Microsoft’s mistakes and Sony’s luck are what put the PlayStation 4 ahead so far

Microsoft entered the console war in November of 2001 with the original Xbox, it launched a full year after Sony’s PlayStation 2, which was already a blockbuster success.  Although Microsoft’s original Xbox failed to make a dent in the PlayStation 2’s sales, it introduced online gaming with Xbox Live, and with Microsoft’s Halo series, it made first person shooters into something of a phenomena in the console space. Hard-core gamers saw the massive potential and game changing features that Microsoft introduced to the console, and they knew Microsoft would eventually be a force to be reckoned with.

The Seventh generation

In the seventh generation of console gaming, Microsoft changed the landscape completely, shocking millions of gamers and analysts around the world. With its early introduction of the Xbox 360 in November of 2005, its robust online gaming service (Xbox Live), emphasis on digital distribution, and game achievements made it a critical success. It took multiplayer gaming to new levels, created the largest gaming community in the world, and brought the power of Microsoft’s services to the TV.

Microsoft coming from a PC backround brought fantastic developer tools, and familiar PC-like architecture to the Xbox 360, and it was an instant hit with developers.  Microsoft’s strong lead in sales (US sales) and consumer mind-share, led to many high profile PlayStation exclusive titles to not only make their way over to the Xbox 360, but also enabled Microsoft to secure exclusive content for many of these games.  3rd party games also looked significantly better on the Xbox 360 in the early days of the console race, although as developers became accustomed to the PlayStation’s clumsy architecture, games slowly began to look closer on par with the Xbox 360’s versions – the problem never went away however.  High profile titles such as Rockstar’s Red Dead Redemption, the Fallout series, and even the mighty Crysis series, shined on Microsoft’s console.

On the other hand, Sony launched their console a full year later in North America, and almost full 18 months later in Europe. Sony was coming off of a decisive win from the generation before, and was expected to blow the Xbox 360 out of the water.  However, Sony’s over-confidence, the PlayStation 3’s odd architecture, very late launch, along with their higher price-point (due to the inclusion of the Blu-ray player), hindered the PlayStation’s growth severely.  It also didn’t help that Microsoft was years ahead with its Xbox Live service compared to Sony’s lackluster PlayStation Network (PSN).

With Sony’s lack of insight, their PlayStation Network wasn’t designed to be as robust and have the ability to evolve as Xbox Live did, and as the generation progressed, it showed.  Despite Sony’s best efforts, the PlayStation 3’s online capabilities were still years behind Xbox Live. It’s also worth mentioning that this is not something Sony could ever match, as software and graphical user interface is Microsoft’s turf.

Due to these circumstances, the Xbox 360 was dominant in the US, with around 43 million units sold, compared to Sony’s 27 million.

Although both consoles finished the seventh console generation with around 80 million units sold, the Xbox 360 maintained a massive lead in the US.  However, Sony remained victorious in Europe by an approximate 60:40 split, and Xbox 360 didn’t make a dent in Japan against the PS3.

Leading up to the eighth Generation

Microsoft was on a roll with the Xbox brand. It became a household name in the US, gaming and Xbox Live were synonymous with one another.  As the eighth, and possibly the last generation of console approached, it was widely thought in the gaming industry that Microsoft would not only continue its lead in sales, but create an even bigger gap, and weaken the PlayStation brand even further.

Sony’s financial situation was severely weakened, and reports about the company having to sell off some of its divisions to stay afloat were at an all-time high.  Microsoft on the other hand continued to be one of the most profitable companies on Earth, and was rumored to be integrating its massive online services, and creating a Windows Kernel as their new back-end operating system.  This is something which will allow Microsoft to enable universal app development across its operating systems and offer a rich integrated experience with Windows 8, Windows Phone and apps running across the three OS’s. Not only that, but there were talks of Microsoft bringing their much anticipated cloud computing to this generation.

On paper, this was an unstoppable force, and looking at Sony’s offerings would have one think they were dead in the water before the unveiling of these new generation consoles.  Sony didn’t have a cloud infrastructure, while Microsoft was a cloud giant (second to Amazon’s AWS). Sony doesn’t make software and has virtually zero services it could offer, while Microsoft has the largest ecosystem of software and services out of any company by far.  Sony was considered to be circling the drain financially, while Microsoft had so much cash they didn’t know what to do with it, while also producing record breaking profits year-after-year.

