PS4 vs. Xbox One: Sony Pulls Further Ahead in Console Race

Sony is trumpeting its PS4 sales numbers and Microsoft is saying nothing about Xbox One sales.

Apr 18, 2014 at 7:47AM

When one company screams from the rooftop how well it is doing and its rival maintains an ominous silence it says a lot about how each company is doing.

Sony (NYSE:SNE) just announced that the PlayStation 4 has sold more than seven million units globally while 20.5 million pieces of software for the system have sold in retail stores and through digital downloads as of early April. Microsoft (NASDAQ:MSFT) has not reported sales of its Xbox One since January when it said it had sold three million systems globally.

"The response from the global gaming community for PS4 has been overwhelming and we are truly humbled that gamers are selecting PS4 as their next generation console of choice," said President and Group CEO of Sony Computer Entertainment Andrew House, clearly taking a dig at the rival system.

No news is not good news

The lack of comments from Microsoft certainly suggest that sales for Xbox One have not lived up to expectations. That's especially troubling coming a month after the heralded release of Titanfall, which was expected by many to be a deal-changer for Xbox. The release of Titanfall also came with a price cut at many (but not all) retailers, which effectively made the price for Xbox One the same as the price for PS4. (One of the biggest complaints about Xbox One when the new generation of consoles launched was that it cost $499 while PS4 only cost $399.)

During the Titanfall release select retailers offered Xbox One for $449 with the game included. That gave the console an effective price of $399 -- if that deal did not move the needle for Xbox it suggests Sony simply has more users interested in buying PS4 than Microsoft does with Xbox.

It's possible that Microsoft angered its base by not offering a version of Xbox One without a Kinect and the after-the-fact de facto price drop does little to stem that anger.

"The Kinect for the Xbox One is a sophisticated, expensive piece of equipment that adds very little to the act of playing games," wrote Ben Kuchera at Polygon. "The system is still new, but every Xbox One owner now has a peripheral that has little reason to exist, aids their gaming in very few real ways, and costs them a significant amount of money."

Fixing the ill will may not be as simple for Microsoft as a price cut.

Consoles can build momentum

Game titles drive console sales and developers want to build games for whichever console has a larger installed user base. Of course many developers offer their top titles for both platforms and some make deals with one company or other for exclusivity (like Microsoft did for Titanfall), but in general having a much larger number of consoles in the market should tip developers in your direction. That can have a bit of a ball rolling downhill effect as the market leader gets stronger titles, which allows it to add to its lead.

Sony has not likely achieved that critical mass quite yet. Even if PS4 has double the sales of Xbox -- a 7 million to 3.5 million lead -- it's still very early in the game. But if perception builds that PS4 will emerge the winner then Sony will receive the bulk of efforts from developers looking to sell their games to as wide an audience as possible.

Microsoft can play a longer game

In my earlier article Why Early Xbox Sales Numbers Are Meaningless, I showed how Microsoft has a much stronger financial position as a company than Sony. That allows Microsoft to take a long view on Xbox One -- the company needs steady gains not a home run immediately. 

One of the factors that might eventually even up the next generation console battle is that both Microsoft and Sony sold around 80 million of their Xbox 360 and PlayStation 3 consoles as of 2013, according to Venturebeat. Users of those systems will eventually want to upgrade and many of them are likely to stay in the gaming universe they have become accustomed to. While hardcore gamers may be likely to own multiple consoles or switch brands when upgrading due to a hot game title, casual users are more likely to not want to have to learn a new system.

Microsoft can wait for customers to either wear out there 360s or decide to upgrade for another reason. Since games are still being made for the older systems (which are pretty impressive despite being almost 10 years old) a huge number of users may be sitting back waiting for a reason to upgrade -- be that a hot game title, a price drop, or a holiday.

Microsoft does not need to panic yet

It's still early in the game and it's not time for Microsoft to panic, but the company does need to take steps to avoid letting Sony become the clear winner. Microsoft has the cash to pay developers to build games for its system, but doing that because you have to to get any major game releases is a desperate strategy. The company -- if its silence is indicative of bad sales -- needs to take steps to narrow the deficit now and keep the next generation console battle a two-company contest. 

The stakes are high -- Xbox's Aaron Greenberg shared on a 2013 podcast that the console industry is worth $27 billion annually and whichever company wins controls a lot of living rooms. This has become increasingly important as app sales, video downloads, and other downloads become an increasing potential source of revenue.  

Sony should be crowing about selling seven million PS4s and Microsoft needs to rethink its strategy if it has sold many fewer Xbox Ones. The fight is still young but Microsoft has to stop Sony from building an insurmountable lead or continuing the war becomes increasingly expensive.

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Daniel Kline is long Microsoft. He is considering buying an Xbox One. 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.

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Jun 12, 2015 at 5:01PM

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