Microsoft looks beyond console wars with new Xbox

Microsoft and Sony both released new video game consoles this week: Microsoft has the Xbox Series X for $ 500 and the S Series for $ 300, while Sony has two models of the PlayStation 5, starting at $ 400.

The latest generation of consoles launched by the two lasted around seven years. With the latest systems, Microsoft and Sony employ different strategies to attract gamers and generate even more revenue from gamers.

A lot is at stake.

The pandemic has given people more free time to play games. Gamers could stay hooked for years to come, which means a big business for both companies.

Games represent 24% of Sony’s revenue. That’s 8% of Microsoft’s revenue, but Microsoft is more widely regarded as the third most valuable public company, behind Apple and Saudi Aramco, and any success in the game can benefit many shareholders.

In 2013, when Microsoft introduced the Xbox One and Sony released the PlayStation 4, Sony shipped 4.2 million new consoles, ahead of Microsoft, which shipped 3.8 million, according to the research firm’s estimates. on the IDC technology industry.

Sony had priced the PlayStation 4 at $ 400, $ 100 below the Xbox One’s $ 500 price tag. Microsoft has spent time promoting the entertainment capabilities of the Xbox, rather than focusing more directly on games. In the beginning, the Xbox One came with the Kinect, a device that allowed people to control the Xbox with voice commands and motion gestures. It wasn’t a major success, and Microsoft ended up releasing a $ 400 Xbox package that left out the Kinect in 2014.

Later, PlayStation 4 owners were given access to exclusive games not available on other systems, including “Uncharted 4”, “Horizon Zero Dawn” and “Spider-Man”. The Xbox One has its own exclusives, including “Halo 5.”

Still, every year the PlayStation 4 is best-selling on Xbox One, according to IDC.

Microsoft has been tweaking its approach to gaming since the launch of the Xbox One. Phil Spencer, executive vice president of games at Microsoft, said in an interview with The Verge last year that console shipments, the usual measure of success, were not as important as engagement, y including the number of people playing.

This change follows revolutions in other Microsoft products under Satya Nadella, who replaced Steve Ballmer as CEO in 2014. The company has stopped being so insistent on standing up for Windows. It released versions of its Office apps for Android and iOS, and it brought the Teams productivity app from the Office suite to Linux, the open source operating system. Linux has become accessible on Windows. Microsoft started migrating Office clients to subscriptions and offered Windows 10 for free.

The new Xbox Series X and S don’t have a list of new exclusive titles like last time around. So how will Microsoft stand out?

The answer is Xbox Game Pass, an online subscription service that gives customers a catalog of over 100 games, spanning the previous three Xbox consoles, to download – all for as little as $ 10 a month. Microsoft plans to strengthen the service with new titles over time, much like Netflix does with video.

Microsoft’s offering is larger than Sony’s new PlayStation Plus collection, a similar service with 20 PlayStation 4 games that people can play if they subscribe to the PlayStation Plus online multiplayer service, which costs $ 5 per month. .

Game Pass subscribers who pay an additional $ 5 per month have access to a service that allows them to play Xbox games on Android devices; games are delivered over the Internet from Microsoft data centers. (Microsoft wants to provide a similar service for iOS devices, but says Apple’s App Store policies have prevented it from doing so.)

The mobile option represents a sort of response to the Nintendo Switch, which offers powerful gameplay in a portable design. Sony’s PlayStation Now cloud gaming service does not support mobile devices.

Other games are coming.

Microsoft’s gaming wing is booming, with 23 game development studios, including those from the $ 7.5 billion acquisition of Zenimax announced by Microsoft in September. It grew from 11 in 2018 and larger than Sony’s collection of 14 studios. Microsoft has reached out to game developers in Japan, the home country of Nintendo and Sony, Bloomberg reported earlier this week.

Microsoft’s studio 343 Industries was supposed to release the next installment of its popular sci-fi shooter series “Halo” this holiday season to accompany the new Xbox consoles, but in August the company announced the game would be released. delayed until 2021.

In contrast, the $ 500 PlayStation 5 and the $ 400 PlayStation 5 Digital Edition (which does not have a disc drive) can play exclusive games such as “Marvel’s Spider-Man: Miles Morales” and “Demon’s Souls. “. The PS5 also benefits from a software redesign and a major controller design.

Without any of these features in the new Xboxes, people are looking for hardware upgrades to choose Microsoft.

They are there, but they may not be enough to topple Sony.

“I don’t see any technology in this generation that brings an obvious bump to the content,” said Seamus Blackley, the former Microsoft employee credited as the father of Xbox, who first pushed Microsoft to take on Sony.

Blackley has tried out Microsoft’s new gaming hardware and has said he believes Sony’s PlayStation 5 will have the upper hand at least initially.

IDC shares Blackley’s expectation. Lewis Ward, IDC’s research director for games, said he expects Sony to sell up to 5 million PlayStation 5 consoles this year, and he sees Microsoft selling 3.8 million Xbox consoles. Series X and S. (Microsoft will sell all consoles manufactured this year and expects a record-breaking holiday in game usage, Jerret West, director of marketing for Microsoft’s Xbox business, told CNBC. Tim Stuart, chief financial officer of Microsoft’s Xbox business, said Jefferies analyst Brent Thill expects supply to exceed demand in the fourth quarter and first quarter.)

Investors are focusing less on sales of Microsoft consoles anyway. Last year, the company introduced a new metric: revenue growth for Xbox content and services, which includes Game Pass subscriptions and long-standing Xbox Live service for online gaming, as well as sales of Popular games such as Minecraft for non-Microsoft devices. That figure has been higher than the overall growth in gaming revenue in each of the past four quarters.

Also, the increase in console sales doesn’t necessarily help Microsoft’s finances. The more console revenue Microsoft ultimately generates in its current fiscal year, which ends June 30, the lower the company’s total gross margin will be, Morgan Stanley analysts Keith Weiss and Josh Baer wrote in a distributed note. to customers last month.

“I think Sony will probably come out of the door faster with the hardware sale, but I don’t think Microsoft cares,” said Ben Throop, founder of game development company Frame Interactive in Vermont. He’s worked on several PlayStation games, and he expects to buy a new PlayStation and a new Xbox – but not right away. He said Microsoft was focusing more on accumulating Game Pass subscribers than on mobile consoles, unlike Sony.

West countered that Microsoft offers the most powerful console ever made and said he absolutely cares about selling consoles.

“But focusing only on the console is an incomplete way to assess the gaming industry and how it will develop in the future,” he wrote. “Developers who work with us can reach gamers on PC, console and mobile through the cloud. And all new gamers who choose their games have so many options to play.”

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