Now that Microsoft's Xbox 360 has launched in its three biggest markets--the United States, Europe, and Japan--it's time to turn our attention to the second phase of this exciting game console's life. In the first phase, we saw the massively successful launch of the console along with 18 launch titles and numerous hardware peripherals. And all around the globe, millions of eager Xbox fans queued up outside of retail stores to be the first on the block to obtain one of the most eagerly awaited game machines in video game history. How will Microsoft follow up on this blockbuster debut and keep new and future Xbox 360 users happy throughout 2006?

Launch recap

Before answering that question, let's take a step back and examine how the Xbox 360 launch went. According to a small minority of naysayers--whom one might charitably describe as PlayStation 3 fan boys--Microsoft completely bungled the Xbox 360 launch. They cite the large number of potential customers who were unable to obtain Xbox 360 consoles and reports about reliability issues with the Xbox 360 as proof. Do they have a point?

When demand outstrips supply

With regard to the many fans that were unable to find Xbox 360's during the 2005 holiday season, Microsoft was upfront about the fact that their manufacturing partners were never going to meet demand. "Our only real challenge is getting Xbox 360 out to the millions of people around the world who want it," Aaron Greenberg, the Group Product Marketing Manager for Xbox Live Global Marketing told me during a recent briefing. "We can only make so many." Greenberg noted that chip yield problems prevented Microsoft from shipping as many Xbox 360 consoles as it had wanted as well.

The supply problem was further exacerbated by Microsoft's decision to launch Xbox 360 nearly simultaneously in its three biggest markets, a feat no other video game maker had ever attempted. Previously, video game makers would ship systems to a single locale first, and then stage launch events in other geographies over a long period of time. Greenberg describes this decision as deliberate. The company didn't want to make video game fans in Europe and Japan wait to enjoy the Xbox 360, he said. And if it makes you feel any better, an unofficial poll of Microsofties I know reveals that the company did not set aside any Xbox 360 consoles for Microsoft employees. Greenberg told me the company didn't accommodate celebrities, CEOs of major corporations, or other famous people either. Many of whom, incidentally, have complained to Microsoft about its inability to provide them with devices from a presumed secret stash.

"Every week, we're shipping more consoles to retailers," Greenberg told me. "After Christmas, the supply will be much better." When asked when consumers could expect to find Xbox 360's sitting on store shelves, however, Greenberg admitted that it would probably be February 2006 or later before Microsoft caught up with demand. "There is just so much demand," he said.

On the other hand, people who really want to get an Xbox 360 have been able to do so, assuming they work hard enough. At midnight madness events around the world, customers-to-be waited in line for hours in order to be among the first to get their hands on Microsoft's new console.

Reliability issues? Not quite

As for the supposed reliability problems that dog Xbox 360, you can forget about that class action lawsuit: Microsoft reports that the reliability rate for Xbox 360 is well under the typical 3 percent failure rate generated by any consumer electronics product. Though Greenberg wasn't more specific than that, I can report that the failure rate of Xbox 360 is somewhere between 1 and 2 percent based on conversations with several people at the company. "It's a very small percentage," Greenberg agreed. "There are no real issues."

Those who do experience issues should ensure that Xbox 360 and its humongous power adapter are properly ventilated. Because the device utilizes a massively powerful three-core Power PC processor, and does so in a slim and small form factor with little room for cooling, it cannot be stuffed into a closed stereo cabinet, but instead needs to be given room to breathe. As I've reported here, in WinInfo, and in my blog, I've never experienced any reliability issues with Xbox 360, heat-related or otherwise, but those that do can take advantage of Microsoft's next-day turnaround service, which will repair or replace broken Xbox 360's. And to further blunt complaints, know that Xbox 360 has safety features built in that prevent the device from getting damaged from heat: Instead the device will ship shut down. Once it cools off, it's good to go again.

According to Greenberg, the feedback that Microsoft has gotten about Xbox 360 has been overwhelmingly positive. "People are blown away by all the stuff it does, especially the features they didn't even know were in there," he told me. "98 percent of Xbox 360 users are thoroughly enjoying their consoles. But we're taking care of it for those that aren't."

Xbox 360 in 2006

So what can we look forward to in 2006? Will the second phase of the Xbox 360's life cycle live up to the launch hysteria? From what I can see, things will get even better for Xbox 360 in the first half of 2006. We're going to see dramatic improvements to the Xbox Live experience, new hardware devices, and a slew of new, second generation games that will take even better advantage of Xbox 360's graphical prowess than did the 18 launch titles. Let's take a look.

Future launch events

With the big three out of the way, Microsoft is looking forward to providing Xbox 360 to most of its other markets in the first quarter of 2006. These markets include, but are not limited to, Mexico, Australia, New Zealand, Korea, and so on. "Most new locales will come on board in the next quarter," Greenberg said. By mid-2006, Xbox 360 should be available in virtually all of the markets Microsoft targets.

