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Game Consoles On the Brink

Sony Win in the Near Term

By Published on . 1

With the release of the Xbox One around the world today, Microsoft is now in position to see if it will catch up with Sony's successful PS4 introduction, which reportedly sold more than a million units on day one. Many are asking which console will win. That's actually the easy part. The harder question is whether game consoles will still matter in two years at all.

It feels a little like we've been here before. Back in 2007 both Sony and Microsoft were working hard to push the next generation of a technology they were convinced everyone would want. I'm not talking about the PS3 vs. Xbox battle, though, but the war over high-definition video.

Most will barely remember that while Sony backed Blu-ray, which eventually won, Microsoft was betting hard on HD-DVD. I was courted at the time by both companies, eagerly trying to persuade me that their version of HD would win. We called the war for Sony at the time, but made it clear that it would be a Pyrrhic victory: There would be precious few spoils to earn from that success.

We were right, much to Sony's distress. That's because the battle was fought over a physical storage format that was rapidly losing relevance. Digital downloads had already begun, although they would never really catch on. More importantly, that was the year that Netflix added online movie viewing, foreshadowing and encouraging a future that would be streamable.

That's why the right comparison today is not between this and the last generation game console launches. It's instead between game consoles as a whole and all the dozens of other ways people can play games, watch video, interact with friends, and otherwise pass their free time.

When I say above that with the PS4 Sony is aiming hard, I mean that the company has done a tremendous job of giving prior-generation game console owners confidence that they aren't being abandoned with this generation. It's a smart move, at least in the next 13 months, as Sony tries to move 20 million consoles during its first two holiday seasons. I believe the company will succeed, especially abroad, where digital entertainment options are more limited than they are in the US. But the risk is that by aiming hard, Sony will find itself slowing down in 2015. Worst-case scenario, Sony pleases a total of 40 million console gamers worldwide over the next five years. Best case? 70 million. Both numbers are below the 80 million-plus PS3s sold around the world so far.

What does it mean that Xbox is aiming high, then? By focusing on the broader entertainment features, the Xbox One has not delivered a strong message to current console users that it is interested in preserving the gaming experience. Some haters have piled on to revile Microsoft for daring to suggest that there are segments of the market other than hardcore gamers. And the risk for Microsoft in doing so is significant: The company would love to sell 20 million units in the next 13 months as well. But it probably won't, and not just because of the higher price. Hardcore gamers will lean to the PS4 while the rest of the market will be content to stream some Netflix on a Roku, a Chromecast dongle, or even on their old Xbox 360.

The real risk for Microsoft is not that it will lose to gamers, but that it will fail to convince everyone that the heights it is reaching for are really worth experiencing. The idea that you can verbally pause your game and change to watching your favorite sports team in a few seconds may be one of the most important things to happen in the TV interface in years. But it doesn't sound like it. Not until you see it yourself, not until your TV and gaming and Skype experience is so personalized and interwoven -- and until developers build out the unique experiences that will really capitalize on all that the Xbox One has built -- then and only then will you realize what Microsoft has built and be happy about it. But that assumes you will ever see it.

As a result, Microsoft's worst case is that is sells fewer than 40 million units, even while Sony sells 70 million, because the next generation of consoles only wins back last generation's most ardent fans.

But Microsoft's upside on the Xbox One, if it can convince people of the power of the experience it has built, is to sell 100 million units over five to six years. It's a bigger bet, it's a loftier bet, but it's the one worth making.

ABOUT THE AUTHOR
James McQuivey is a VP and principal analyst at Forrester Research.
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