Microsoft is making a big play for the living room with a new Xbox console that marries games with live TV, Internet browsing, music and Skype.
The Xbox One could considerably expand Microsoft's presence in consumer electronics but is expected to compete with Internet TV devices from companies such as Intel, interactive set-top boxes from cable TV companies, and Sony's PlayStation 4. There's also a possible set-top box from Apple.
"Our ambition is to become the all-in-one system for every living room," said Don Mattrick, president of Microsoft's interactive entertainment business. "The place where your games, TV and entertainment come alive."
The Xbox One was unveiled during an event on Tuesday at Microsoft's Redmond campus. Microsoft said it would be launched "around the world, later this year," but didn't provide a precise launch date. It also didn't disclose the price.
"Xbox On," said Yusuf Mehdi, senior vice president of Microsoft, as he began to demonstrate the device. The Xbox sprang to life and presented Mehdi with a home screen.
Much of the interaction with the Xbox is done through voice, and Mehdi skipped through a series of commands during his demonstration. "Xbox, watch TV," "Xbox favorites," "Xbox, watch ESPN." The console didn't appear to have any problems understanding the commands and responded quickly to the commands.
In the demonstration, Mehdi controlled an Xbox One console hooked up to Comcast cable TV service. The system requires a cable set-top box so it won't reduce the amount of clutter alongside your television but it does remove the need to switch inputs and use a different remote control when jumping from a game to live TV.
Live TV with Kinect navigation will initially be limited to the U.S., but Microsoft said it is "committed to bringing live TV through various solutions to all the markets where Xbox One will be available."
The Xbox One also features a Skype client with high-definition video and group video chat.
The Skype client runs alongside live TV, allowing users to conduct video chats while keeping an eye on the television. The same function also allows the Xbox One to display live fantasy football scores and rankings alongside live NFL games as part of a new partnership with the NFL.
"This is the beginning of truly intelligent TV," he said.
The console features a new processor, 8GB of memory, a Blu-ray Disc drive and 500GB hard-disk drive and Wi-Fi Direct. It's based on a new architecture that combines a dedicated Xbox architecture with the Windows kernel, on which web apps are run.
By the time the new Xbox launches, it will have been roughly eight years since the Xbox 360 hit stores.
Computer hardware has become much more powerful over that time, but perhaps the biggest change has been to the game market. When the Xbox 360 launched in 2005, its biggest competitors were Sony and Nintendo. Today, a large part of the gaming market isn't dedicated consoles and handhelds, but cellphones.
The global gaming market is worth about $65 billion, according to figures presented by Microsoft last week. Of that, $27 billion is generated by the console market. A further $12 billion is spent on PC games and $8 billion on handheld games for platforms like Sony's PSP and the Nintendo DS.
New platforms are catching up fast. Around $10 billion is spent on mobile and tablet games, which puts phones and tablets already ahead of handheld devices, and a further $8 billion on social and browser-based games.
Things began to change in 2007 when Apple launched the iPhone. Although it wasn't immediately obvious, the iPhone and the phones that followed changed the way people enjoyed games.
While phones have already eclipsed handheld devices, they haven't offered much of a challenge to the living room domain of Microsoft and Sony, but that's beginning to change. In the last year, several phone makers have launched devices that match a powerful processor with high-def output so users can play cellphone games on big screens at home.
Tuesday's launch was light on gaming news. The first half of the hour-long event was spent demonstrating the TV feature and talking about the hardware, but Microsoft did announce a few games coming to Xbox One.
They include "Forza Motorsport 5," "FIFA 14," "Madden NFL 25," "NBA Live 14," "EA Sports UFC," "Quantum Break" and "Call of Duty Ghosts."
More gaming news is promised during the Microsoft news conference at the upcoming E3 show in June.
Martyn Williams covers mobile telecoms, Silicon Valley and general technology breaking news for The IDG News Service. Follow Martyn on Twitter at @martyn_williams. Martyn's e-mail address is email@example.com