Chris Lewis - Part One

I wouldn't disagree with the way you've set that up. That's not to detract from what we'd achieved up until the start of the last calendar year, but at that point we were of a mind that we wanted to gain even more momentum, that we felt we were doing very well in certain parts of Europe, Middle East and Africa, but not in all of the places we had an aspiration to be successful.

Because our ambition has never changed, and that's to be - ultimately - highly successful with this generation of Xbox 360, and to get into a very strong market position across all the key geographies in Europe.

In many ways I think the start of our ramp in terms of volume was the activities that we did not only around Grand Theft Auto - which is a franchise not necessarily that's been associated with our platform in any way in the past. I think what we achieved there is testament to just how much focus we can bring to that, just how retail got behind what we were doing.

We've always been very focused on partnering and working quite deeply with retail, and that's been the same right from the launch of the original Xbox - we've been very partnership-orientated, and that's what we did with GTA.

We also touched the price point again twice last year, and I think we now represent fantastic value. Our entry point has now hit that sweet spot of GBP 129 here in the UK, EUR 179 in continental Europe, which clearly does open the sluice gates in terms of volume.

But I think I would add that price alone doesn't lead to us meeting the aspirations that we have - you've got to have this alignment of great content, you've got to have not only great content for the core, which we've had and will continue to have with great games like Halo, Gears of War and GTA.

But you've also got to stand for a broader family entertainment proposition as well. What we've done with the New Xbox Live Experience which we brought to market last year, that opened up a whole spectrum of users to the system that wouldn't perhaps otherwise have found something quite as user friendly as they'd have liked, and the great content and marketing.

As a result of that we had our best Christmas ever, we doubled our business year-on-year, went north of 8 million units installed in Europe, we have a very happy partner ecosystem because our attach rate is world class, and continues to be. We've really had a successful year, and continue to enjoy success coming out of Christmas - the first couple of weeks of January have also been particularly good for us.

Clearly I think it would be wrong for me to sound complacent about the economic climate for one. Certainly I think we're resistant to the economic woes being experienced right now, but not immune.

I think history says that the videogames business does do relatively well in these sorts of times. I think we've done disproportionately well, with getting to those magic price points that open up the volume. But I really don't think price alone fixes to that, you've got to have this breadth of family entertainment that you're offering - whether that's what we've done through videogame download opportunities around Europe, whether it's what we've done with our Live service, which remains best in class.

Without a doubt that remains at the centre of our core competence - 17 million people and growing is testament to that - and I think it's the alignment of those things that has allowed us to weather that storm, if you want to call it that, better than anybody else.

Let me call Live out again there - I do think that service does then make Xbox 360 a treat of a family entertainment experience, certainly if my own household is anything to go by. We do all sit around and play games together, probably more than we ever have, and if what I'm constantly hearing is correct - that people have a thirst to participate - I think that's really helping us.

And there's more of that to come, because we're good at that stuff - we've managed to totally transform the experience without requiring people to buy new hardware, which is pretty unique.

So we're not complacent about the economy, and we'd never want to sound that way, and not complacent about our position in the market. Hey, it's great to be a million units ahead of Sony right now, that's a fabulous place for us to be. But it doesn't mean we're the least bit relaxed about what needs to keep happening - and we'll stay focused on core and broad entertainment, we'll continually revitalise the Live experience.

Those things have to happen because that's what consumers demand - in this kind of climate the consumer is even more king than ever the case was before, and that's probably a good thing because everybody's standards have to continue to rise.

I feel pretty good right now, and I do feel we're in a good situation to continue to weather the situation that we face right now, not just here in the UK, but in other parts of Europe.

I think mature companies will all give attention to discretionary spend. Undoubtedly that's happening, and Microsoft's no exception to that as you've seen from our own announcements in the last few weeks. I think this industry will need to give attention to those aspects of any good business practise, just like any industry does. Regarding development costs, I think we're well placed there because we do enjoy a position in terms of our platform of being a very easy platform to work on. I think that's going to play nicely for us in the current climate.

But I think we'll see companies give attention to stronger levels of priority. If businesses were ever thinking about doing stuff that was nice to, versus need to, I think that's going to change. I'm not sure, having said that, there was much of it going on, I do think we're a mature industry with high levels of competition that have largely weeded out that kind of thing anyway. I don't think any of us have the luxury of indulging ourselves in, perhaps, cul-de-sac-like areas of development. I don't think we've seen that for some time.

Certainly people are having to sharpen their pencils and think hard about making sure they're prioritising where they're spending, and what levels of resource they're going to need to bring into the business.

Microsoft has always been, and remains, fixated on bringing strong levels of R&D and you're not going to see that change from us as a company. It's right at the centre of the way we come to market, not just in my part of the business, but generally across Microsoft - you won't see us compromising in terms of research and development, and posturing ourselves for the future.

I think this is more a reset than a recession - other people have said that - but I think we're truly in a reset now, and the strong companies are those that continue to invest in the future, invest in customers, continue to listen and offer a great service, and not get too internally-orientated, or distracted from what's important in the market.

We're trying to do all of those things while being mindful of the fact that we're in a tougher place economically than we were less than a year ago.

I think you'll see some of that, yes - but I also think, and I can only really speak with authority about our own games development work, be very confident we'll continue to innovate, and focus on exciting IP for the future.

Be very confident that we see that ultimately as central to our ability to continue to be successful, because I think if you batten down the hatches and simply work where you know you're already strong, that doesn't give you the future growth that we're all hungry for.

Now, nobody's going to read that and think, "Oh yeah, great point!" I think all the big, mature companies are thinking that way - because if we're in the eye of the storm right now in terms of the economic situation, then clearly we'll come out. We will come out of this situation, people will start spending money again, banks will start issuing credit in a slightly more flexible way and we'll come out of it.

The healthy companies will be the ones that have invested sufficiently during that phase that they've got exciting IP and innovative things happening for when that recovery starts to happen. I don't know when that is... I'd love to know, but I tend to think very positively about the opportunities that it subsequently creates.