Microsoft (NASDAQ: MSFT) is an American tech giant best known for creating the Windows operating system and ushering in the computer revolution. The company also produces video game hardware under the Xbox brand and is set to release its new Xbox One console this holiday season.
The Xbox One received a scathing reception upon its unveiling, prompting Microsoft to implement a number of changes to the product. Recent news and the extent of these changes suggest that Microsoft is scrambling to preserve its cut of the market.
With the assist
Hot on the heels of the announcement that the Xbox One would no longer require its Kinect camera to function and that every box would come with a headset, Microsoft has finalized a deal with Electronic Arts (NASDAQ: EA) for an exclusive software pack-in. A download of EA's FIFA 14 will be offered as a pre-order incentive for Xbox One in European territories. Both the standard and bundled SKUs will retail for £429.99 in the UK and 499 euros in the rest of the continent.
The move was revealed at the Gamescom convention and comes after rumblings of low European pre-order numbers for Microsoft's system. In light of the terrible press that has surrounded the Xbox One, it must be viewed as a move of desperation for Microsoft. The company needed to improve its value proposition if it hoped to compete against the cheaper and, at this point, more popular PlayStation 4 from Sony (NYSE: SNE). Early pre-order data from The Netherlands indicates that four times as many people are queuing up for Sony's system.
While Europe has traditionally been dominated by Sony's platforms, the United Kingdom chose the Xbox 360 by a significant margin. Taking a look at the 13 countries, down from the initial projection of 21, in which the Xbox One will launch, shows where Microsoft believes its most valuable markets to be. Eight of the launch countries are in the Eurozone, where soccer and the FIFA series are immensely popular. I take bundling of the game to be an indication that Microsoft has access to tracking numbers that are painting a grim picture for its soon to be released product.
Roster depth
The move to make FIFA most visible on the One makes sense from more than an Eurocentric perspective. EA and Microsoft have shown themselves to be cozy heading into what EA somewhat questionably refers to as "Gen 4." Electronic Arts is set to publish Titanfall, a Xbox exclusive title from Respawn Entertainment in the first quarter of 2014, and has indicated it will give focus to Xbox One versions of multi-platform titles. Titanfall is being positioned as the defining release for the early stage of the system's life. Its release might even coincide with the launch of a Kinect-less Xbox One if the initial SKUs are slow to sell.
EA also reportedly dropped its Online Pass system in anticipation of Microsoft implementing its own anti-used game and DRM policies. Both companies have, at times, shown an aggressive over-eagerness to dominate the digital space and propel the speed at which games are broadly conceived as a service.
I expect Microsoft to announce partnerships with a number of top-tier studios and high profile developers in the coming months. These types of efforts have undoubtedly been ramped up in light of Xbox One's initial stumblings. Microsoft is firmly invested in the industry and sees great revenue and potential from consoles as a delivery method for services like Xbox Live. That said, almost every decision it has made since revealing the One has been reactionary. The company is scrambling.
Too early to call the first round?
Microsoft is much more financially stable than Sony. That is, without doubt, its greatest advantage heading into the coming cycle. It has the resources to see its system through a normal life cycle by securing the right games and improving its value proposition. We are likely to see the PlayStation 4 and the Xbox One reach price parity much sooner than initially anticipated. Microsoft will take blows to its ego and sizable pocketbook before it lets the Xbox One bomb.
On the other hand, the company is seriously behind and its actions make it difficult to argue otherwise. Early pre-sale data, online retailer rankings, and rumors that Microsoft's system is experiencing eSRAM yield problemssuggest that Sony has already won the holiday season. Sony will produce more systems and ship them to a greater number of countries, and has, thus far, done an impeccable job of positioning the PlayStation 4. Even with more FIFA-esque deals in the pipeline, I expect Xbox One sales to trail its rival throughout EA's Gen 4.