What could Sony possibly do to compete?  Many gamers were starting to fear that the company’s best days have passed them by. What does Sony need to do in order to survive? Never-mind winning, as winning seemed unattainable, even for Sony themselves.  They couldn’t offer what Microsoft could, and knew Microsoft could outspend them in advertising and exclusive content, as well as have the ability to bounce back financially if mistakes were made.

Sony’s hard lesson

Sony learned from their mistakes in the Xbox 360 and PS3 era – they knew that PC-like architecture was critical for development, they learned that a lower price played a significant role in sales, and they also learned that PSN must be robust and profitable (hence the new subscription fee). And they definitely learned that coming late to market late could be devastating.

Sony’s New Strategy

Sony had to be smart this time around, as timing and initial reception was critical to their success.  Sony wouldn’t be able to dig themselves out of another hole financially, so they needed to play their cards right. 

Sony decided to unveil the PlayStation 4 first.  As it turns out in the unveiling, Sony never actually showed us the hardware of the PS4, but they did show us a few games running on their new system.  Sony’s unveiling was lackluster, it wasn’t as grand like Microsoft likes to make theirs. However, it showed us that Sony had a strong focus on gaming, and intended to win over the hard-core gamer. Once Sony captures the gamer’s heart, entertainment-related services and announcements are an easy sell.

Microsoft’s Miscommunication

Microsoft on the 0ther hand had a grand unveiling for its new console.  It aired live on Spike TV and of course, Xbox Live.  They unveiled their hardware and blew us away with the Kinect and entertainment capabilities with the TV and related services. Xbox One seemed like a console from the future.  Tech enthusiasts marvelled at Microsoft’s feat of engineering, but gamers walked away with nothing to get excited about.  To be fair, Microsoft did mention that it would talk about games in two weeks from the initial unveiling.

Microsoft’s console was so far ahead of its time, that all of its planned features, such as the “always on”  or the ping home, needed in order for its new game sharing feature to be properly implemented, was little understood and caused a massive backlash by gamers. It was Microsoft’s own fault with their inability to properly communicate these innovative features.

This confusion gave the Xbox One a bad reputation, in fact it was starting to deteriorate so fast that Microsoft completely changed their stance on the issues at hand.

The First E3 of the Eight Generation

Then came the E3, where despite the Xbox One showing a bigger list of games and stronger launch titles, its price point of $499 was announced, making it $100 dollars more expensive than Sony’s PS4. A critical mistake that may end up costing Microsoft big this generation.  Top Sony execs were so ecstatic when Microsoft announced its higher price-point, that they literally danced and celebrated in the back rooms, as they knew launching at the same price-point would be a death blow to PlayStation 4.

Sony’s early graphical edge

Before both consoles launched, it was already common knowledge amongst gamers that Sony’s console would be the slightly more powerful of the two.  As the consoles hit the market, the initial 3rd party games ran at a higher resolution (1080P) on the PS4, and not only that, but in many cases offered better anti-aliasing.  This is exactly what happened to Sony in the previous generation.  Sony’s PS3 struggled to compete with the Xbox 360 in graphical department with launch titles, but managed to make the gap much smaller later in the generation.  I expect Microsoft to close the gap with stronger developer tools and Direct-X 12 in the near future, the PS4’s graphical advantage is minor, but amongst hard-core gamers  every small graphical advantage matters and will help build better perception.

Sony had learned from their mistakes and made sure to win in almost every area they failed in the generation before.

Microsoft TV Play

Microsoft crafted the Xbox One to be the ultimate multimedia machine, and they had big plans for it. There was the rumored set-top-box version (codenamed: Yuma) which was set to take on Apple TV, Roku, and the new Amazon Fire TV – there were many rumors floating around about the Xbox One being subsidized through ISPs.  Microsoft also announced in June that it would be pushing the Xbox One into new territories with Original TV content – with twelve big budget TV projects and two major Halo Projects, one led by Steven Spielberg and the other by Ridley Scott. Xbox One was destined to take the world by storm.

E3 2014: The Reversal and Microsoft’s new focus

Microsoft’s higher price point and initial bad reception cost them their reputation and the unbundling of Kinect, which led to a $100 prices drop. Not only that, but Microsoft showed nothing but games at their latest E3 press conference, while entertainment related focuses were set aside. Microsoft sent a strong message to gamers that they’re back to their old ways, and want to win over the gamer’s heart with the best games, and most valuable exclusive content. Microsoft’s previous focus on a broad entertainment value was put on hold.

