Price makes all the difference.
Microsoft's (NASDAQ:MSFT) Xbox One video game console finished the year on a high note, outselling Sony's (NYSE:SNE) rival PlayStation 4 during the key holiday months of November and December, according to recent data from NPD. Microsoft's machine has regained positive momentum, particularly in the United States.
Sony remains in the lead globally, but the PlayStation 4's dominance -- which appeared absolute just two months ago -- has begun to waver.
More like the Xbox 180
The Xbox One has transformed significantly over the last 14 months. At its late 2013 debut, the console was 25% more expensive than the PlayStation 4, did not include any games, and required the use of Kinect 2.0.
But prompted by a widening sales gap, Microsoft took aggressive action, slashing the price of the Xbox One, ditching Kinect, and offering a multitude of free games. Today, you can purchase the Kinect-less Xbox One Assassin's Creed Bundle (which includes two games) for just $349 -- $50 less than Sony's PlayStation 4.
Despite falling short of analyst expectations in September, Microsoft benefited from the holiday shopping season. In the U.S., the Xbox One was the best-selling console in both November and December, and in terms of unit sales, it outpaced its predecessor, the Xbox 360, by 50% at that point in its lifecycle, according to a company blog. Moreover, Xbox One gamers appear to be more active, buying more games during those two months than owners of the PlayStation 4.
These results come as a surprise to me, as the Xbox One appeared to be in dire straits going into the holiday season. Although Microsoft had offered a variety of promotions throughout 2014, the PlayStation 4 had consistently outsold the Xbox One -- at times by a wide margin -- each and every month. Given the increasing connectivity of the platforms -- many games, including Titanfall, Destiny and Evolve are based almost entirely around online play -- it appeared that network effects were benefiting Sony.
Sony looks to have the stronger software lineup in the first half
It seems clear, however, that buyers can be persuaded if the price is attractive enough. While Microsoft has not offered exact sales figures for the Xbox One, it's probably still lagging behind the PlayStation 4 -- which, according to Sony, has sold at least 18.5 million units globally. Still, the gap may be close enough now to ensure that the two machines stay competitive.
Microsoft has a strong slate of games planned for 2015, but the PlayStation 4 should benefit from two major exclusives coming in the first half of the year. The Xbox One will get marquee titles such as Halo 5 and Rise of the Tomb Raider next fall, but the PlayStation 4 will get The Order: 1886 and Bloodborne in February and March, respectively. With the Xbox One offering no substantial exclusives in the first half of the year, Sony could regain the lead.
Investors have questioned the importance of the Xbox One to Microsoft as a whole, but the company has remained steadfast in its support of the brand. Former CEO Steve Ballmer declared that Microsoft had accomplished "two-and-a-half tricks" over its multidecade life -- creating Windows, bringing microprocessor technology into the data center, and Xbox. Its new CEO, Satya Nadella, has since reiterated Microsoft's commitment to gaming.
Its a good thing, then, that Microsoft was able to retake the lead in November and December. With its competitor outselling it, at times, by a ratio of 2-to-1, the Xbox One was not in a good place early last year. To its credit, Microsoft appears to have turned the situation around completely.