Microsoft's (NASDAQ:MSFT) Xbox One has proven to be a lesson in what can go wrong when launching a video game console. It was originally priced at $499, $100 higher than Sony's (NYSE:SNE) PlayStation 4, due to the inclusion of the Kinect peripheral. But Microsoft has recently backtracked and is now selling a version without Kinect for $399. While this closes the price gap, the Xbox One is still an underdog to the PlayStation 4, and it even risks losing this console generation to Nintendo's struggling Wii U. Can Microsoft make a comeback? Or is Sony's lead insurmountable?
Why Microsoft's Kinect strategy failed
The problem with bundling Kinect with the Xbox One was not that it added $100 to the cost of the console. The problem was that Microsoft failed to provide a compelling game to take advantage of it. When Nintendo launched the original Wii, every console came with a copy of Wii Sports. People bought the Wii specifically to play Wii Sports, and the game took great advantage of the system's motion controls. If Nintendo had launched the Wii without a game like Wii Sports, I doubt that the console would have sold nearly as well.
Microsoft, however, made the mistake that Nintendo managed to avoid. The company touted Kinect as a key feature of the console, and while it allows for interesting features like voice control and facial recognition, it adds nothing to the gaming experience out of the box. One of Microsoft's studios did eventually make a game, Kinect Sports Rivals, meant to showcase the power of Kinect, but it was a separate purchase and reviews were middling at best. According to VGChartz, the game has so far sold only about 160,000 copies. If Microsoft had shipped a game that meaningfully made use of Kinect with every console, I suspect that it wouldn't have needed to resort to selling a Kinect-less version today.
10% more power, and still a serious problem
One benefit of a Kinect-less Xbox One is that all of the resources that the Kinect used can be freed up and utilized by games. It turns out that 10% of the Xbox One's GPU was reserved for Kinect, and Microsoft will soon be shipping tools that will allow developers to take advantage of these extra resources. Unplugging the Kinect from the console won't provide a performance boost on its own; developers will need to add this feature to their games.
This extra 10% of performance will help the Xbox One catch up to Sony's PlayStation 4, but it likely won't solve the problem entirely. The GPU that powers the PlayStation 4 is inherently more powerful than that of the Xbox One, and this is one reason why the PlayStation 4 tends to offer either higher resolutions, higher frame rates, or both on many cross-platform games. IGN maintains a list of resolutions and frame rates for each game on both consoles, and the PlayStation 4 simply trounces the Xbox One. A 10% performance boost will help, but it won't completely close the gap.
Can Microsoft save the Xbox One?
The Kinect, while underutilized for gaming, did represent a differentiating factor for the Xbox One. Now that the Kinect is no longer standard, the main points of differentiation are performance and exclusive games. The PlayStation 4 is unquestionably winning in performance, so all that's left to save the Xbox One are games.
Microsoft does have some exclusive games lined up for its console, but so does Sony, and the choice really just comes down to preference. The real question is this: Does the Xbox One do anything better than the PlayStation 4? The answer is no, or at least not anything that gamers care about. What Microsoft should have done was keep the Kinect bundled with the Xbox One but drop the price down to $399.
It would have needed to take a bigger loss on the console, but it would have been better able to differentiate the Xbox One from the PlayStation 4, and it would have given third-party developers a chance to build something compelling for the Kinect. Developers will be far less likely to make use of Kinect in games now that it is no longer a standard feature of the console.
The bottom line
There's no real reason to believe that the Xbox One will have substantially better exclusive games than Sony. Both Microsoft and Sony have studios churning out exclusive titles, and both have built popular franchises. With the Kinect relegated to niche status, Microsoft has lost the one thing that made its console truly different, even if it never actually took advantage of it for games. There's no real reason to compel undecided gamers to choose the Xbox One over the PlayStation 4. There's also one very good reason -- performance -- to choose the PlayStation 4 over the Xbox One. It's still early in this generation of consoles, but Microsoft may have already lost.
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Timothy Green owns shares of Microsoft. 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.