Microsoft and Sony head into Round 4 of the console battle. Who will win this time?
Here's what to watch as the two companies fight for dominance – again – in the booming gaming business.
It's easy to forget that Sony's PlayStation was just emerging as the planet's top gaming brand when Microsoft introduced the original Xbox in 2001.
PlayStation was only 7 years old at the time. Sony had knocked out Sega, a key Japanese competitor (remember Sonic?), and Nintendo was already on its way out of the mainstream console arena and headed toward the profitable niche it still occupies today.
And then here came this nerdy American software company with a brand-new video game machine (as introduced by Bill Gates and The Rock). That was Round 1 of the Microsoft-Sony console battle. Sony won that round, and the next (barely) and the next (in a landslide). PlayStation is the top family of home consoles in the history of video games.
Two decades later the companies are now squaring off for Round 4, with each set to release new consoles — Microsoft's Xbox Series X and Sony's PlayStation 5 — this fall.
Yet after all these years, they are still behaving quite differently headed into a beyond-uncertain holiday season. Here's how, why and a few things to keep an eye on as the two companies wrangle over gaming's future.
Does No. 2 really try harder?
Both Microsoft and Sony have each now released a similar hourlong compilation of trailers for new games, but neither has released pricing or a firm date for the new consoles (beyond basically saying "this year"). Yet Microsoft has recently announced a steady stream of information about the services, technologies, features and overall structure of the gaming ecosystem it is attempting to create, whereas Sony has been essentially silent about the PS5 since last month's event. (In March the PS5's lead system architect, Mark Cerny, did provide a deep dive into that console's technology.)
Microsoft has been selling a broad vision of gaming anywhere — console, PC, mobile — powered by an attractive all-the-games-you-can-play subscription package called Xbox Game Pass and by Microsoft's cloud computing infrastructure. Sony has been selling … the fact that the PlayStation 5 is coming.
Why? Because like the proverbial generals fighting the last war, Sony and Microsoft are each following strategies formed directly by lessons from their most recent battle: Round 3 of their console rivalry, when they released the PlayStation 4 and Xbox One in 2013.
That launch and the entire current console generation were defined from the start by Microsoft's marketing, product and pricing mistakes. After earning major credibility among gamers during the Xbox 360/PS3 era (Round 2 of their console battle), Microsoft blew it in 2013 by initially positioning the Xbox One primarily as a home video hub rather than a game-first console and by antagonizing players with restrictive digital-rights proposals. Microsoft is a congenitally innovative company, and with the Xbox One, the company simply out-innovated itself when it should have stuck to the basics: games and community.
Not least, Microsoft's insistence on initially packaging the Xbox One with the Kinect motion control system led to the Xbox One debuting at $500; the PS4 was a full $100 less expensive.
Microsoft's stumbles allowed Sony to dominate the 2013 launch with a simple, powerful message: PlayStation is the best place to play the best games. That's it. The result: The PS4 has sold more than twice as many units as the Xbox One.
For Microsoft, the signs and lessons from 2013 have been clear in almost everything the Xbox division does.
Perhaps most important, the company had to repair its credibility with core gamers. And that credibility had to have a face. Phil Spencer arrived at Microsoft in 1988 and joined the Xbox team shortly after its inception. He watched the 2013 disaster from the inside, and Satya Nadella, Microsoft's then-new chief executive, gave him the Xbox reins in 2014 to fix the operation.
The constant drumbeat of news now about the new Xbox — how it will play thousands of older games, how game publishers are encouraged to offer upgrades to the new console for their current titles — is all part of Spencer's shrewd yearslong effort to reestablish Microsoft as "gamer friendly." With Reggie Fils-Aimé — the charismatic former president of Nintendo of America — stepping down last year, Microsoft is clearly trying to position Spencer as the public "face of the industry" (a role the industry does need at least one person to play).
Compared with Microsoft, Sony is being practically Sphinx-like. We have not heard much about, say, virtual reality on the PS5 (the PS4 has a successful VR add-on) or Sony's plans for its PlayStation Now cloud service.
