Xbox Frenzy in Full Effect

NEW YORK – After standing on a city street for more than 28 hours, with only a blanket to protect him from the cold and rain, Peter Gonzalez had no doubt about what he should do next: stay up all night playing video games.

The 19-year-old college student was among the gaming fanatics who waited for hours to be among the first to snag an Xbox 360. Stores began selling the systems at 12:01 a.m. Tuesday.

"I feel amazing," said Gonzalez, who was first in line at a Best Buy store and planned to play all night before heading to an 8 a.m. class at the College of Staten Island. "It's going to be worth it."

GameStop, EB Games and Best Buy opened hundreds of stores across the country for midnight launch events.

At a 24-hour Wal-Mart location in Woodbridge, Va., where hopefuls sat in folding chairs that snaked around several aisles, staffers said the waiting line had exceeded their inventory by 10 a.m. Monday.

Most retailers have refused to say how many of the consoles they have in stock, but Microsoft has conceded that an ambitious plan to launch the console worldwide within a few weeks will mean fewer consoles initially in North America.

While many of the eager buyers were focusing on the system's high-definition graphics and gaming aptitude, executives at Microsoft see video games as just the beginning.

The new consoles, which also can play music, display photos and show DVDs, are at the center of a strategy that will eventually tie in elements of Microsoft's new online initiative, called Windows Live, said company Chairman Bill Gates.

"In the living room itself, Xbox 360 is our centerpiece and a product that redefines what goes on there," Gates said.

Gates said Monday that he expects Xbox Live, Microsoft's service that allows gamers worldwide to play one another, to eventually work with a Microsoft instant messenger that is slated to become part of Windows Live.

Windows Live is Microsoft's newly launched effort to better compete with free, advertising-financed Web services like e-mail and search technology from competitors led by Google Inc. and Yahoo Inc.

Microsoft already offers limited ways for people on Xbox Live to communicate with those on Microsoft's messaging software, but the new offering — not yet slated for release — would expand that significantly.

Gates said he's also expecting a new Xbox service called Microsoft Points, which lets people prepay for things like virtual armor or other game-related items, to eventually work with Windows Live, so people could use a single account to pay for offerings there, too.

Analyst Rob Enderle said the move to more closely link Xbox Live with Windows Live intends to bolster loyalty to Microsoft products.

Microsoft "can tie that stuff together so that you as a customer become wedded to the Microsoft platform for everything you do," he said.

Microsoft's major console rival, Sony Corp.'s PlayStation 3, also is expected to offer alluring digital entertainment capabilities when it debuts next year.

With the new Xbox system, Microsoft also is significantly expanding what people can do — and buy — from Xbox Live itself.

Gates said one big bet is that game companies will use Xbox Live to sell incremental upgrades and additions to existing games, thus extending a game's life.

Analyst Matt Rosoff with independent researchers Directions on Microsoft said efforts to sell game add-ons through Xbox Live are probably more likely to immediately meet success than the grander plans to become a home entertainment hub.

Microsoft — and Gates in particular — have long touted the idea of the high-tech living room and den, but the concept is still too geeky for most people, Rosoff said.

While Gates may spend lots of time thinking about how important Xbox is to his corporate strategy, the Microsoft co-founder said he doesn't have much time to play the game system himself.

"I'm not a heavy gamer, I'm a light gamer — something to do with my job," Gates said. "The people on [the Xbox] team can all kill me within about 60 seconds on Halo, so I try and avoid them."