Microsoft's (NASDAQ:MSFT) Xbox One is off to a dismal start in Japan, which has always been one of its toughest markets. Media Create reports that Microsoft sold just over 25,000 Xbox Ones during its first four days on the market.
Back in 2005, Microsoft sold over 62,000 Xbox 360s in Japan within the first two days. By comparison, Sony's (NYSE:SNE) PlayStation 4 and Nintendo's (NASDAQOTH:NTDOY) Wii U both sold over 300,000 units during the first week.
On the software side, Famitsu reports that the top-selling game was Electronic Arts' Titanfall, at 22,416 units, but the numbers were highly inflated by the Titanfall bundle. Kinect Sports Rivals came in second at 14,191 units, followed by Dead Rising 3 at 7,330 units.
These figures are strong indicators that the Xbox One won't outsell the Xbox 360, which sold 1.7 million units in Japan. The original Xbox only sold 530,000 units. Do these numbers indicate that Japan is a lost cause, or can Microsoft still bounce back with the right strategy?
Why Japan is such a tough market
Japanese gamers are obsessed with handheld gaming, thanks to the massive popularity of monster catching titles like Pokémon, Monster Hunter, and Yo-kai Watch.
This trend helped the 3DS dominate the Japanese market with 16.1 million units sold, which accounts for over a third of the console's global sales. Sony's PS Vita remains a distant second choice, with sales of 3.2 million in Japan and 8.8 million worldwide. Of the top 20 best-selling games in Japan, seven are 3DS games and two are PS Vita titles. Even the PS4, which has sold over 10 million units worldwide, is consistently outsold by both handhelds.
Meanwhile, PC and console games have converged in Western markets, with gamers on both sides getting similar titles. That never happened in Japan, due to the lack of a PC gaming culture. This means that there's not as much demand for first-person shooters like Call of Duty or open-world sandbox games like Skyrim, which appeal equally to PC and console gamers.
How Microsoft shot itself in the foot
The Japanese market is already tough, but Microsoft exacerbated the problem with a lack of compelling launch titles. Only six of the 29 launch titles -- Crimson Dragon, Forza Motorsport 5, Killer Instinct, Kinect Sports Rivals, Powerstar Golf, and Ryse: Son of Rome -- are Xbox One exclusives.
The seven titles from Japanese publishers -- Strider, Metal Gear Solid V: Ground Zeroes, Warriors Orochi 3 Ultimate, Murdered: Soul Suspect, Thief, Tomb Raider: Definitive Edition, and Call of Duty: Ghosts (Square Enix publishes the Japanese version) -- were previously released on other platforms. The same goes for the rest of the launch titles, which include dated cross-platform releases like FIFA 14, Assassin's Creed IV: Black Flag, and Wolfenstein: The New Order.
Microsoft simply didn't give Japanese gamers a compelling reason to buy an Xbox One. Any gamer could have played most of the Xbox One's launch titles on previous generation consoles or the PS4, which launched in February.
Is Microsoft ready to give up?
In the past, Microsoft tried harder to win over Japanese gamers. With the original Xbox, Microsoft secured partnerships with well-known Japanese publishers like Tecmo and Sega, while announcing continuations of major Dreamcast franchises like Shenmue, Panzer Dragoon, and Jet Set Radio Future. But just as Sony's PS2 crushed the Dreamcast, it quickly buried the Xbox in Japan.
For the 360, Microsoft secured a partnership with Square Enix which brought Japanese RPGs like Star Ocean: The Last Hope, The Last Remnant, and Final Fantasy XIII to the console. Unfortunately, that wasn't enough to stop the PS3 or Nintendo's Wii, which disrupted the market in 2006 with simple motion control games.
By comparison, the Xbox One launch in Japan doesn't offer gamers any of those perks. In fact, it just feels like Microsoft is giving up on Japan as it looks toward bigger markets like China.
A Foolish final word
Microsoft investors are probably wondering if salvaging the Japanese market, which only accounts for 2% of the Xbox 360's global sales, is worth the trouble.
In my opinion, Microsoft shouldn't give up on the Japanese market yet, since it represents a microcosm of the Asian gaming market, which is primarily divided between the PC and mobile-focused Chinese and South Korean markets and the console-centric Japanese market. Understanding this market is crucial, since Asia is expected to account for 82% of the entire gaming industry's $6 billion growth in 2014, according to research firm Newzoo.
It's a long road back, but if Microsoft ups the ante with stronger marketing, signs exclusive deals with prolific Japanese developers, and invests in (or acquires) Japanese publishers like Square Enix or Capcom to secure exclusive games, it could still bring the Xbox One back from the brink of death.
Leo Sun has no position in any stocks mentioned. 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.