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Microsoft Corporation (MSFT), Sony Corporation (ADR) (SNE): Which Next-Generation Game Console Has The Advantage?

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Although there are three next-generation game consoles, one of which has already been released, the battle is really between Microsoft Corporation (NASDAQ:MSFT)‘s Xbox One and Sony Corporation (ADR) (NYSE:SNE)‘s PlayStation 4. Nintendo launched the Wii U, the successor to the original Wii, last year, but sales have been disappointing. While the Wii U is less expensive than both the Xbox One and the PlayStation 4, the console is also not nearly as powerful.

Microsoft and Sony have adopted different strategies to spur demand for the new consoles. Which one will work the best?

Microsoft Corporation (MSFT)

Taking over the living room

When Microsoft Corporation (NASDAQ:MSFT) launched the Xbox 360 it undercut the price of Sony Corporation (ADR) (NYSE:SNE)’s PlayStation 3 and in effect saw strong sales. With the Xbox One Microsoft has chosen the opposite strategy, pricing the console at $499. The Xbox One will be the most expensive next-generation console at launch, but Microsoft Corporation (NASDAQ:MSFT) hopes to make up for that with a bevy of features.

The Xbox One ships with the Kinect camera. Kinect tracks your movements and allows you to interact with games and menus without pickup up a controller. While Kinect was an optional accessory for the Xbox 360 it will come standard for the Xbox One, allowing developers to assume that every user has Kinect capability.

The high price, however, is a result of this inclusion. Some gamers who don’t want the Kinect may shun the console entirely due to the price tag. It remains to be seen if the Kinect adds enough value to justify the higher cost.

When the Xbox One was first revealed the Internet was ablaze with criticism. The Kinect, apparently, must always be plugged in for the console to function. This raised privacy concerns, but also: what if just the Kinect breaks? The result will be that the console is useless.

Originally the Xbox One was planned to require an Internet connection in order to function, but this was dropped after an uproar from gamers. Also dropped were the used game restrictions which were set to restrict used game sales and lending games to friends.

The Xbox One does have some good features, though, like TV integration, Skype, integrated fantasy football while watching the NFL, and a slew of other entertainment options. But, if you notice, I have yet to mention games. If you go to the Xbox One website there is no mention of games until the very bottom of the page. This was evident in the Xbox One reveal event as well, where the NFL integration and TV was heavily touted while games were second string.

And that’s the problem with the Xbox One. Microsoft Corporation (NASDAQ:MSFT) is trying to offer the ultimate set-top box, with TV, Internet video like Netflix, and games, but what it’s built is a $500 game console where games aren’t the main focus.

It seems that Microsoft is trying to target non-gamers, but who in their right mind would pay $500 for the Xbox One when they could buy a Roku for less than $100? If the Xbox One were much cheaper this strategy might make sense, but Microsoft Corporation (NASDAQ:MSFT) is making the same mistake that Sony Corporation (ADR) (NYSE:SNE) made with the PS3 – charging too much and being over-confident. The Xbox One won’t be a failure, but it won’t be the success that it could have been either.

Learning from mistakes

Sony Corporation (ADR) (NYSE:SNE) launched the PlayStation 3 with a price of $599, well above the competition. The cost was partially due to expensive new technology like the Cell processor and a Blu-ray drive. Eventually, once the price had been dropped, the PS3 become a successful console. Worldwide the PS3 and the Xbox 360 have sold about the same number of systems.

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