Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) both recently announced big updates to their gaming consoles. Microsoft announced Project Scorpio, an upgraded version of the Xbox One which can play 4K-native games and supports VR games. Sony confirmed a similar upgrade to the PS4, dubbed the NEO, which will also play 4K-native titles and VR games.

Both companies clearly didn't want to lose the fledgling VR market to PC-based devices like Facebook's (NASDAQ:FB) Oculus Rift or mobile-based headsets like Samsung's (NASDAQOTH:SSNLF) Gear VR. But which company has a better chance at capturing the console-based VR market?

Oculus Rift Man Staring

Image source: Oculus VR.

Sony has a head start

Sony's big play on the VR market is the PlayStation VR headset, which will go on sale in mid-October for $399. That's a much lower price tag than the $599 Oculus Rift, but the entire bundle (which includes two Move controllers, headphones, the PS Camera, a game, and a demo disc) will still cost $500.

However, the $350 PS4 costs much less than the average $1,000 "VR-ready" PC required for the Oculus Rift. The PS4 NEO won't be required to play PlayStation VR games, but the performance of the titles will reportedly be smoother on the new console. The final price and release date of the NEO haven't been revealed yet.

Sony is also working with publishers like Time Warner's (NYSE:TWX) WB Interactive and Square Enix to create VR versions of games like Batman Arkham and Final Fantasy. Sony is expecting initial demand for the headsets to outweigh the limited supply. Sony Interactive Entertainment CEO Andrew House recently told CNBC that the company would do its "very best to meet demand" during the holidays but warned that there could be shortages.

Images

The PlayStation VR. Image source: Sony.

Microsoft tries to catch up

Unlike Sony, Microsoft hasn't unveiled its own VR headset yet. Previous reports suggested that it wanted to partner with Oculus, but Xbox chief Phil Spencer recently told The Verge that the company wasn't ready to announce any partners yet.

Teaming up with Oculus would also be awkward, since Facebook has been expanding its Oculus Home ecosystem as the default OS of the Rift. It's also been locking games into that ecosystem by preventing Oculus-exclusive titles from being played on rival headsets like HTC's Vive. It would be tough for Microsoft to convince Facebook to integrate that ecosystem into the Xbox Live platform due to overlapping interests in monetizing VR content.

Microsoft has also sent out mixed signals regarding its HoloLens AR headset, which could conflict with its VR ambitions. Last year it hired Mass Effect director Casey Hudson to create experiences for the HoloLens and used the headset to stream Halo 5 gameplay, but it's unclear if it will ever launch a cheaper version of the $3,000 device as an Xbox accessory.

Microsoft also hasn't even revealed the price, launch date, or final name for Project Scorpio. Therefore, its entire "reveal" felt like a knee-jerk reaction to Sony's more visible progress in the VR gaming world.

But Sony has a bigger audience

In addition to having a better coordinated plan, Sony has a much larger audience of gamers. According to market tracking site Vgchartz, Sony has sold 40.7 million PS4s, while Microsoft has sold just 21.1 million Xbox Ones.

That big lead gives Sony more clout to secure more exclusive VR titles from publishers. Around 40 exclusive VR games have already been announced for the PlayStation VR, and it will be compatible with dozens of other cross-platform titles. That's a pretty solid start considering that Oculus Home only has around 250 apps.

An untested market

Piper Jaffray estimates that Sony will sell 1.4 million PS VRs this year, compared to 5 million Gear VRs, 3.6 million Oculus Rifts, and 2.1 Vives. Those rough estimates indicate that cheaper mobile-based headsets like the Gear VR, Cardboard, or Daydream could be more popular than PC or console-based headsets.

If Piper's forecast is accurate, Sony would only reach about 3% of its installed user base with the PlayStation VR. That would mean that the headset could remain a niche product for the near future, and indicates that Microsoft might struggle to reach even a million users with whatever VR solution it launches with Scorpio.

So for now, Sony is winning the "VR-ready" console battle. But investors should realize that the market will probably be much smaller than expected at first, and that sales of NEO and Scorpio will likely be propelled by other non-VR features like 4K games.

Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Time Warner. 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.