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This year saw the introduction of two next-generation gaming consoles from the two console giants, Microsoft and Sony. Microsoft debuted the XBOX ONE and Sony debuted the PS4. Now, at first glance this seems like a dead heat. Both consoles have great performance specs. Both consoles feature an array of gizmos from motion sensors like Kinect to next generation haptics support. BUT -and this is a big BUT, Microsoft may have overplayed its hand on this one and it is my view that Microsoft will not only lose the console wars to Sony this round, but that there is a greater threat to their long term strategy as I will outline in this post.
Why XBOX ONE is not aligned with the ONE MICROSOFT Strategy?
Microsoft has a goal of delivering one experience to all of its users - one experience from its desktop/laptops to tablets to smartphones to your living room. This goal is noble - and the right goal. However, I believe that their strategy behind XBOX ONE is faulty in many ways. Lets begin with the fundamentals :
If it was a gaming console first - here are three ways on how it loses out to PS4
1. $100 more is too much difference for hardcore gamers
If Microsofts goal was to compete on the same turf as Sony to beat them out of the gaming arena, Microsoft made several mistakes in this end. The big one is that the XBOX ONE is $100 more than the PS4 in the US (probably more in other parts of the world) - $100 may seem trivial on the grand vision of ONE MICROSOFT that Microsoft has, but thats a very internal view. Its not a customer facing view. $100 more for a gaming console that a hardcore gamer is a lot especially when most gaming titles will be available eventually on both the consoles. Hence, the only gamers that will gravitate to the XBOX ONE will be ones that are addicted to one or two titles that are only on XBOX ONE. This is a small percentage of the entire gaming population. This phenomenon is amplified internationally where the exchange rates and markups will mean that the separation in price between the consoles will be more than $100 and the affordability in those countries is worse-off than the US.
2. Microsoft's connected to the internet strategy (later reversed) is short-sighted
Look, I get it. You dont want piracy. You want to track every click, every move, every swipe, every voice command of your user. You want absolute control on every single action that they do with your console. However, here are the realities that Microsoft has to contend with - according to Wikipedia, only 12.6% of the population in India has internet access and India has a population of over 1 Billion. China is slightly better at 42.3% - contrast that to the US which has an 81% penetration of internet. If there is a hard requirement to be connected to the internet, you just lost the two biggest populous countries. Instead Microsoft should have done what it did after massive public outrage - its OKAY not to be connected to the internet all the time to play your game. After all, isnt this a gaming console? I miss those days of the ATARI when I just used to plug in my cartridge of games and I could play it. Between this move and the next one in my list, Microsoft had a major SNAFU in its launch of XBOX ONE.
3. "You cannot play used/other friends games on your console" - Really?
Also reversed after a public outcry - this was THE dumbest move of all in Microsofts quest to dominate the gaming world. So lets see - I buy a DVD player and now the only DVDs I can play on it are the ones that I pay and own? Even iTunes lets you share tunes from your account to as many ipods and iphones as long as you approve it to do so. Especially with games, which is a hugely social/collaborative activity - so why would you stop someone from sharing their games that they rightfully paid for? More importantly, if your goal is to make XBOX ONE the centerpiece of the living room, then you are missing a key ingredient to that strategy - you only become the centerpiece of the living room if they use the console often. And putting artificial barriers such as not being able to play used or your friends games on your console is fundamentally against that strategy.
If it is supposed to be the home entertainment system - here are 3 ways it loses out:
1. XBOX ONE Is $499, Apple TV is $99, ROKU is about $39, Chromecast is $35 - see what I am saying?
The real crown jewel in the consumer entertainment business is being the center of home entertainment. Here is the issue for Microsoft here - the customer acquisition cost for Microsoft is TEN fold higher than that of Google and Roku and Four times that of Apple. Which business/marketing whiz came up with that math and figured that it would work out okay for Microsoft? Here is the worst-kept secret of home entertainment - Get into the home first. Customers will pay a dollar here, a dollar there, $3.99 here and there after they get a console, however, if you never get into the home, how do you rake in the french fry sale? In poker they say to win you must play a hand. Right now, Microsoft is not going to be winning in a lot of places because they are not in the equation because of all the other players - who all offer similar services - Netflix, hulu, vimeo, youtube - you name it.
2. XBOX ONE's entertainment catalog is not as good as Apple's or Google's or Amazon
Apple is the bonafide leader in multimedia content thanks to its ties to the music and movie industry. Google is a close second because of the work it has done with its Android efforts. Xbox/Microsoft in my opinion has a long way to go before it can match up. Microsoft is not the first name people think of when it comes to renting a movie at night at home.
3. I know this seems trivial but XBOX's form factor is not home theater friendly
People nowadays are all about chique house setups. Modern Setups are sleek. Modern home entertainment systems are unobtrusive. the XBOX is none of that. The XBOX is in your face unlike the Apple TV or Roku. Heck, you cant even see the Chromecast once you have it hooked up to your TV. While not a big obstacle - coupled with #1 and #2 reasons above, makes it hard to justify XBOX as a home entertainment centerpiece.
In conclusion, this is a classic case of putting the internal company interests first - and not thinking about the consumer. Its a case of not understanding the competitive landscapes and making some hard choices. Its not insurmountable, but Microsoft has some gaping flaws in their ONE MICROSOFT strategy and one of those is those flaws is their marketing philosophy behind XBOX ONE. Will it make some money? YES. Will it sell games? YES. Will it win over PS4? in my opnion NO. Will it become what Microsoft wants it to be? A centerpiece of the home entertainment system - my opinion is NO.
