Has Microsoft Dodged Its Xbox One Disaster?

The company made a series of changes to its vision for Xbox One that have improved perceptions of the device, but is the console on track for continued long-term success?

Jan 3, 2014 at 7:00AM

The disastrous unveiling of the Xbox One was a story that dogged Microsoft (NASDAQ:MSFT) for much of 2013. The initial vision for the console saw it introducing requirements for online connectivity, restricting the ability to play used games, and making the Kinect 2.0 camera essential to basic device functionality. News that the PlayStation 4 console from Sony (NYSE:SNE) would implement no such features, combined with monumentally negative reactions to Microsoft's stated plans for the One, prompted the company to reassess the situation.

Many of the elements that made Microsoft's console a media punching bag were gradually eliminated, bringing the system closer in line with what the PlayStation 4 was offering and saving it from what would have almost certainly been a catastrophic release. Instead, the console looks to have posted respectable launch numbers in North America and Europe. Has Microsoft dodged its largely self-made gaming disaster, or will its Xbox One re-envisioning prove to be too little too late?

The One, then and now
Heading into the new console generation, Microsoft looked to be in excellent shape. The company scored a major coup with the Xbox 360, establishing the system as the go-to console in North America and gaining major ground in Europe. Meanwhile Sony struggled to reclaim lost mind and market share after the highly problematic decision to launch the primary SKU of its PlayStation 3 console at $600, and the Wii phenomenon from Nintendo (NASDAQOTH:NTDOY) looked to be dying down.

With the successful introduction of its Kinect camera for the Xbox 360 and the system's blockbuster exclusives, Microsoft looked to be shoring up both casual and hardcore support. The Wii U stumbled early, failing to catch on and suggesting that Microsoft could court much of the Wii audience. There was also reason to believe that a disheveled Sony lacked the clarity and mettle to last through another long console cycle.

While the backlash that surrounded the One's unveiling erased much of this perceived momentum advantage, the system's launch window sales suggest there is still strength in the Xbox brand. Exactly how much should become more apparent in the coming months when the holiday rush has settled and the distorting effects of hardcore enthusiasts give way to the more important mainstream audience. News that Amazon's peak sales period saw both the Xbox One and the PlayStation 4 selling in excess of 1,000 units per minute would suggest healthy competition, but other indicators show that the PlayStation 4 is on its way to establishing a substantial sales lead. An article by Fool writer Leo Sun provides an excellent picture of the sales and trends that are dominating the console war discussion.

Varying results on the North American and European fronts
If early reporting proves to be correct and these trends continue, Microsoft looks to cede many of the gains it made in Europe while retaining a stronger presence in North America. News that the PS4 had become the fastest-selling console in UK history and that it was outselling the Xbox One at a greater than 3:1 rate in Spain would appear to support this assertion. Conversely, both systems posted impressive November sales in North America. The PlayStation 4 edged out the One by a currently unknown margin, but it also enjoyed an extra week of tracking and may have had a larger launch allotment.

Getting ahead of oneself 
While launch sales are fun to compare, they are also historically misleading. Anecdotal evidence suggesting that PS4's are still difficult to find while Xbox Ones are beginning to pile up at retailers looks to establish Sony's console as the clear generational favorite, but the full picture is still far from available. Sony's PS VITA handheld and Nintendo's Wii U console both posted successful launches only to have demand dry up seemingly overnight. Sony's PlayStation 3 got off to a dismal start, but the company did whatever it took to get the console to a reasonable price point and supply it with compelling software. At the tail end of the generation, it managed to surpass the 360 in global sales.

It's all about value
That the PlayStation 4 is markedly more powerful than the Xbox One is not going to be the deciding factor in which console achieves greater success. That bout will come down to what it usually comes down to: which system offers a better perceived value. Tech is important in that respect, but not predictive. The system that offers the most broadly appealing games and has the best online ecosystem stands to have the best footing in the so-called console war.

That said, Microsoft is still paying for its early Xbox One mistakes. The system's hardware makeup and expensive price point trace their roots to a product vision that was soundly rejected. For this reason, Microsoft would do well to study the life cycle of the PlayStation 3 and the strategies Sony implemented to save it: revise the hardware, jettison unnecessary features to reduce cost, and let the games do the talking.

Is 2014 the year of the gamer?
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Keith Noonan has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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