The introduction of the Xbox, the long-awaited gaming console, is not just a watershed for Microsoft. It's a watershed for American manufacturers. "This is the first American gaming console since the Atari Jaguar came out over a decade ago," says Keith Feinstein, the co-founder and president of Videotopia, a traveling museum exhibit that tracks the history, social impact, and art of video games. Can an inexperienced American manufacturer, even a behemoth of a company like Microsoft, compete in a market that has long been dominated by Japanese manufacturers? The jury's still out.

"Though they got off to a good start—they did a lot of things they were supposed to do—Microsoft's prospects are very uncertain at this point," says David Cole, an analyst with DFC Intelligence, a research firm that follows the video game industry. "We won't really know until this time next year when they really start ramping up their manufacturing."

From the mid-eighties to the early nineties, the gaming console market, a multibillion-dollar industry, was dominated by the Japanese company Nintendo and its 8-bit console, basically a specialized, inexpensive computer that plugged into your television set and did little more than run video games. Then, in 1991, another Japanese company, Sega, introduced a 16-bit console, eventually sharing about half the market with Nintendo, which introduced its own 16-bit product. In 1995, Sony introduced the PlayStation, and as 32- and 64-bit consoles became the norm, the PlayStation became the new market leader.

Now we're in the age of the 128-bit gaming console, and Microsoft's primary competition is Sony. Sega introduced the first 128-bit unit, known as the Dreamcast, but soon left the hardware market entirely. "They decided to focus on software," says Cole. "The hardware business is just too capital-intensive for them." Nintendo offers a 128-bit product, but the GameCube is intended primarily for children under 13. Sony's PlayStation 2 and now the Xbox are aimed at the much more lucrative teenage and young adult market. "The only people who have even heard of the GameCube are little kids," says Feinstein.

Cole believes Microsoft is at a disadvantage in its competition with Sony but not because Microsoft is new to the gaming market. Sony, after all, was able enter the fray cold and quickly came to dominate it. Whenever new technology becomes available, the entire market almost starts from scratch, and hard-core gamers rapidly replace their existing units and games. Microsoft is at a disadvantage, says Cole, simply because Sony has a head start, the PlayStation having debuted a year ago.

Cole says its too early to predict how the Xbox will sell, but Feinstein is quite bullish on its prospects—this despite the fact that he was rather wary when he first heard that Microsoft was entering the gaming market. "I was pretty skeptical of a company that has never done real video games before coming into the video game market and I've always preferred Apple to Microsoft," he says. "But I'm really impressed with what they put in the Xbox." He particularly likes the Xbox controllers—"they're designed [for] big, meaty American hands"—and the system's breakaway cables, which prevent rowdy adolescents from accidentally pulling the unit to the floor.

Trip Hawkins, Chairman and CEO of game publisher 3DO and founder of Electronic Arts—one of the biggest names in the gaming software industry—isn't nearly as high on Microsoft's new product, feeling that it's very similar to a PC yet offers too few advantages over a PC. "If [people want] to play games with PC technology, they're better off doing it on a true PC," he says. "And if I'm not a PC gamer, then why would I want to buy a console that's like a PC?"

This Christmas, Microsoft will make the Xbox available in limited numbers. We'll have to wait until next Christmas, when the unit will be readily available, to find out whether newbie Microsoft has what it takes in the cutthroat gaming market.