When the original Xbox video-game console went on sale in 2001, it wasn't clear why Microsoft, known for staid workplace software, was branching out into fast-paced action games. But Microsoft decided that capitalizing on the popularity of gaming could help the company position itself for the coming wave of home digital entertainment.
"Microsoft saw the writing on the wall," says David Dennis, a spokesman for Xbox. "It wanted to have a beachhead in the living room." Ten years later, the Xbox 360 is currently the second best-selling video-game system in the United States, according to market research firm NPD, behind Nintendo's Wii and beating out Sony's PlayStation3, and making Microsoft a contender in the fierce battle to serve up entertainment on demand, especially from Internet video services. Analyst firm BCC Research estimates that $144 billion was spent on "digital living room" devices worldwide in 2010, and that this figure will grow to $226 billion by 2015.