Sony on the other hand completely reversed their strategy, as they already established themselves with the hard-core gamers and showed a slew of entertainment related features, content, and hardware. They talked about a TV show, they introduced a $99 PlayStation TV, and focused on their PlayStation Network.

Sony was able to win the gamer with its early focus on games, clear messaging, and lower price point, and as they became established they were able to focus more on entertainment related features without backlash. To see something like this happen was just not possible for me and many analysts in the past.

The aftermath of E3 2014

It is now mid-July, and despite Microsoft releasing a de-Kinected $399 Xbox One, Sony still managed to outsell it for the sixth month in a row here in the US. Although the cheaper version of the Xbox One launched on June 9th, and hadn’t been available for a full month, sales were still well below Sony’s PS4.  198,000 to 267,000 respectively.

Not only that, but as part of Microsot’s restructuring plans, Microsoft’s new CEO Satya Nadella laid off a record breaking 18,000 employees due to the Nokia acquisitionHowever, in the process, shutting down Xbox Entertainment Studios and killing off most of Microsoft’s planned original TV content.

This generation has just started, but it has been quite a ride and something that quite frankly, I didn’t expect to see.  If I went back in time now to the start of the generation, I still wouldn’t see it.  This is still a tough pill to swallow, but Microsoft is relentless and stubborn, as they will do everything in their power to make the Xbox One victorious over the Sony’s PlayStation 4 in the US.

Microsoft is wounded but is fierce and relentless in its quest to win in the US

Microsoft is wounded, but it’s like a wounded bear who is ready to attack in an even more ferocious way.  With the cancellation of nearly all of the Xbox Originals TV shows and with Kinect having to take a step back for now, Microsoft is going back to its roots in winning back the gamer. Not to say that entertainment related features will take a back-seat, as Microsoft will quietly work on those as well, their message going forward is strictly for the gamer.

With the shutting down of Xbox Entertainment Studios, more financial focus will go into creating better first party titles, securing exclusive content, and being ready to drop the price of the box even further, if need be.  Xbox Live will continue to evolve, and with an enthusiast program in place, it seems to be improving rapidly.  These are the keys to success that the Xbox 360 held – this is what will attract the gamer and help the brand grow in mindshare, and this is what will make the Xbox One “cool” once again in the gamer’s eyes.

Sony knows they wounded Microsoft, but this war is just getting started. When looking at sales figures here in the US, the Xbox One is sitting at around the 3.1 million mark, while the PS4 is 500-600 thousands units ahead.  Not a significant difference, but Microsoft has to make sure the gap doesn’t increase, and with the price drop in effect, they may just be able to stop it.

Microsoft Still cares about its TV Play

When looking ahead, it seems Microsoft’s new focus may be the right one – although an entertainment related focus is still critical for Microsoft, not just to compete with Sony, but to fight off Google, Amazon and Apple.  Just recently at Microsoft’s WPC 2014, the company announced they will be bringing unified API’s for app development across the entire Windows ecosystem.  This will enable developers to create a Windows app which will run across, the PC, tablet, Phone, large screens TV’s and Xbox One.  Not only that, but Windows Phone’s personal assistant Cortana will also make her way across all devices in the Windows ecosystem, which has the potential to bring new ground-breaking experiences, especially with the innovations in machine learning Microsoft has been making.  Microsoft still has its eyes set on a TV Play, but will build it on the side, while gaming takes the fore-front.

It’s make-or-break for Xbox One

This new journey Xbox will be taking is going to be interesting, as this is becoming a make-or-break situation. Although Microsoft’s tech demo’s were very impressive, their promise of cloud computing has yet to deliver.  Is this Microsoft’s secret weapon?  We’ll see, but for now we expect games and price points to be the main differentiators.  Looking ahead, both companies have many innovations, entertainment experiences, and games to deliver, and if you’re a gamer, this generation is set to be the most exciting one.

This generation is set to bring us the best gaming experiences while possibly taking us into a new era of gaming (if this cloud thing comes to light!).  Nevertheless, it very interesting to see these companies compete with one another, as in the end, this will always be good for the gamer and the industry.  So game on and enjoy the ride, because we’re all in for a treat.

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