@ Chris Hu

Good point, however War of Warcraft provides a free trial period (free download) and the game is well cheaper than a console retail game. It's still amazing though (what is the number of active monthly accounts?), I think relatively low hardware requirements allowed this game to tap well into the hundreds of millions install base.

When Microsoft came out with the XBOX I think allot of people were thinking (some still do) that they were just attempting to expand their PC monopoly into the living room. Depending on your experience with the company's products this might excite or scare you.

My theory however is that they saw the the home console as a threat to their home computer monopoly. Which would leave their income to the mercy of their buisness computer monopoly which is being threatend by linux.

For many who may be unfamilier with Microsoft's OS monoply on IBM compatible PC's. They have been blocking competition to their OS's with what's called the "applications barrier to entry". New OS's can't gain marketshare because they have little applications made for them, while symultaniously software vendors don't develope for new OS's because they have little marketshare. Another way competiton is blocked is through pressure on Original Equipetment Manufactorers (Compact, Dell, HP, Sony etc.) to only include Microsoft's software (this has included Internet Explorer and MS Office) in their computers and exclude their competiton. Failure to comply with their terms would result in higher license fees (of Windows) and in turn would result in loss of competitive pricing.

How could a home console threaten to break MS's home computer monopoly?

Home consoles are essentially home computers that are dedicated to playing games. But as they've evolved they have taken on many of the features of IBM compatible PC's. Most notably the abillity to connect to the internet. With that evolution it was only inevitable that they gain the ability to browse it. With more Web Applications becoming incresingly capable while more popular than Desktop Applications the applications barrier to entry starts to crumble.

When IBM compatible computers are being made obsolete by set-top-boxes and video game systems in the home computing space so to will the standard PC OS be made irrelevent to home computer users.

"We sees the "game system" (PlayStation 2) as a threat growing upward Into the PC space." - Microsoft's Michael Porter