• Reuters, Friday, December 22, 2006 11:02 AM

In the video-game sector, Microsoft may have the largest online gaming service, but it was also the first to market--and its growth is stalling. Microsoft's Xbox Live was supposed to be transformed into a mass-market online gaming portal, with the end-goal of becoming a video-game social network in which gamers chat, compete and post their records and scores.

Fiftheen months since the launch of the Xbox 360, Xbox Live has some 4 million subscribers who pay $50 per year to use the service. Maybe gamers don't want to have to pay for Internet connectivity? Maybe there's not enough MySpace about Xbox Live?

The service just doesn't appeal to the mass market. Compared to Nintendo's Wii, which has been widely marketed and touted as a mass-market console for the entire family, it looks as though Microsoft's catalog of games for its new console cater exclusively to the hardcore gamer market. This is very limiting--especially since roughly one-third of the hardcore gaming market actually takes its games online, according to DFC Intelligence.

Xbox Live was supposed to lay the foundation for the dynamic in-game ad market. After all, Microsoft bought in-game ad server Massive, Inc., for precisely that reason. But it's not going to happen with 4 million users--not even 10 million. Note to Bill Gates: must go after the considerably larger casual-gaming market.

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