Microsoft is also boosting the mildness quotient with an emphasis on classic arcade and parlor games, offering alternative amusements to people who don't care to wallow in bone-crunching sports games or screeching, spark-spewing race games. Puzzles, poker and other card games, billiards, and similar family fare will be available either free or for a nominal sum, probably somewhere in the $10 range.

To appeal to nongamers, the Xbox 360 can also be used as an adjunct to the home entertainment system, playing audio CDs and serving as a progressive-scan DVD player, for those times when separating monsters from their intestines becomes tedious. Connected to any TV--ideally a high-definition, widescreen digital set--the 360 becomes a digital hub for the family room. Three USB 2.0 connection ports allow users to attach digital cameras, portable MP3 music players (including the Apple iPod), or even a Microsoft Windows Media Center PC. Plug in your iPod and use your own favorite music as a soundtrack to an Xbox 360 game instead of the one on the game disc. (Just don't expect to play any songs you've purchased through the Apple iTunes Music Store, because Apple has not given Microsoft a license for Apple's copyright-protection system.) If the Media Center PC is in the other room, an optional Wi-Fi adapter or an Ethernet cable can pull music, photos, home movies, and other Windows Media files from the computer to the Xbox for display on the big-screen TV. Setting up such a networked system is always tricky, however, even for experienced techies, and rigging this one up may cause them to want to blow something up.

And that, of course, is where the Xbox 360 really shines. In the process of giving me thumb calluses while I tested new games like Perfect Dark Zero, Call of Duty 2, and Project Gotham Racing 3, the Xbox 360 revealed itself to be the most powerful and immersing gaming console available today. (Elsewhere on these pages are my picks of the best games for the holidays.)

All new Xbox 360 games are high- definition, showing individual blades of grass rippling in the wind, beads of sweat on an athlete's face, and blood spatters in exquisite detail, accompanied by 5.1-channel surround-sound audio. The enhanced realism comes from the Xbox 360's custom-designed IBM PowerPC processor and ATI graphics chip, which together deliver near-cinematic quality.

Microsoft chose to support the 720p (720 lines scanned progressively) high-definition video standard instead of the more advanced 1,080p level announced by Sony for its PS3. All I can say is that 720p looks pretty darned good.

Microsoft also chose a standard- definition DVD player for the Xbox 360, a conservative move, given that high-definition DVD players are expected to start arriving soon. (The PS3 will feature a high-definition DVD drive.) But Microsoft reserved the option to add a high-def DVD player once a technical standard for those next-generation DVDs has been resolved.

The Xbox 360 carries interaction among players to new levels. There's a tiered pricing system for Xbox Live, with online subscriptions ranging from free for the basic Silver level to $50 or more per year for Gold and Premium Gold levels, which include multiplayer online gaming and the ability to buy virtual gear for virtual characters using real money. Players can enter tournaments, compete for prizes, challenge other players in ranking ladders, and build a global reputation.

Only a few of the most popular first-generation Xbox games will be playable on the new console, which means either keeping an older Xbox attached to the TV along with the new one or buying new versions of your favorites. The Xbox 360 also falls short, ironically, in integration with other Microsoft products and services like MSN's music store and Hotmail e-mail. Perhaps that's not bad. The first time an Excel spreadsheet or PowerPoint presentation tries to sneak onto my TV screen, I'm ripping out the wires. Let's not forget that the Xbox 360 was built primarily for fun and games. And with its powerful new hardware and endless expansion possibilities through Xbox Live, it's the only game in town this holiday season.

NINTENDO MICRO

GEAR REVIEW

The new Nintendo Game Boy Micro is to portable gaming what the Apple iPod Nano is to portable music: an impossibly small device that delivers bigtime entertainment. The Micro ($100) is the latest and by far the smallest iteration of the world's most popular portable game player. Measuring just four inches wide and two inches tall, the Micro is smaller and lighter than most cellphones. Yet despite its diminutive size, it manages to offer useful and relatively comfortable control buttons for blasting aliens or getting in a quick game of virtual tennis.

Unlike other new portable devices such as the Sony PSP, the Nokia N-Gage, or even the Micro's bigger brother, the Nintendo DS, all of which made their debuts with a limited number of available game titles, the Micro was born with an inheritance of more than 700 compatible games written for the Game Boy Advance (GBA) and GBA SP models. (Older games written for the original Game Boy and Game Boy Color won't fit in the Micro's cartridge slot.) Luckily, the Micro did not inherit some of the defects of its older siblings, including notoriously dim display screens and the need for a clunky earphone adapter. The Micro's small, high-resolution display is bright and highly readable, at least for the generation of users most likely to make use of it. (Those of us old enough to require reading glasses will still have to squint at times.) It comes with a set of alternate snap-on face plates for users who want something jazzier than the standard black or silver bodies. The extra covers, which have names like Camouflage, Flame, Ladybug, and Ammonite, also protect the screen from scratches.

