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Xbox One Is Great for Microsoft

By Tyler Lacoma - Feb 25, 2014 at 3:00AM

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In the tale of two consoles, Xbox One is still a victory for Microsoft.

Source: Flickr user Mack Male

Microsoft (MSFT -0.23%) has no plans to give up the console battle, and the company seems to be doing great. Sony's (NYSE: SNE) latest news reports peg PlayStation 4 sales at 5.3 million, well ahead of Microsoft's Xbox One. Sony's sleek console has been ahead of Xbox sales in nearly every market, and the latest robust sale numbers have had many claiming the Xbox One is a total failure and a dangerous investment for Microsoft. Some have even suggested Microsoft hand the whole gaming segment over to someone else as part of Nadella's new leadership package.

But after a closer look, you'll see that the numbers don't support the sensation. On Feb. 18, Microsoft rose by $0.28 to $37.63, one of the best components of an otherwise dreary Dow. It wasn't exactly a big loss, and certainly not a big reaction against Sony's news, which came out during the same time frame.

The binary mistake
The doom and gloom over the Xbox One is due in large part to the mistake of thinking in binary terms, of looking at this as a console battle between Sony and Microsoft with one winner and one loser. It's a tempting dichotomy, but it's also ridiculous. Microsoft and Sony, despite surface similarities, are two very different companies, and pitting the two consoles against one another leads misconceptions.

The Xbox One was a great move for Microsoft, has been a huge success, and positively impacts share prices. The PS4 has sold more units, primarily because it's priced $100 less, released in more markets, and fueled by a more rabid fan base. Although Xbox buyers have been quieter, their actions have been far from depressing. 

The Xbox 360, an undeniably successful console, sold 1.5 million units during its first months after release. The Xbox One, in comparison, sold twice as many  (3 million) in the same markets and in a similar time frame, but eight years later and after a recession. The MSRP for the Xbox One (with the Kinect peripheral) is approximately $28 higher than the manufacturing cost, while the MSRP for the PS4 is only $18 higher. Technically, both still sell at a loss, but this may give the Xbox One a slightly larger cushion regarding revenue from software sales.

According to Microsoft, the company is leading U.S. software sales, evidenced in January when it sold 2.27 million units, or about 47% of the total market share. Microsoft's 2013 annual revenue was $24.5 billion, an increase of 14.3% from 2012. Net income grew 2.8%, and the devices and consumer hardware segment grew by 68.4% to $4.7 billion.

Microsoft's big sellers, like Titanfall, have yet to be released and will drive new interest and sales for the console in the coming months. The new console may also be responsible for collateral results. Bing ad sales have grown, as has its search engine share, which is now at 18.2%.

Additionally, Microsoft has shown a willingness to cut prices to attract more sales, slashing game prices by $20 for a February sale and updating its software to meet the latest demands. Nadella has his work cut out for him, but the console business is clearly a bright spot, not a pitfall.

Final thoughts
It might be easy to label the Xbox One as a failure and crown Sony the console wars winner. But, the figures and the stock activity do not make Microsoft look like a loser -- far from it. The company's games division is a success, has tremendous potential for future income, and isn't going anywhere. This console war is actually a win-win.

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