Microsoft has unveiled the successor to its wildly successful Xbox games console, with the release of the Xbox 360, throwing down the gauntlet to its Japanese games hardware competitors. However, the real story for Microsoft is likely to come later, when it inevitably releases new high margin games software to go with its new device.

The new compact white console will go on sale in North America, Europe and Japan before the end of the year.

The new model is smaller than its computer sized predecessor but is powered by three 3.2-gigahertz IBM microprocessors making it arguably the most powerful gaming device on the market.

The new Xbox also has entertainment features, which enable it to stream multimedia content from both Windows XP PCs and entertainment devices such as cameras and music players.

Microsoft's Japanese games hardware rivals, Sony and Nintendo, are reportedly planning previews of their own next generation offerings next week.

Microsoft, being a software company, has the advantage of being able to capitalise on the high margin software business as part of its games strategy. Its Xbox hardware platform has enabled Microsoft to get into the games software business in a big way, having published the most successful Xbox game series, Halo, which have sold millions of copies.

In contrast, Microsoft's rivals, especially market leader Sony, rely almost solely on their much lower margin hardware for revenue and profits. While Sony has sold many more PlayStations than Microsoft has sold Xboxes, it needs to in order to generate a similar return on its games business as the software driven Microsoft, which can afford to make a thin margin on its hardware while taking the cream from its games software. Look out for a new Microsoft software games release to go with the Xbox 360 in the not too distant future.