E3 2014: Xbox One Sales Will Suffer Unless Microsoft Answers These 3 Questions

Microsoft (NASDAQ: MSFT  ) unveiled a number of games this week at the 2014 Electronic Entertainment Expo, but offered little insight on its long-term game plan for the Xbox One, which trails Sony's (NYSE: SNE  ) PlayStation 4 and Nintendo's (NASDAQOTH: NTDOY  ) Wii U in overall sales.

Microsoft discussed exclusive titles including Halo: The Master Chief Collection (a compilation of all the previous Halo titles), Halo 5: Guardians, Sunset Overdrive, Fable Legends, and Forza Horizon 2, as well as oddball titles like Inside and Ori and the Blind Forest. Microsoft also announced plans to reboot two forgotten Xbox franchises -- Phantom Dust and Crackdown.

The rest of Microsoft's lineup consisted of cross-platform titles such as Electronic Arts' Dragon Age: Inquisition, Activision Blizzard's Call of Duty: Advanced Warfare, Square Enix's Rise of the Tomb Raider, and two big games from Ubisoft -- Assassin's Creed: Unity and The Division.

Source: Xboxfrance.com.

Meanwhile, Sony unveiled its streaming game service PS Now and the $99 PlayStation TV, discussed its Morpheus VR headset, and revealed major exclusive titles such as LittleBigPlanet 3, The Order: 1886, and Uncharted 4. Nintendo discussed an open-world Legend of Zelda, new entries in the Super Smash Bros. and Mario Party franchises, new solo titles for Toad and Yoshi, and Amiibo interactive figurines.

By comparison, Microsoft failed to offer gamers truly compelling reasons to buy the Xbox One. Therefore, let's take a look at the three critical questions Microsoft absolutely needs to answer to get the Xbox One out of its rut.

How is the Xbox One different from the PS4 or a Steam Machine?
The Xbox One's biggest problem is that it doesn't offer a unique gaming experience outside of its handful of exclusive games. Microsoft recently removed the Kinect, the one piece of hardware that made it different, to bring the console's price down to $399.

Once Halo, Fable, and Forza are removed from the equation, the Xbox One just doesn't have enough exceptional features.

One of Microsoft's core strengths in the past has been online play, but the PlayStation Network (for the PS3, PS4, PSP, and PS Vita) now has 110 million users, compared to 48 million Xbox Live users. Xbox Live has also been eclipsed by Valve's Steam, which reported 65 million users last October.

Meanwhile, Microsoft recklessly tried to sell the Xbox One as an all-in-one media center for the living room. It inked huge contracts, including a $400 million deal with the NFL, and started developing its own original content to compete against Netflix. However, many newer "smart TVs" already offer similar features, and cheap streaming devices such as Google's $35 Chromecast dongle can easily stream Web-based content to any TV.

Therefore, without the Kinect, better online play, or media superiority, Microsoft must now convince gamers that it is somehow preferable to the PS4, the Wii U, or Valve's Steam Machines.

Will Microsoft realize that games matter more than hype?
Microsoft's E3 2014 presentation thankfully nixed the awkward celebrity appearances of the past, which included Donald Trump ridiculing and "firing" Sony executives, Joe Montana playing Madden 13 with the Kinect, and Usher throwing a concert.

But throughout its 13-year history, Microsoft has constantly marketed the Xbox consoles as anything but gaming consoles. In 2005, the company launched the Xbox 360 with an MTV special hosted by Elijah Wood and featuring musical performances by The Killers. Last November, Microsoft launched the Xbox One with coast-to-coast star-studded celebrations and live concerts in Times Square.  

Prior to that, it launched this 30-second Xbox One ad in North America that notably didn't feature any games. Instead, the promo focused on watching NFL games and taking Skype calls on the console.

All of these promos and ads indicate that Microsoft's Xbox marketing strategy is based on the misguided notion that "video games are not cool, but the Xbox is cool." The problem, as Microsoft has found out the hard way, is that alienating core gamers to capture a market that wasn't interested in gaming in the first place simply doesn't make any sense.

