Microsoft has this story (hat tip: Joystiq) on Microsoft’s “big gamble” with XBOX Live.

Here’s the key quote:

Microsoft Corp.’s new Xbox 360 videogame console comes bundled with lots of bells and whistles, such as movielike graphics. But Microsoft’s bid to reshape the videogame industry largely is tied up in one feature: the machine’s emphasis on online play.

Microsoft is making a big — and risky — bet that videogame players will flock to the opportunity to play lots of games against each other over the Internet. The Xbox 360, released in the U.S. last month, lets users play more games online than the original Xbox. It also lets users purchase and download games …

But the big move into online gaming carries risks. It is not clear that companies like Microsoft and Sony will be able to lure large numbers of players — each has attracted a small fraction of users to online play with their previous consoles. The companies also must be careful about new business models for distributing games — such as games-on-demand — so as not to alienate game publishers, who still rely heavily on in-store sales. And games designed for multiple players have a mixed record of attracting customers …

It goes on to refer to hurdles to online play adoption — including Microsoft’s subscription fee for XBOX Live, and the high costs of broadband adoption.

Now, I personally love XBOX LIve warts and all — it’s the reason why I went insane trying to find an XBOX 360 (current location: local FedEx sorting facility). But XBOX Live is a nasty, intimidating place. I personally have felt intimidated running my own server on XBOX Live. Unless you have some friends to watch your back, you will encounter tons of sociopathic behavior from the hordes of teenagers and unmarried, virginal adult rednecks who permeate the service. Unless Microsoft does something significant to limit the casual player’s encounters with abusive “hardcore” or “pro” players, XBOX Live won’t be a mainstream service.

Their “zone system” that basically segregates players into different areas (such as “recreation,” “pro,” “underground,” and “family”) and “trueskill matchmaking” which only matches players of similar skill levels sounds like it could do a lot to limit the current problems. But from what I’ve read, it has not been really implemented into the first generation of XBOX 360 games.