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?
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.
For the PlayStation 4 Sony was sure to not make the same mistake. The price point is $399, $100 cheaper than the Xbox One, and the console never had any of the internet or used game restrictions which the Xbox One once had. The focus during the PS4 reveal was games, including a bunch of indie-games, unlike Microsoft’s focus on entertainment features
While the PS4 doesn’t have advanced features such as TV integration like the Xbox One it still sports plenty of entertainment options. Netflix, Amazon, and Hulu Plus applications are all included.
Given Microsoft’s missteps it seems likely that the PS4 will outsell the Xbox One, at least until the first round of price cuts. That advantage may be enough to ensure victory for Sony in this round of consoles.
The real winner
The real winner of the console wars may very well be Advanced Micro Devices, Inc. (NYSE:AMD). AMD is supplying both the processor and graphics chip for both the Xbox One and the PlayStation 4, as well as for the Wii U. This is good news for AMD, which has been struggling as PC sales have declined. The previous generation of consoles; including the PS3, Xbox 360, and Wii, have sold a total of about 250 million units worldwide. If the new generation matches or surpasses that number the impact on Advanced Micro Devices, Inc. (NYSE:AMD)’s financial results should be fairly significant.
The bottom line
MicrosoftMicrosoft Corporation (NASDAQ:MSFT) is going to have trouble marketing the Xbox One to non-gamers, as it appears to be doing, largely because of the price tag. When devices like the Roku sell for less than a fifth of the price and offer much of the same functionality it’s hard to imagine anyone who doesn’t play games buying an Xbox One. The PS4 is $100 cheaper, a big advantage, and Sony Corporation (ADR) (NYSE:SNE) avoided upsetting gamers with restrictive policies. Although the war is certainly not over, the PS4 has won the first battle.
The article Which Next-Generation Game Console Has The Advantage? originally appeared on Fool.com and is written by Timothy Green.
Timothy Green owns shares of Microsoft. The Motley Fool owns shares of Microsoft. Timothy is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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