Should Microsoft unify the Xbox One and Windows gaming platforms?
Last but not least, if Microsoft combined its Xbox One and PC platforms into a unified Live ecosystem, it could theoretically strike a critical blow against Sony and Valve. This simply means that if a consumer purchases a cross-platform game on the PC, he or she could download it again on the Xbox One at no additional charge and vice versa. Publishers might initially resist this idea, since they generate unique sales from both platforms, but the fact is that gamers usually don't buy the same title twice on multiple platforms.

Although the vast majority of PC games are played on Windows machines, Microsoft's previous effort, Games for Windows Live, failed to dent the market and will be quietly discontinued on July 1. Meanwhile, Valve's Steam, EA's Origin, Ubisoft's UPlay, and Amazon Games remain the biggest players in PC gaming.

An IDC survey in 2012 revealed that 41% of 1,503 respondents were interested in the idea of "buy once, play anywhere" gaming. PC gamers sometimes avoid buying consoles because their games are registered for PCs. If Microsoft allows its cross-platform titles to be accessed from an Xbox One for no additional charge, it could boost Microsoft's console sales while properly combining the PC and Xbox "Live" ecosystems.

The Foolish takeaway
Microsoft needs to consider three strategies to get the Xbox One back on track -- offer better exclusive titles and unique ways to play them, reduce its focus on media consumption, and consider unifying its PC and console game ecosystems. Only then can Microsoft ensure that the Xbox One catches up to its rivals in the eighth-generation console wars.

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Read/Post Comments (9) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 13, 2014, at 10:20 AM, Cerberus82 wrote:

    And yet NONE of the big 3 announced a SINGLE GAME that had content unlock-able content due to game play. ALL of them promised DLC or *decisive laundering currency. What better way to enjoy a game knowing full and well you only bought a portion of it at full price, sometimes with a code that unlocks a fraction of what is really offered.

  • Report this Comment On June 13, 2014, at 10:59 AM, allenalbright wrote:

    You can not fix the xbox one. The main problem is the hardware. The new controllers are terrible and most skilled gamers agree. Causal gamers may not notice ,but many complain that the controller hurts there hands as you have to do weird finger stretching. It does not feel nice like the 360 controller. There are a bunch of other problems.

    Serious gamers are already aware that as this article states the xbox one was not designed for gamers ,but as a multi media platform for watching TV etc. Microsoft cared so little about the gamers that they did not even include a battery light on the controller to let you know your control is about to die in the middle of a game.

    Why would they take it off when it is on the 360 ?

    But that is the least of the controllers problems just search for reviews online and you will see plenty of unhappy former xbox 360 players that are disgusted with the xbox one in general.

  • Report this Comment On June 13, 2014, at 11:38 AM, JJ82 wrote:

    Easy answers.

    1. Two are gaming machines, the other is a malformed hybrid trying to do everything and doing none of it great.

    2. No.

    3. No, the system already uses a basic version of Windows 8 and the Metro UI and is one of the reasons why the system is subpar. A gaming console should be created without the limitations of the Windows OS.

    MS needs to start making hardware that actually focuses on their market and not be hybrids or all-in-ones. They missed a great opportunity to create a game console, a media box and a voice/motion control system sold on their own, built for those individual markets by making them stand alone items while just making them so if you connected them together, they would make each other even more powerful by integrating their CPU communications.

  • Report this Comment On June 13, 2014, at 12:29 PM, Motleygaming wrote:

    With all due respect to Mr. Sun, who I'm sure is a highly intelligent individual, this article reflects an extraordinary lack of even the most basic understanding as to how a console manufacturer such as Sony and Microsoft make their profits. The idea that Microsoft should unify the Windows and Xbox platforms would never occur because it would eliminate almost all of Microsoft's profits from its Xbox division and would result in its quick death, much like if Microsoft announced that they are going to follow Apple's lead and from this point forward give their operating system away for free. Console manufacturers generally don't make profit on the sale of consoles themselves and historically have sold consoles at a loss (although this cycle both console manufacturers are making a very slight profit on each console sold). The business model of console makers relies heavily on the fees that the console maker receives from each game sold on their platform. Given this reliance on fees from games on their platform, it is absolutely essential that a console maker have a tight control on how games can appear on their platform--a gaping whole in the ecosystem that would allow someone the ability to sell games on the platform without paying the required fees to the console maker would be a disaster. Unlike the Xbox ecosystem, Microsoft receives no money for games that appear on PC. Yet, if Microsoft accepted Mr. Sun's advice, a user could buy the PC version of the game and would get the Xbox version free. Microsoft would have no ability to control the price of the PC version of the game, which would make it very difficult to convince gamers to buy the Xbox version for which Microsoft receives its fees. It is absolutely shocking that the author of this article would make such an absurd suggestion, especially on a website that purports to understand business.

