Xbox One is languishing behind PS4 – what can Microsoft do to put the Xbox brand back on top?

This article first appeared in print on April 10.

The party, if there was one at all, was shortlived.

News that UK sales of Xbox One had surged 96 per cent in the week of Titanfall’s release, with seven out of every ten consoles sold alongside Respawn’s multiplayer shooter, should have set champagne corks popping in Microsoft’s Redmond HQ. Any suggestion that this was the turning point for Xbox One’s fortunes, however, was quickly shot down by news that UK sales of PS4 had risen by 72 per cent in the same seven-day period. Yet Sony’s boost was not driven by the long-awaited arrival of a platform-exclusive game release – that would come a week later, when Infamous: Second Son saw hardware sales more than double – but by retailers finally having enough stock to meet demand. Sony can’t make its new console fast enough, while Microsoft’s lies readily available on store shelves.

Microsoft knows only too well about stock shortages. It had shipped just 1.5 million 360s to retailers by the close of 2005, which was nowhere near enough to meet the rapacious Christmas demand. The supply-chain issues of 2005 gave Microsoft a much-needed bounce coming into 2014, however, with Xbox One’s launch figures such that it could lay claim to being the company’s most successful console of its time in the business. Yet the numbers speak for themselves. Microsoft hasn’t updated us on Xbox One’s sales since its financial results in late January, when it said it had sold 3.9m consoles by the end of 2013. Sony, by contrast, shouts from the rooftops about PS4’s performance at retail, most recently announcing that the console had passed 6m sales in early March.

In February, US market researcher NPD Group suggested Microsoft was closing in, with Sony holding only a ten per cent advantage over its rival’s hardware sales that month. But there is a big difference between closing the gap and merely slowing the rate at which it grows. That Microsoft is behind Sony in the US and UK – two markets in which it enjoyed profound leads for much of the 360/PS3 generation – says a lot about how much needs to change.

That Microsoft is behind Sony in the US and UK  says a lot about how much needs to change.

Fortunately for Microsoft, much already has. Today’s Xbox One is a very different machine to the one unveiled to such opprobrium last May and even the one that launched in November. The more controversial corporate policies have been abandoned, the console’s baffling UI has been streamlined, and its development tools have been improved. Most significantly of all, Xbox One now has Titanfall. Within Microsoft, there is a clear feeling that a corner has been turned.

Phil Harrison: “Not only are players buying, but they’re using and really engaging with the platform, and that’s a great sign for the future.”

“Xbox One’s momentum is fantastic,” corporate vice president Phil Harrison tells us. “The thing that really impressed me was not just the hardware sales, which is obviously one big number that you measure, but the engagement per user is extraordinary. We’re seeing more than five hours per day average usage on Xbox Live. Not only are players buying, but they’re using and really engaging with the platform, and that’s a great sign for the future.”

You’d expect an Xbox executive to accentuate the positive, but Harrison is right to point out that sales figures don’t tell the whole story. PS4 is available in 53 countries, after all, and Xbox One in just 13. Last month, Microsoft announced the second phase of its hardware rollout, with the console to reach a further 26 territories this September. That will surely help, but there’s no telling how big the gap will be by then, and it’s no surprise to hear that Microsoft Studios corporate vice president Phil Spencer would rather things had turned out differently.

“I’ll just say it: I wish we were in every country on day one,” he says. “Accelerating our country rollout is really, really important to us. We built a box that natively understands the country it’s in – the language and television and other things – [so] let’s make sure we do a complete job in bringing the console into those markets. When we do, I think it will have an impact, but I want to do it in the right way. I don’t want to get there early if the box isn’t ready for the market it’s being launched in.”

“I’ll just say it: I wish we were in every country on day one. Accelerating our country rollout is really, really important to us.”

This is the problem. Xbox One, as Microsoft’s PR team likes to keep reminding us, is not just a videogame console but an “all-in-one games and entertainment system”, and its core functionality means it is much more of a headache to launch internationally than Sony’s games-first, player-focused alternative. The features enabled by Xbox One’s HDMI In port also dictate that there is no point launching the hardware in a country where Microsoft has yet to ink deals with cable and satellite providers. The platform holder must also line up enough partnerships with local entertainment companies to ensure day-one buyers can fill up their Home screens with streaming video apps. This isn’t solely an issue of handshakes and signatures on dotted lines, either – it’s an engineering problem, too. A system designed from the ground up to be controllable by voice has to understand not only a country’s native language, but also be able to parse its every regional accent.

