Continued Duels: Sony and Xbox's Enduring War and Prospects for Tomorrow
In my previous post (link provided above), I initially posited that Microsoft's strategic focus is directed towards vertical expansion, aimed at bolstering their cloud computing revenue through investments in the gaming sector. In this subsequent post, my exclusive focus will be on the Xbox platform and gaming sector, distinct from any interconnection with these two business domains.
Microsoft has No Reason to Continue the Console War
[Market Share of Game Console Operating System Worldwide]
*Please note that Nintendo has shifted its focus towards handheld devices, which deviates from the conventional notion of a standard console. The Wii was formally discontinued in October 2013, though Nintendo continued to produce and market the Wii Mini through 2017, and offered a subset of the Wii's online services through 2019.
It appears that Microsoft faces a challenging prospect of prevailing in the console competition against Sony, primarily when examining market share statistics. While the avenue of introducing innovative hardware to exert substantial pressure on Sony remains a possibility, Microsoft seems to have opted for an alternative strategic direction.
Why?
ⓐ Console Market is already shrinking
[PlayStation Game Console Unit Sales Worldwide]
[Xbox Game Console Unit Sales Worldwide]
As the quality of games continues to evolve over the years, there is a growing need for consumers to possess hardware that can adequately support these advancements. However, the data depicted in the two graphs indicates a declining level of interest, even when new consoles are introduced to the market.
ⓑ The more they sell, the more loss they create
When asked how much margin Microsoft makes on Xbox consoles, Xbox answered as below:
The company’s head of Xbox business development, Lori Wright, said, “We don’t; we sell the consoles at a loss.”
“The console gaming business is traditionally a hardware subsidy model. Game companies sell consoles at a loss to attract new customers. Profits are generated in game sales and online service subscriptions“ says a Microsoft spokesperson.
So, what DID they choose instead?
▶ Cross-Platform + Subscription Model
Cross-platform gaming refers to the capability that enables players to participate in multiplayer online games or engage in gaming activities across various gaming platforms or devices.
Why Cross-Platform?
ⓐ Leveraging its substantial pre-existing user base to a significant advantage
With a user base of 1.4 billion, Windows possesses the potential to wield significant influence and disrupt the gaming landscape, potentially tilting the balance in its favor when competing against Sony.
ⓑ It eliminates the entry barrier
[South Korean Gaming Industry Market Share by Platform]
In the past, generating revenue in countries with small console markets, such as South Korea or China, posed significant challenges. However, by implementing cross-platform functionality, these games can now effectively penetrate these markets.
Why Subscription Model?
▶ It enhances accessibility for a broader user base
Publishers have traditionally maintained a minimum price point of $60 for games, as it ensures their revenue share remains sufficient to sustain their operations. This pricing standard has persisted for nearly two decades. However, it's important to acknowledge that even in 2024, there are still individuals around the world who may find it financially challenging to afford games at this price point.
Vietnamese individuals typically earn around $360 USD per month, implying that they would need to allocate approximately 17% of their monthly income to purchase a single game
Nevertheless, given the average salary of game developers and the considerable duration required to create a single game, an adjustment to the pricing structure becomes an inevitability.
“...not only just due to complexity, but increased salaries for programmers and creatives in general, as tech companies and Hollywood and video game companies are fighting for a lot of the same talent,” - Neil Macker, an analyst at Mornignstar
What's Stopping Microsoft?
▶ Their main competitor, Sony
The exclusivity of console games has been a key factor in Sony's success. Titles like 「God of War」,「 Horizon」, 「Spider-Man」, and numerous other unique games were only accessible on PlayStation, setting Sony apart. In contrast, for Xbox, 「Halo」 was one of the few titles that justified the console purchase.
It is why Sony vigorously defended its position and resisted cross-platform availability. However, the turning point was triggered by 「Fortnite」.
The issue initially came to light when a Reddit user named "PRE_-CISION-_" noticed an unusual occurrence while playing Fortnite's Battle Royale mode on his PS4. He was eliminated by a user with the name "zCypher Nine," a username format that would typically be impossible to create on the PlayStation Network (PSN) due to the inclusion of a space.
Intrigued by this discovery, PRE_-CISION-_ switched to his Xbox One console and conducted some investigative work. He swiftly located a user with the same "zCypher Nine" name on Xbox Live, along with evidence of this user collaborating with others. PRE_-CISION-_ meticulously documented his findings in a Reddit post, which included Twitch clips and screenshots as proof.
Since cross-play between PS4 and Xbox One was considered unprecedented, many users speculated that Epic Games had inadvertently enabled cross-play with PC players, and the similar usernames were mere coincidences. However, Epic Games swiftly confirmed that the accidental cross-play between PS4 and Xbox One had occurred due to a "configuration issue." Epic assured that the problem had been rectified.
But, people were not dumb.
Gamers soon came to the realization that cross-platform play had always been technically possible but had been disabled due to the choices made by certain parties. PlayStation found itself in an even tighter spot when Fortnite introduced cross-platform play between Xbox and Nintendo. Consequently, after two years since 「Fortnite」's launch, Sony eventually introduced the cross-platform play feature as well.
Sony's concerns regarding Microsoft's acquisition of Activision Blizzard were not primarily driven by the fear that Microsoft would make unique titles like Call of Duty exclusive to their platform. Instead, Sony likely recognized that this acquisition could hasten the diminishing value of exclusive titles on their own platform.
Sony is evidently aware that the future of gaming lies in cross-platform play, and as a result, they aim to prolong the lifecycle of their gaming platform for as long as possible, until it can't anymore.
Will Microsoft Stop Creating Console Hardware at all?
▶ No
ⓐ Current technology isn't sufficiently advanced to fully support this technology
Cross-platform play still comes with many issues such as latency, low graphic quality, long loading time, and more.
ⓑ Consumers require time to acclimate to this new technology
ⓒ Console hardware remains an excellent alternative to high-end custom-built PCs, especially for individuals with budget constraints
In Summary,
Beyond its prospective vertical expansion, Xbox is actively positioning itself to outperform Sony, and its strategic maneuvers are causing a significant shift in the entire console market paradigm. While a few remaining technical and political challenges must be overcome to advance to the next stage, it is highly probable that Xbox will play a pivotal role in shaping the future of gaming in the near future.