  • Report this Comment On June 13, 2014, at 12:35 PM, Ebby720 wrote:

    Have both machines and neither one has a great line up nor great games.....most games are crappy, slammed together and not as good as years past....yet they have better graphics....well whoopee dee...maybe Halo will step up or Gears..............none of the PS4 games were any better.

  • Report this Comment On June 13, 2014, at 1:29 PM, TMFSunLion wrote:

    @Motleygaming -- I never said that it would be an instantaneous shift that Microsoft and publishers would be happy about. I'm suggesting, however, that Microsoft can renegotiate the terms for PC and Xbox One titles with publishers to create a cohesive ecosystem.

    By the way, I'm not the first to suggest this idea, which seems to be a way for Microsoft to catch up to Valve on the PC. Here's an article on Time debating the logistics:

    http://techland.time.com/2013/08/16/xbox-one-and-windows-gam...

  • Report this Comment On June 13, 2014, at 1:45 PM, eQil1 wrote:

    Leo, Leo, Leo. First off those oddball titles you referring to ( Inside, form the creators of Limbo ) & Ori & The Blind Forest are looking to be great Indie games & deserve more than "oh those games " attitude you seem to be giving them. Show some respect to Indie developers & games. Some of your article is completely contradictory! You basically said if you take away Xbox1's exclusives it's not anything special, well duh, you take away exclusives away from any system & all you have is a console that plays what everything else does. And you make it sound like Sony & Nintendo's conferences made you want to go out & buy their consoles, neither of the three made me want to go out & buy their consoles afterward. Don't get me wrong, The Order, an open world Zelda & Sunset Overdrive are looking to be great games but I never got the vibe to rush to the store for a console. MS was really trying to do something different than just a plan console & they took the wrong approach to do so. So they give people what by taking Kinect away then you say they need to something to be different? I'm not a fanboy by any means, I will eventually own both Xbox1 & PS4, but you guys at Motley Fool seem to full of nothing but Sony fanboys & Xbox haters & continue to constantly, mercilessly put Xbox down. Their numbers are actually good they are just not as good as Sony's, who is currently in more countries than MS. It will take a while to catch up to ( If they do ) Sony, but being number two ( Which Sony sat at for a very long time) isn't that bad.

  • Report this Comment On June 14, 2014, at 2:50 PM, cone1317 wrote:

    I honestly just read these articles for the laughs now. The bias is ridiculous. You could take the exclusives away from all three major consoles and you'd basically have three of the same thing. Having exclusives is the point of buying different consoles so you can't take them away just to try and prove your point that it suffers without them. The same hypocrisy applies to your Kinect argument. All I saw on this stupid website was articles criticizing Microsoft for forcing the Kinect on people and now you criticize because they took it out? Make up your mind. Regardless, I think Microsoft has the best lineup of games this fall, especially since most of Sony's aren't until next year. And in conclusion, you're an idiot Mr. Sun. Take your nonsensical, uninformed opinion off the Internet.

  • Report this Comment On June 27, 2014, at 10:28 AM, DC06675 wrote:

    I would first like to say that I have neither console and am unsure which I will get. But I have a serious problem with part of this article. "Will Microsoft realize that games matter more than hype." This isn't true at all based on how quick this exact same article was able to dismiss all of Microsoft's exclusives and explain how the PS4's 3 games announced and the Wii U game announcements somehow outshines the Xb1. Hype drives everything even undeservedly so. The Order? Uncharted 4? Little Big Planet 3? We seen probably a combined 30 minutes of actual footage from these games (most from LBP 3) and those outshine Xb1 already, why? I am not saying that these games will be bad by any means but this article really needs to get over itself. It clearly disregards everything the Xb1 did and if you do that to only one console and not the others than, sure, it looks bad in comparison.

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