Tablet Games vs. Consoles: Will Tablets Make Xbox and PlayStation Irrelevant?

More and more people are playing games on tablets, and it's possible that could stop some from investing in game consoles.

Sep 3, 2014 at 11:26AM

Since the Atari 2600 launched in the late 1970s, consoles connected to televisions have been an important part of the at-home video game business. The 2600 led to Nintendo's (NASDAQOTH:NTDOY) original NES console, which eventually ceded dominance to the Sega Genesis.

That machine then gave way to a variety of devices from Sony (NYSE:SNE), Microsoft (NASDAQ:MSFT), and Nintendo, which have led the way for more than a decade. Yes, there have been some handheld devices, including Nintendo's Game Boy and its successors, that captured large audiences; but consoles, along with PC gaming, have been the center of the home video game universe since such a thing has existed.

For the first time in more than 20 years, however, an at-home game category looks poised to become large enough that it may undercut the market for consoles, according to a new report from Juniper Research. The report predicts that revenue for tablet gaming will rise from its current $3.6 billion a year to $13.3 billion in 2019. That's not even close to the $68 billion for console and handheld games that a white paper from HP said research firm Gartner predicts for 2015, but it's enough to suggest a potential shift in habits.

If the number of people playing games on their tablets increases that rapidly, some, if not many, of those game players may decide that shelling out the $399 basic price for a PS4 or Xbox One is not worth it.


Tablets, like the Microsoft Surface, are offering an increasing selection of games. Photo by Daniel Kline.

How big is mobile gaming?
The threat to the console business comes if consumers decide that the gaming experience on a tablet is good enough to replace console gaming. That has, so far, not been the case, as hardware limitations for tablets have somewhat reined in the appeal of using them for games.

In many ways, it's similar to how games have become popular on phones to the tune of roughly $17 billion a year in 2014, according to data from Juniper as reported by CNET. That's a huge number, but the difference in the phone gaming experience versus the console one are so vast that one has not eliminated the demand for the other.

It's hard to imagine that a phone with a 4-, 5-, or even 6-inch screen would ever make a lot of gamers forgo playing games on a big screen through a console or a PC. Tablets, however, are a different story, as they are getting closer to approximating the console experience, and technology will continue to get better. As Juniper reported, "Growth will be fueled by a number of key factors including improved storage capacity of devices, better graphical capabilities, increasing mobile broadband penetration and consumers' preference for convenience and ubiquity."

A tablet may not offer an equal experience to an Xbox One or a PS4, but it may offer a good enough alternative that keeps people from forking out the big bucks for a console. In some ways, it's a bit of a race -- if people already own consoles, then the question of buying them is moot. If they don't, and tablets keep improving, they may decide not to.

Right now, because we are in the beginning of the cycle for the Xbox One and PS4, neither has a large enough installed user base to remain a viable product if tablets scare new buyers away. The tablet game audience isn't there yet, and the console user base isn't big enough to end the debate.

How are the consoles doing?
Early sales results have been strong for Sony's PlayStation 4, with the console moving 10 million units in less than nine months since its November 2013 release. That's a faster pace than its predecessor, the PlayStation 3, which took more than a year to hit the same-sales milestone, according to Time.

Microsoft has not done quite as well, and has been less forthcoming with sales figures, but the numbers have been improving since the company lowered the console's price to $399 by unbundling it from the Kinect motion sensor. The only specific sales total the company has released was to announce in April that it had shipped 5 million units to retail.

The company did report on the Xbox blog that sales have increased since it dropped the Kinect and the price: "Since the new Xbox One offering launched on June 9th, we've seen sales of Xbox One more than double in the US, compared to sales in May, and solid growth in Xbox 360 sales."

Both consoles have a long way to go before reaching the approximately 80 million in sales each one racked up for its previous generation devices.

Will consoles still matter?
While a certain hard-core gaming audience will always want the best possible hardware experience -- which is sometimes a console and sometimes a PC, depending upon the game -- casual users have shown a willingness to settle for the "good enough" experience when dollars are involved.

The actual winner of the last round of console wars was not the PS3 or the Xbox 360, it was the Nintendo Wii, which has sold more than 100 million units, according to GameSpot. That console had lower technical specifications than its rivals, but at launch, it had unique motion-play features, as well as a lower price.

Of course, PS3 and Xbox 360 eventually became very successful, partially due to price cuts, and partly because the novelty of Wii wore off. Tablet games are not so much a novelty as they are a convenience, and innovation could make tablets a viable console alternative.

Many tablets can already be plugged into TVs, and it's already possible to, in some cases, add traditional gaming controllers in order to play on the big screen. If that happens on a widespread basis, and tablet gaming becomes both handheld and on TV, then it could eliminate the need for owning a separate console.

It should also be noted that, while consoles also do other things, like serve as an entertainment hub for streaming video apps, those things are generally entertainment driven. Parents can justify tablets because they also can be used for educational purposes. It's hard to do the same for a console.

It's still very early in the tablet-gaming game, and this generation of consoles may get in under the wire, but ultimately, it seems highly likely that dedicated gaming consoles are, if not on their way out, at least in jeopardy of becoming a smaller niche.

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Daniel Kline is long 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.

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