Microsoft vs. Sony: The console battle and the gaming war

-
Last week, Sony launched PlayStation 5 (PS5) on the same day that Microsoft dropped its Xbox Series X and S. So much for not stealing each others' thunder ;)

As far as the actual hardware specs go, they are pretty on-par with each other. However, the two warring companies are approaching the growing gaming industry very differently, and competition between them will be one of the most interesting stories to watch over the coming few years.

Here's a run down of where the two companies are and the very different directions that they are taking:

Sony

Sony is following the traditional razor and blades model that has long characterized consoles: try and not lose too much money on the consoles, and make up the difference in game licenses, its online service, and in-game purchases. It’s a model that gamers are familiar with, even if it ends up being a pricey one. In short, Sony is treating the PS5 like a console, and gamers like gamers, just as they did last generation. So, when it launched PS5, it did so with an impressive lineup of popular titles to entice buyers.

Microsoft

Microsoft is taking a different approach. It is seeking to get out of the traditional console business, with its loss-leading hardware and fight over exclusives, and into the services business broadly; that’s why Xbox Game Pass, the cloud streaming service that is available not only on Xbox and PC but also on Android phones (Apple has blocked it from iOS), is included. In Microsoft’s view of the world, Xbox is just a specialized device for accessing their game service, which, if they play their cards right, you will stay subscribed to for years to come.

Bottom line: with Xbox Game Pass, a customer gets access to over 100 games, along with all of the other usual online services they might expect and for an additional $10/month, a customer can get an Xbox Series S as well ($20/month for the more capable Series X)!

Microsoft is offering a 24-month installment plan but the highlight is not the Xbox; it's Game Pass. Microsoft’s strategy is all about subscriptions with the console being relegated to a bundled benefit. Sony on the other hand is not offering an installment plan for PS5. For Sony, consoles have been and will always stay an up-front purchase. 

The Takeaway

Sony will continue to be the hardware leader for die-hard gamers and it's expected that PS5 sales will double those of the new Xbox. Microsoft won't sweat about this. All that the Redmond folks care about are recurring payments - monthly subscriptions are Microsoft's bread and butter.

What's compelling about Microsoft’s approach is its potential for expanding the gaming market. Traditional gamers will still be attracted to Sony’s model and its exclusives, but for non-hardcore gamers, the $25/month Xbox bundle is a pretty attractive way to not only get a console, but over 100 games; if Microsoft pulls this bundle off, its overall revenue and profit will surpass Sony’s more traditional approach in the long run.

I really like what Microsoft has done in recent years. It revived itself and is challenging AWS in the cloud. Gaming is another business that it will take by storm. Microsoft was never going to catch Sony PS and convert hard core gamers. It lost the consoles battle, but it will win the gaming war. 

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

Comments

Post a Comment

Popular posts from this blog

Bitcoin and the 99 other coins

-
So far Bitcoin is having a decent 2021. It hit a record high of more than $41.5K last week, continuing the upward trajectory it has been on since April of last year, when a single Bitcoin cost less than $5K. That rise now means that the sum of all Bitcoins in existence is worth more than $700B.  Because Bitcoin dominates much of the media's attention, it can be easy to forget just how many other cryptocurrencies there are. A quick look through the full list from coinmarketcap reveals over 100 alternative cryptocurrencies with a "market cap" of more than $100M. Each hoping that their unique take on the core blockchain technology will be enough to propel them out of obscurity, to where Bitcoin is today. With some of the names on the list you can't help but think someone is having a joke, or planning something nefarious - there is a "dogecoin", "YEP COIN", "OMG" and even "SushiSwap" (???). This time it's... different? Some of
Read more

Why the stock market is beating expectations

-
Image
  In the early stages of the pandemic, the S&P 500 index dropped a third of its value. Since then it has roared back, soaring more than 50 percent from its low in late March and setting an all-time high last week. This seems very implausible when set against the current state of the economy and the ongoing devastation caused by the pandemic. So why is the stock market rallying in the face of a pandemic and bad economic news? Several explanations are plausible. The stock market is not the economy: The stock market represents publicly traded companies only; it’s not the whole market. Most importantly, it’s always forward looking; i.e. it’s an indicator of the future earnings of those companies and how they would fare in the future. A rising stock market indicates that investors think these companies will do better in the future. On the other hand, a falling stock indicates that investors are pessimistic about the future earnings of companies. Continued income support for the econom
Read more

Netflix: No more burn?

-
In the last article on Netflix , I discussed why Netflix's promise to premiere a movie every week is not an overly ambitious strategy for the streaming giant. It's a brilliant move that isn't risky because Netflix can keep spending at this high rate for a long time. Yesterday's earnings call confirmed this. During the call, Netflix announced that it does not intend to raise any more capital, through debt or equity, as it plans to be cash-neutral this year and cash-flow positive beyond 2021. Looks like all those price increases are flowing through to the bottom line. Of course, saying you don't need any more capital is a really great way of getting people to offer you more capital at even more attractive rates (if you ever did want it).
Read more