As we reach the meaty stage of the latest console cycle, things appear to be getting quite tasty in Europe between Microsoft and Sony. Anyone who follows the trade press may have picked up on a more competitive tone of late, as each company has sought to paint itself as the platform of choice for the European consumer.
Microsoft claims a sell-through lead in Europe for the Xbox 360, whereas Sony claims a shipped lead in PAL (which includes a number of territories where Microsoft has no distribution) for its PS3. As it turns out both of these claims could be correct but each statement paints quite a different picture.
What is irrefutable is the importance of Europe to both companies. While Nintendo is off on its own creating new genres of software and developing lifestyle products on the cusp of what we consider to be games, the battlefront between Microsoft and Sony is raging. But not so much in continental Europe where Microsoft’s progress has been slowed to a point many would consider to be rather an underachievement, especially when so much groundwork had been effectively laid during the last cycle of consoles. Sony’s entrenched PlayStation brand has provided ample resistance to Microsoft’s advance.
For Microsoft this is clearly not the level of uptake it has set out to achieve in a region it considered to be its ‘swing state’ when it first launched way ahead of the pack at the end of 2005. Whereas Sony could perhaps afford to experience some market-share loss in western territories because it has little competition from Microsoft in Japan, Microsoft has less strategic flexibility and needs to be more competitive in Europe outside the UK if it wants to fulfil its aim of making Xbox dominant in the west.
Microsoft’s Continental Challenge
Much of the problem for Microsoft stems from the diverse nature of the European region and the equally diverse gaming tastes of its consumers. The strengths exhibited by Microsoft in action or shooter games and related online gaming have unfortunately not hit home with enough continental gamers.
Microsoft’s task is made substantially more difficult by the existing competitive landscape. When Sony first set out to evolve and develop the European market into what it is today, Nintendo and Sega were well known gaming brands, but even they could not be compared to the entrenched PlayStation brand that faces Microsoft in much of Europe. As such, Microsoft must build its market share while also operating in a markedly harder competitive landscape. Competing successfully under these conditions takes massive investment, extensive local expertise and awareness on a territory by territory basis – and, of course, high quality execution of strategy.
Behind the more competitive news flow emanating from Microsoft hides a renewed thrust to build its business in Europe. Microsoft intends to use a multi-pronged strategy backed by substantial investment in local marketing initiatives and a reshuffled and expanded executive team. David Gosen’s appointment is a plus, as he brings deep knowledge of the European market, the tastes of its consumers and how casual games can engage the European gamer.
What we can expect is a bigger slate of unique casual game experiences – either in the form of retail content or through Xbox Live-based services, and more emphasis on the capabilities and accessibility of Xbox Live. There will also be an emphasis on local content to engage the diverse European gamers. We expect these content and service strategies to be delivered alongside a pricing strategy to open up the Xbox 360 to a more mainstream audience. As Gosen has stated, this activity will be backed with launch comparable marketing spend, to in effect re-launch the platform in a number of European territories.
Will Microsoft succeed? The jury is still out. As analysts we have no immediate reason to improve our 360 forecasts until we see concrete evidence that these strategies have been effectively executed and have had a positive impact on console purchases. High investment will inevitably increase the company’s competitive strength on the continent, but Sony has its own reasons to be bullish about its position in the region as the PS3 starts to build some momentum during what is a crucial 12 months for both companies.