Put another way, Sony is just letting its games do the talking. So far, Sony's vision of gaming in the coming PS5 era seems pretty conventional: Sit on the couch in front of the console and television, pay $60 or more for top-end games, and enjoy better graphics and faster load times from the new technology. That formula has worked for two decades now.
Sony saw in 2013 that it could basically stand back and wait for Microsoft to make mistakes. So far, Sony seems to be following the same conservative playbook this year. The thing is, Microsoft has not appeared to make those mistakes. Yet.
No really, after you
Of course the biggest mistake, which Microsoft learned the hard way last time, would be for one company to price its console $100 above the competition. Theoretically, one company has to be first to announce pricing and availability, and, for now, each seems to be waiting for the other. They're not being polite.
It's unclear what the risks or costs of delaying an announcement are from a distribution or marketing perspective. Consumers want clarity and to be able to submit some sort of preorder, but from the point of view of the companies, they know they will probably sell out of all the consoles they can produce this year regardless of when they say or release anything.
Before either company announces pricing or a release date, we are likely to find out details about Microsoft's long-rumored second version of the new Xbox, which would be less powerful and less expensive than the Xbox Series X. Sony already announced two versions of the PS5, one with a Blu-ray player and one without an optical drive that can only download games.
Many experts seem to believe that each top new console costs $450 to $500 to manufacture. Over the last few generations, initial console prices have generally ranged from $400 to $600. Sony certainly is in no hurry to sell the PS5 at a loss, but the real question is just how low Microsoft is willing to go. And not just because Xbox got burned on pricing last time.
The real reason that Microsoft just might be willing to sell at least one of probable two Xboxes at a loss stems from the business model Microsoft is trying to create around gaming. By offering hundreds of top-quality games as part of a subscription package no matter whether you play on a console, a PC or a mobile device, Microsoft is thinking about a customer's lifetime value, or at least their value over the many years of a console cycle. In that model, it can be especially important to just get the user into the ecosystem, even if that means offering the razor, or in this case the console, at a discount.
Pricing aggressively would mean no higher than $400 for the less expensive new versions, and it is hard to imagine either company wanting to advertise a $600 indulgence in the current economic environment.
And the competition will not be limited solely to outright price. Microsoft is poised to expand its Xbox All Access plan to sell its new consoles on a monthly zero-interest payment plan potentially including the games subscription as well. For perhaps $30 a month over two years, some consumers may be able to get both a new Xbox and access to a large library of top games.
Also worth watching is the extent of Xbox's cooperation with Facebook going forward. Microsoft recently shuttered its Mixer game streaming site and folded it into Facebook Gaming, the social network's streaming service. The underappreciated aspect of that deal was Facebook's commitment last month to integrate Microsoft's xCloud remote game service into Facebook Gaming.
But do gamers really like me?
The essential reason that Sony can afford to be conservative while Microsoft has to make more of an effort is that the PlayStation brand is simply much more powerful globally than the Xbox brand. In much of the world outside North America, PlayStation is synonymous with video games.
Microsoft has invested heavily in recent years in its internal game studios and is closing the gap with Sony in delivering strong games, especially for its systems, but Sony still holds a lead on top-end exclusives. (Most games from third-party publishers are routinely made available for both companies' consoles.)
The overall disparity in perception actually used to be much worse for Microsoft. Back in 2001, when the Xbox first emerged, Microsoft was fixed in the popular and political imagination as the big, bad technology behemoth that everyone had to worry about — a role now played by Alphabet, Amazon, Apple and Facebook — while Sony was generally considered the leading global electronics giant, a role now played by Samsung.
To consumers under 40, Sony is no longer the storied maker of the Walkman, stereos, boom boxes, movies, albums and high-end televisions. To many consumers now, Sony is just the PlayStation company. That's just fine for the video game business.
Xbox mostly seems to be succeeding in repairing the brand's relationship with gamers and has rightfully earned a passionate following. Generally, Microsoft has spent the last couple decades trying to make nice with the public (and politicians) and has largely escaped the opprobrium now being unleashed on the "gang of four."
Gamers, however, have long proven Microsoft's toughest audience of all.