Xbox Live

When Microsoft launched the Xbox Live service in 2002, it was revolutionary, providing Xbox users with the first system-wide online service for video gamers. But Xbox Live wasn't perfect: Geared largely for hard core gamers who wanted to deathmatch other players online, Xbox Live required users to pay up front for 3 to 12 months of access with a credit card, and offered online head-to-head game play only. Over time, Microsoft introduced Xbox Live Arcade, which provided retro arcade video games and simpler, puzzle and card oriented titles for more casual gamers. But Xbox Live still required a serious financial outlay and though popular with over 3 million subscribers, never really hit a general audience.

With Xbox 360, Microsoft has fixed all that. Now, customers can purchase subscription cards for the Gold version of the service without a credit card in retail stores, and a new Silver offering is available for free. Customers can use Xbox Live to purchase small games, themes, Gamertag graphics, and other content, and much of the content--such as game demos, movie and gamer trailers, and so on, is free. This try before you buy approach has revolutionized Xbox Live (as I'll describe in more detail in an upcoming review), making it more accessible to a much wider audience.

So what's changing for Xbox Live in 2006? First, we're going to see more of the same great content types that current grace the service, including new movie and game trailers, new Xbox Live Arcade titles, and even episodic game downloads, in which individual game levels can be paid for and downloaded one at a time.

New games will be added to Xbox Live Marketplace on a weekly basis, while new Xbox Live Arcade games will be added every month. In December, for example, we can expect to see Robotron 2084 added, along with more puzzle and retro titles. "People are after us to add more and more retro arcade titles to Xbox Live Arcade," Greenberg told me. "And they'll be excited to see what's happening there." Also, major game makers like EA, Capcom, Activision, and Ubisoft will be adding content to Xbox Live Arcade throughout 2006. Some of that content will be small games and mini versions of full retail titles.

Microsoft is also tweaking Xbox Live as feedback comes in. For example, I pointed out that when you purchase the full version of an Xbox Live Arcade title, you are still prompted to install the trial version. That and other similar glitches will be fixed over time, I was told.

Hardware

The one major hardware accessory that Microsoft promised last year for Xbox 360, but did not deliver in time for the holidays, is the Xbox Live Camera. That device will ship sometime in 2006--think first half of the year--and will allow Xbox 360 users to send and receive video messages with other Xbox users, perform online video chats, capture still photos for their Gamertag pictures, and play upcoming video-supported game titles. Best of all, the Xbox Live Camera (expect the name to change by availability) is also compatible with Windows XP PCs, thanks to its USB 2.0 connection type. The camera will offer 640 x 480 resolution at 30 frames per second (FPS) and can take 1.3 megapixel still photos.

As for the games that will take advantage of the Xbox Live Camera, Greenberg told me that much of the early content will be made available from Xbox Live Arcade, including arcade, board, and puzzle games, but various companies will also ship retail game titles that can utilize the device. For example, an upcoming poker title will let gamers see each other's face as they compete. Some of these titles will appear by mid-2006, while others will ship for the holiday 2006 selling season.

Upcoming games

One of my biggest complaints about the Xbox 360 is that the 18 launch titles are a mixed bag and there is no standout exclusive title that really sets Xbox 360 apart from the pack (though Kameo comes close). Some launch titles like Call of Duty 2 and Quake 4 are excellent games, but they're done equally well on the PC. Others, like Perfect Dark Zero and NBA Live 06, are stinkers and should be avoided. What's a poor gamer to do?

For starters, they can wait for the next set of Xbox 360 games, which will start appearing this month with the long-anticipated arrival of Dead or Alive 4. But the first quarter of 2006 will bring and even more exciting titles, including Tom Clancy's Splinter Cell 4, Tomb Raider Legend, Dead Rising, Tom Clancy's Ghost Recon Advanced Warfighter, Full Auto, Saints Row, Burnout Revenge, The Godfather, The Outfit, The City of Metronome, and Elder Scrolls 4. "Some of those are real blockbusters," Greenberg told me.

Beyond that, second generation titles such as Gears of Wars and Halo 360 will no doubt rejuvenate Xbox 360 sales later in 2006 and provide the console with a welcome boost with which to face the PlayStation 3 onslaught. "Halo 3 is like STAR WARS," Greenberg added. "It's being made by the best team of designers in the world, and gamers can't wait to play Halo in hi-def." Indeed.

Conclusions

Put simply, Microsoft has architected one of the most successful product launches in video game history with Xbox 360, but the picture gets even brighter in early 2006. With exciting new game titles, accessories, and online content coming on board regularly over the next several months, existing Xbox 360 users can take comfort in the fact that their device is getting more and more valuable over time. And for those sitting on the fence, various developments in 2006, coupled with better product availability, will no doubt trigger a new round of adoptions. From where I sit, Xbox 360 is doing fantastically well despite a mixed collection of launch games, and that situation will be reversed by mid-2006 as even better game titles become available.