The question is whether owners of previous Nintendo portables will find the Micro's reduced dimensions appealing enough to warrant spending a Benjamin. Serious gamers will probably spend $30 more for the dual-screen Nintendo DS, or even $150 more for the Sony PSP. Those on tight allowances may choose to save $20 by getting the larger GBA SP, money that can buy an extra game. Even so, I expect the Micro to be the next big thing in on-the-go gaming.

SONY PLAYSTATION

GEAR PREVIEW

More than 90 million PlayStation 2 consoles have been sold worldwide since the PS2's debut in 2000, compared with some 25 million Microsoft Xboxes sold since 2001. Even if the new Xbox 360 is a rousing success, Sony's dominance of the console universe is likely to continue, and there's a powerful new PlayStation coming next year.

The PS3, scheduled to be introduced in Japan in mid-2006 and in the U.S. a few months later, is expected to be technically more advanced than the Xbox 360 in many ways. Notably, it will include a high-definition DVD player intended to capitalize on the growing market for HDTV sets, which, of course, Sony also makes. (The Xbox 360 supports HD games, but it lacks the ability to play next-generation, prerecorded HD movies.) Sony's CEO, Sir Howard Stringer, said recently that Sony will sell the PS3 at a loss in order to populate the world with Sony's favored high-definition DVD standard, known as Blu-ray. If millions of Blu-ray PlayStations find their way into living rooms, Sony figures, movie studios will be compelled to embrace it over the rival standard, known as HD-DVD. Yes, brace yourself for another Betamax vs. VHS standards war.

Sir Howard said the PS3 will sell for $300 to $400 and will come with a bundle of games, movies, and TV shows, many of which Sony also makes. The question is whether the titles will be bundled on Blu-ray DVD discs or on a built-in hard drive.

Because the first standalone Blu-ray DVD players are expected to cost $1,000 or so, Sony is essentially giving a free next-generation DVD player to every PS3 customer. That eases the pain (a little bit) for people faced with buying new, high-def versions of their favorite DVDs.

Of course, nothing is stopping Microsoft from adding a high-definition DVD player to the Xbox down the road, once the standards battle has been resolved.

How else does the PS3 stack up against the Xbox 360? It's based on a bodaciously powerful Cell processor developed by IBM and Toshiba, which appears to outmuscle the IBM PowerPC custom chip used in Microsoft's Xbox 360. Sony has also tapped nVidia to supply the graphics engine in the PS3, and it's going to be a whopper, with nearly double the rendering power of the top graphics card that nVidia now supplies to PC gaming enthusiasts. Again, on specs alone, the PS3 should have a graphics edge over the ATI-based Xbox 360.

Fancy hardware doesn't mean anything, though, if the people who write the games for the hardware can't take advantage of it. (Exhibit A: The PlayStation 2 is technically inferior to the original Xbox, but it's still the world's most popular gaming platform based on the selection of compelling game titles.) At its launch the PS3 will be backward compatible with thousands of earlier PlayStation titles. But Microsoft knows software, and game developers are praising it for providing them the tools and support to build new titles for the Xbox 360.

So should you wait a year for the PS3 or buy the Xbox 360 today? Current Xbox owners are likely to upgrade to the 360, and current PS2 owners will probably stick with Sony. New gamers, however, have little reason to wait nearly a year for the PS3, and Microsoft is almost certain to gain some ground on Sony. The one wild card: Sony could slash the price of the current PS2, perhaps to $100, making the $400 Xbox 360 seem less attractive. Strike, counterstrike: It's all playing out like a good videogame. Only in this game, billions of dollars are at stake.

PC SYSTEMS

Alienware Area-51 ALX Some people think the Xbox 360 is for wimps, and they're willing to spend more than $5,000 to prove it. The ALX system boasts a liquid-cooled, dual-core Intel Pentium Extreme 840 processor and two nVidia processors. It's scary on the outside too.

Dell XPS M170 Who would spend $3,500 on a laptop just to play games? Trick question. The XPS M170 is much more than a game machine, featuring Windows Media Center PC software. But with a 17-inch screen and a killer nVidia graphics card, the XPS M170 makes Quake a lot more fun than Office.

Razer Copperhead This may be the best (and at $80, the most expensive) gaming mouse in the world. It's an ambidextrous laser mouse with 2,000-dot-per-inch accuracy and custom weights for perfect balance.

Logitech G5 Laser Mouse For those who want a more general-purpose but sniper-like mouse, the $70 Logitech is also custom weighted and highly precise (it's for righties only).