Full disclosure: I own an XBOX 360 and an Apple TV.
Why XBOX ONE is not aligned with the ONE MICROSOFT Strategy?
Microsoft has a goal of delivering one experience to all of its users - one experience from its desktop/laptops to tablets to smartphones to your living room. This goal is noble - and the right goal. However, I believe that their strategy behind XBOX ONE is faulty in many ways. Lets begin with the fundamentals :
If it was a gaming console first - here are three ways on how it loses out to PS4
1. $100 more is too much difference for hardcore gamers
If Microsofts goal was to compete on the same turf as Sony to beat them out of the gaming arena, Microsoft made several mistakes in this end. The big one is that the XBOX ONE is $100 more than the PS4 in the US (probably more in other parts of the world) - $100 may seem trivial on the grand vision of ONE MICROSOFT that Microsoft has, but thats a very internal view. Its not a customer facing view. $100 more for a gaming console that a hardcore gamer is a lot especially when most gaming titles will be available eventually on both the consoles. Hence, the only gamers that will gravitate to the XBOX ONE will be ones that are addicted to one or two titles that are only on XBOX ONE. This is a small percentage of the entire gaming population. This phenomenon is amplified internationally where the exchange rates and markups will mean that the separation in price between the consoles will be more than $100 and the affordability in those countries is worse-off than the US.
2. Microsoft's connected to the internet strategy (later reversed) is short-sighted
Look, I get it. You dont want piracy. You want to track every click, every move, every swipe, every voice command of your user. You want absolute control on every single action that they do with your console. However, here are the realities that Microsoft has to contend with - according to Wikipedia, only 12.6% of the population in India has internet access and India has a population of over 1 Billion. China is slightly better at 42.3% - contrast that to the US which has an 81% penetration of internet. If there is a hard requirement to be connected to the internet, you just lost the two biggest populous countries. Instead Microsoft should have done what it did after massive public outrage - its OKAY not to be connected to the internet all the time to play your game. After all, isnt this a gaming console? I miss those days of the ATARI when I just used to plug in my cartridge of games and I could play it. Between this move and the next one in my list, Microsoft had a major SNAFU in its launch of XBOX ONE.
3. "You cannot play used/other friends games on your console" - Really?
Also reversed after a public outcry - this was THE dumbest move of all in Microsofts quest to dominate the gaming world. So lets see - I buy a DVD player and now the only DVDs I can play on it are the ones that I pay and own? Even iTunes lets you share tunes from your account to as many ipods and iphones as long as you approve it to do so. Especially with games, which is a hugely social/collaborative activity - so why would you stop someone from sharing their games that they rightfully paid for? More importantly, if your goal is to make XBOX ONE the centerpiece of the living room, then you are missing a key ingredient to that strategy - you only become the centerpiece of the living room if they use the console often. And putting artificial barriers such as not being able to play used or your friends games on your console is fundamentally against that strategy.
If it is supposed to be the home entertainment system - here are 3 ways it loses out:
1. XBOX ONE Is $499, Apple TV is $99, ROKU is about $39, Chromecast is $35 - see what I am saying?
The real crown jewel in the consumer entertainment business is being the center of home entertainment. Here is the issue for Microsoft here - the customer acquisition cost for Microsoft is TEN fold higher than that of Google and Roku and Four times that of Apple. Which business/marketing whiz came up with that math and figured that it would work out okay for Microsoft? Here is the worst-kept secret of home entertainment - Get into the home first. Customers will pay a dollar here, a dollar there, $3.99 here and there after they get a console, however, if you never get into the home, how do you rake in the french fry sale? In poker they say to win you must play a hand. Right now, Microsoft is not going to be winning in a lot of places because they are not in the equation because of all the other players - who all offer similar services - Netflix, hulu, vimeo, youtube - you name it.
2. XBOX ONE's entertainment catalog is not as good as Apple's or Google's or Amazon
Apple is the bonafide leader in multimedia content thanks to its ties to the music and movie industry. Google is a close second because of the work it has done with its Android efforts. Xbox/Microsoft in my opinion has a long way to go before it can match up. Microsoft is not the first name people think of when it comes to renting a movie at night at home.
3. I know this seems trivial but XBOX's form factor is not home theater friendly
People nowadays are all about chique house setups. Modern Setups are sleek. Modern home entertainment systems are unobtrusive. the XBOX is none of that. The XBOX is in your face unlike the Apple TV or Roku. Heck, you cant even see the Chromecast once you have it hooked up to your TV. While not a big obstacle - coupled with #1 and #2 reasons above, makes it hard to justify XBOX as a home entertainment centerpiece.
In conclusion, this is a classic case of putting the internal company interests first - and not thinking about the consumer. Its a case of not understanding the competitive landscapes and making some hard choices. Its not insurmountable, but Microsoft has some gaping flaws in their ONE MICROSOFT strategy and one of those is those flaws is their marketing philosophy behind XBOX ONE. Will it make some money? YES. Will it sell games? YES. Will it win over PS4? in my opnion NO. Will it become what Microsoft wants it to be? A centerpiece of the home entertainment system - my opinion is NO.
Full disclosure: I own an XBOX 360 and an Apple TV.
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