By Joyce Wu
Video game console sales by August 2020, including the Nintendo Switch, the Xbox, and the PlayStation, were up by 37% year-over-year. It’s not hard to see why; as people are forced to stay home, in-home entertainment becomes more important. While the Nintendo Switch may have dominated the hype during the early quarantine period, traditional console gamers are gearing up for the biggest rivalry of the fall: the Xbox Series X versus the PlayStation 5.
On November 15th, 2013, Sony released the PlayStation 4, signaling the beginning of the new console generation. A week later, Microsoft jumped into the ring, releasing the all new Xbox One, officially declaring the beginning of the next generation’s console war. After a few months, however, a clear winner was pulling ahead: the PlayStation. In the first few months of 2014, the PlayStation 4 was the top-selling console for three months in a row. Even as we fast forward to 2020, the PlayStation 4 momentum still rides strong, with PlayStation exclusives such as God of War, The Last of Us, and SpiderMan continuing to draw new players in.
Sony’s successful breakthrough during the previous generation can be primarily attributed to marketing factors. Releasing their console a week earlier than Microsoft’s was a key strategy to secure a first-mover advantage. Moreover, the PS4 was priced around 100$ cheaper than the Xbox One. In the video game market where value is prioritized, Sony’s strategic pricing is a major reason why the PS4 gained a lead over the Xbox.
But perhaps most important to Microsoft’s downfall was the company’s poor marketing strategy during the promotion of the Xbox One. Microsoft chose to promote its new Xbox as a multimedia machine, one which combines gaming, traditional entertainment, and communication. Unfortunately, Microsoft’s attempt to capture a wide consumer base split the focus of its product and lowered the perceived quality of its console. Sony, on the other hand, pushed a single message: a gaming machine made for gamers to play games. The results are obvious today - Sony has sold 109 million PS4s to Microsoft’s 47 million Xbox Ones.
However, video game consoles tend to have short lifespans of around six to seven years, meaning that we are due for a new generation of gaming rivalry. Obviously, though Sony pulled ahead in the past few years, Microsoft does not plan to back down any time soon.
The next console war began on November 10th, 2020, with both the PlayStation 5 and the Xbox Series X releasing on the same day. Though the hype for the PlayStation still rides high, this time around, Microsoft is likely in a better position to take advantage of the entertainment industry’s market trends. While the PlayStation will likely break through in console sales, Microsoft’s overall product offering is poised to integrate more players into its gaming ecosystem, therefore boosting gaming revenues outside direct console sales.
In regards to the presale period, though both consoles have already sold out, the PS5 still continues to appear more popular. Despite a stumble when Sony misinformed customers about the presale date, Sony reports that the presale performance for the PS5 already outpaced sales within the first 12 weeks of the PS4 launch. Current estimates place PS5 sales at about 1,500,000
units, with Xbox trailing at 1,400,000 units. Given that PS4 dominated sales months after its launch, Sony will likely continue to outperform Microsoft during these first rounds of sales.
However, outright console sales don’t tell the whole story. While Sony’s marketing strategy is very similar to its strategy with the PS4 7 years ago, relying on popular exclusive games and promoting a powerful gaming machine, Microsoft is continuing to pursue its vision of creating an entertainment ecosystem. But it seems that Microsoft learned not to spread itself too thin. This time, instead of a fragmented entertainment system, Microsoft narrowed the focus of its product offering to a gaming ecosystem with the ability to engage in media consumption, a slight but important difference. The successful launch of Microsoft’s gaming subscription system, the Xbox Game Pass, and the recent launch of their cloud video game streaming service, xCloud, reveals Microsoft’s strategy. For the Xbox Series X, Microsoft will instead seek to incorporate as many gamers into its subscription platforms as possible. After all, the Series X’s main appeal lies in the combination between the powerful console itself and its ability to play Microsoft’s vast library of games on its subscription service at higher qualities. Moreover, at the time of the console’s release, the Xbox Game Pass will include a wide variety of multimedia content, including EA play and a free Disney+ trial. Indeed, with many entertainment platforms switching over to a subscription model, Microsoft’s business model may prove to be its biggest advantage over Sony in this upcoming generation.
As the gaming industry rapidly grows it also constantly changes. Whereas gaming used to be seen as a niche business, the rise of eSports and platforms like Twitch have given video game enthusiasts a community, bringing them closer together than ever. Moreover, one of the fastest developing sectors of the gaming market is mobile gaming. In 2019, Forbes reported that there are over 2.4 billion people play mobile games. In today’s fast-paced environment, entertainment has become on-the-go, so convenience and value is key in consumer decision making. With Microsoft’s recent moves to expand the appeal of the Xbox Game Pass, it is better suited to tap into the consumer base who want a more flexible gaming experience.
When comparing the business models of Microsoft and Sony, Microsoft is in a better position to take advantage of these market trends. For example, Microsoft’s recent acquisition of Bethesda, a popular game development company, capitalizes on the trend of gaming convenience and value as it bolsters the appeal of their subscription service. Microsoft has also announced that future Bethesda releases will be immediately available on their Xbox Game Pass subscription platform as well as available in stores. With Bethesda owning many iconic franchises such as Doom, Fallout, and The Elder Scrolls, the acquisition boosts the value of the Xbox Game Pass, a subscription which only costs a general user $9.99 per month.
Moreover, the price of video games are rising due to general inflation and rising console specs. For example, while games have been typically priced at around $60 in the past, the upcoming NBA 2k21 game was announced to be priced at $70 instead. These rising prices only make a subscription service all the more appealing, since it allows the consumer to access a wider library of games at a much lower immediate cost. As Microsoft capitalizes on these market trends and ramps up the appeal for its subscription service with the Bethesda acquisition, it is reasonable to assume that Microsoft’s ultimate goal is not console sales, but rather to create a gaming ecosystem for players that combines all possible consoles available to them, whether that be the
Xbox Series X, the previous Xbox One, a PC, or even mobile. With the Xbox Game Pass and the xCloud streaming service, customers can not only play on their Series X, but are able to access gaming entertainment with whichever medium is most convenient to them. Given that the mobile gaming sector is the fastest growing sector of gaming, Microsoft’s goal to entrench a mobile platform within its own ecosystem will likely propel it to enter new markets and have a wider impact than Sony’s PS5.