Will New Leadership Help the Xbox One Compete With the PlayStation 4?

Microsoft's original product vision for the Xbox One was clearly not working. Can the newly anointed "Head of Xbox" turn things around and catch Sony's red-hot PlayStation 4?

Apr 22, 2014 at 2:05PM

Screen Shot

Source: Xbox.com.

The messaging for Microsoft's (NASDAQ:MSFT) Xbox One has changed substantially since the console's unveiling. While the debut of the console seemed to revolve around the device's media features and Kinect 2.0 camera, the company has quickly shifted to a more games-centric profile for the system. The reason for the change is obvious.

Sony (NYSE:SNE) built its pitch for PlayStation 4 around the system's offerings as a gaming platform, and the early adopter market has clearly responded favorably. The PS4 had sold more than 7 million units to consumers as of April 6 and the latest North American sales leaks show Sony's console outperforming the Xbox One despite the latter console receiving a major software release in Titanfall, a bundle featuring the game at no additional cost, and a number of retailer-specific promotions.

The end of March saw Microsoft appoint Phil Spencer as the new leader of the Xbox division. Can Microsoft's new Head of Xbox institute the changes necessary to make the console more competitive with PlayStation 4?

The curse of Don Mattrick
Much of the original product vision for the Xbox One can be traced back to current Zynga CEO Don Mattrick. Before resigning from Microsoft and joining up with the social games publisher, he was the man in charge of Microsoft's devices and studios division. Mattrick is the man largely responsible for the incredible success of the original Kinect camera, a device that currently stands as the best-selling peripheral in gaming history.

Unfortunately, the success of the Xbox 360 camera add-on gave Mattrick justification for making the Kinect 2.0 central to the Xbox One experience and value proposition. The market for motion gaming has shrunk considerably since the heydays of Nintendo's Wii, and current sales trends suggest that Microsoft's latest console is weighed down by the expensive camera that is included in every box.

The new Kinect was supposed to help Microsoft reach the casual audience at the beginning of the generation, rather than wait until the middle or the tail end. But many of those gamers are being served by mobile offerings, and the camera has pushed the price of the Xbox One out of the realm of mainstream feasibility. Changing strategy was essential.

Who is Phil Spencer?

Screen Shot

Source: Xbox.com.

Spencer has been with Microsoft for more than 26 years and worked on projects like Encarta and Microsoft Money. He also has notable experience in the gaming field, having served as the general manager for the European, Middle Eastern, and African branches of Microsoft's gaming studios division before being promoted to worldwide general manager of Microsoft Studios in 2008.

Spencer's recent appointment to head of all things Xbox has gotten a mostly positive reception. The man appears to have greater cache with gaming enthusiasts than other Microsoft executives and previous holders of the post. His ascension to the top of the Xbox brand even generated a positive comment from Microsoft's chief competitor in the space, with Sony's President of Worldwide Studios Shuhei Yoshida commending Microsoft on the move and stating that Spencer is "the most human guy" at the rival company.

The messaging from the mouth of the new Head of Xbox suggests that Microsoft is in the midst of pursuing a much more games-centric strategy. Spencer has stated that the company will focus on courting the hard-core gamer and that Microsoft's E3 presentation will revolve around delivering captivating software rather than hype. Compare these statements with Mattrick's borderline-obsessive focus on television and Kinect 2.0 integration at Microsoft's 2013 conference, and it should be clear that a shift in focus has taken place.

Will Phil kill Kinect?


Much of the speculation surrounding the future of Xbox One has centered around whether or not Microsoft will ship a SKU that does not include Kinect. To be sure, the camera adds a great deal to the system's build cost, and price is currently a major factor in the console's inability to keep pace with the PS4. That said, ditching Kinect may not be so easy.

Some analysts have speculated that Microsoft is contractually bound to package each Xbox One with Kinect for at least the system's first year on the market. The software giant could provide the right incentives to restructure the relevant contracts, but that undertaking could prove difficult depending on the number of parties involved.

One thing is certain
At Microsoft's E3 conference, Spencer will be tasked with selling consumers and investors on the future of Xbox. Right now, the future of the brand hinges on an ability to deliver the One at a substantially more attractive price point. Whether a price drop is announced at E3 or closer to the holiday season is dependent on how long Microsoft thinks it can play the waiting game in the midst of the firestorm that is PS4.

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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.

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