Talking Business: Sony vs. Microsoft (Part 2)

Last week we started this series discussing Sony and the financial outlook for the company and its gaming brand. Today we start part two of the series forecasting Microsoft’s execution over the next 1-5 years.

What enables Microsoft to be the $350 billion company is their vision and execution. Now that doesn’t mean that there haven’t been failures along the way, i.e. Windows Vista, Windows 8, purchasing Nokia, oh, and does anyone remember the colossal original Xbox controller? Microsoft has acquired around 150 companies since 1994 and has made many of them successful purchases for the company. Is Microsoft just using it’s Xbox brand to add to its global name recognition? Will Xbox be added to the list of unsuccessful business endeavors that the company will eventually pull resources from and let die? What’s the future of Microsoft and Xbox?

Current Direction

Enter Satya Narayana Nadella, say that name ten times fast. After taking over the CEO position on February 4, 2014 he has been brilliant. We’re talking a literal 40% growth in company share price in just over 2 years with him at the helm! That’s really unheard of with a behemoth like Microsoft that already has a huge market cap, and did I mention this has taken place in a stagnant stock market?

Microsoft has segmented their business into four different areas, with Xbox in the  “More Personal Computing” segment that accounted for over 46% of revenue in the 1st Qtr 2016. People quickly fail to realize that Xbox is a brand that is reaching multiple devices, especially after the purchase of Minecraft IP. The global economy is slowing, but Microsoft is rapidly finding a way to increase its market share.

Microsoft’s Competitive Edge: Ecosystem

Even though Apple has paved the way as of late, it could be said that Microsoft was the original “Ecosystem”. You had a PC that ran Windows and oh guess what, you also needed to purchase Microsoft office and other Microsoft programs in order to make full use of your computer. Nadella is taking a page out of Apple, Google and Amazon’s playbooks and making the upgrade to Windows 10 free. Microsoft’s competitive edge is that every individual that upgrades to Windows 10 is now an Xbox customer. You might’ve thought that in order to be a customer you would need a console and purchase games to play on said console. Wrong, Microsoft is changing the game. If you own the Windows 10 operating system, you have the Xbox application built in and are now a member of the Xbox ecosystem. Microsoft is utilizing their install base on PC and merging the infrastructure with Windows 10 enabled Xbox Ones to create on brand.

With Windows 10, Xbox is being introduced into an established ecosystem.
With Windows 10, Xbox is being introduced into an established ecosystem.

 

There’s a reason some of the first consoles had two controller ports, it’s more fun when you play with friends. With a head start on Sony in the online arena, Xbox continues to make online play Its priority. If you take a look at this past E3 and each company’s respective shows, one thing stood out from each: Sony is putting an emphasis on single player cinematic adventures and Xbox is concentrating on multiplayer and enhancing their online services. There is no wrong or right path, but from a business standpoint, Microsoft’s is beginning to make more sense.

Future

Kinect was a failure, plain and simple. In hindsight they should’ve just released a camera with a built-in mic and sold it separately. Microsoft has not been afraid to release anything that they feel can change the game industry, or the way we currently interact with games. Kinect, large controllers, built-in hard drives, wireless controllers, etc. have all graced their consoles. Hololens is an augmented reality device currently in development. The jury is out, but don’t expect consumers to hop on board quickly. It will be a battle; which device garners more attention, Virtual Reality or Augmented Reality.

The Xbox One S will be released this Fall, and the 500gb version hits the right price point considering all the features it will offer. Holiday season 2017 is when Project Scorpio is set to release, and Microsoft has stated that the system would be backwards compatible. These new systems should sell well, considering that the One S plays 4k media and HDR content, and the higher end Scorpio has a whopping 6 teraflops of processing power under the hood. However, if they don’t have strong initial sales it won’t hurt them as much. That’s the differentiation between Sony and Microsoft. While both rely on hardware sales, Microsoft has the ability to extend its reach by also corralling PC users gaming on Windows 10.

Xbox Play Anywhere allows you to carry your games across console and PC.
Xbox Play Anywhere allows you to carry your games across console and PC.

 

At E3 Microsoft introduced Xbox Play Anywhere: A service that allows all first party games purchased digitally on Xbox One, to be free on PC and vice versa. Its a move that further blends together the two universes that Microsoft has a stake in, thereby strengthening both parties. Microsoft is hoping that gamers will want to build their game library within that ecosystem which allows those games to essentially travel with you across PC and Console. By making Xbox an integral part of its already established ecosystem, Microsoft is playing to their strengths by leveraging Xbox on a backbone that is limitless

References:
https://www.sec.gov/cgi-bin/viewer?action=view&cik=789019&accession_number=0001193125-16-550254&xbrl_type=v# 

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