It's easy to see that Microsoft is aggressively targeting the casual market with the Xbox 360. Gamasutra recently conducted an interview with Microsoft product manager Aaron Greenberg that outlined the company's strategies. With an attractively priced (but crippled) product in the Xbox 360 Arcade, new features in the November update geared towards casual gamers, holiday titles aimed at families (Lips, You're in the Movies, Scene It), and partnerships with mainstream vendors like Netflix, its intentions are clear. Considering the enormous success of the Nintendo Wii, it's easy to understand why.
A few sources have told me that Microsoft's performance with casual gamers will determine the fate of the 360. If this big holiday push is successful then the future of the Xbox 360 is secure. If system sales are below expectations then expect a big announcement in 2009 about new Microsoft hardware in 2010.
This is a huge and terribly interesting gambit by Microsoft. While the components of its strategy seem solid, they're also a bit conflicting. For example, to effectively enjoy the new features of the November update, Xbox 360 Arcade owners must purchase storage. Purchasing additional accessories negates the attractive price point. Furthermore, it also has the potential to piss off new customers. Several first-time console-buyers are unknowledgable about the differences in 360 models and only see the magic sub-$200 price. They don't realize that they're not getting the full Xbox 360 out of the box.
It'll be interesting to see how the holiday plays out, especially considering current economic conditions. While I'm sure Microsoft will have a strong holiday, I'm not convinced it'll get the casual numbers it desires. I'd bet on a new console announcement from the company in 2009 for a 2010 release. Then again, I once lost $600 in 30 minutes at a blackjack table in Treasure Island, so maybe gambling isn't for me.