Kinect remains a problem for Xbox One, an unconvincing and unnecessary add-on that pushes up the console’s retail price significantly.

Forget always-on DRM, the used-game ban, and all the other embarrassing PR climbdowns: the real millstone around Xbox One’s neck is, and has always been, Kinect. While Microsoft’s involvement in the US government’s PRISM programme, which saw it hand over user data from emails and Skype to the NSA, raised concerns over its desire to put an always-on camera in living rooms the world over, Kinect’s problems run far deeper than privacy paranoia. For all that Microsoft has insisted its next-generation camera peripheral is integral to Xbox One’s design, the reality is that Kinect 2.0 is finicky in its gesture recognition, unreliable for voice control and still, crucially, waiting for the one game that immediately justifies its existence. Episodic Swery65 curio D4 will not convince the masses of Kinect’s worth. Kinect Sports Rivals may have a better chance, but it says much that we’re still waiting for the camera’s proof of concept as a gaming device some five months after launch, rather than having it on day one. And especially given that two launch-day games, Crimson Dragon and Ryse: Son Of Rome, were originally Kinect projects. Where are the games for the peripheral?

“You’ll actually see quite a few more,” Spencer says. “There are a number of games on the ID@Xbox programme that use Kinect, and you’ll see more games in the fall. A lot of games are using Kinect and voice in a very subtle way, which I actually think is a good thing. I think subtlety, in terms of sustainable features, is better than these over-the-top [games where] you have to stand up and yell at the top of your lungs to make something happen. Go get Dead Rising 3, a great launch title that uses Kinect. Ryse used Kinect. Forza used Kinect. A lot of games out there use Kinect. Sometimes in very subtle ways, sometimes in more overt ways.”

“There are a number of games on the
ID@Xbox programme that use Kinect,
and you’ll see more games in the fall.”

Kinect certainly needs to progress beyond subtle, marginal gains if it is to justify its inclusion in the box with every single Xbox One that Microsoft sends to retail shelves. A component teardown in the run-up to the console’s launch put the manufacturing cost of its camera peripheral at around $75; take that out of the equation and Microsoft is no longer faced with the problem of selling a less-powerful system at a significantly higher price than its closest competitor. The console’s massive UK sales increase was driven not just by Titanfall, after all, but also by a price cut, lowering its suggested retail price from a generally unpalatable £429 (at least next to PS4’s £349) to a much more psychologically appealing £399, although bundling it with the most keenly anticipated game of the new generation to date obviously helped. There’s a clear lesson here for Microsoft in both its current and future Xbox One territories, but Spencer won’t be drawn on whether the company will apply what it has learned elsewhere.

“The UK thing was more of a specific instance around currency and other things that were going on,” he says. “It’s a strategy for us to be price competitive, absolutely. We want to have a box out there that people see as good value. What does it mean to be price competitive with what we’re putting in the box, making sure gamers feel like they’re getting good value in the box that they’re buying? Being price competitive over the generation – look at what happened on 360, or frankly any console – is obviously something that we’ll focus on, making sure that we’re putting the best product on the shelf.”

This may be a long game, but Microsoft needs change quickly.

And that recent rise in UK sales suggests price remains perhaps the biggest determining factor in a console’s early success. Taking Kinect out of the box would certainly mean a more appealing price point for Xbox One, but it would be Microsoft’s biggest admission of failure yet in a marketing campaign full of them. As such, it’s little surprise to see the PR training kick in when we ask Spencer if a Kinect-free Xbox One is on the cards.

“We’re always trying to match what consumers are asking for,” he says. “I always want to make sure that we’re in tune with what current or potential customers are asking for from us. Right now, [dropping Kinect is] not the number one request from people. Usually it’s, ‘Where are the great games?’ That’s where it usually starts, ‘When am I going to get Shenmue?’ I get a lot of people wanting old franchises to come back. But we’ll always listen. I think we need to stay in tune with who our customers are, and react.”

“I get a lot of people wanting old franchises to come back. But we’ll always listen.”

There was a time when Peter Molyneux would also have toed the marketing department’s line, but these days, free of Microsoft’s watchful eye at his indie studio 22 Cans, his tongue is rather looser. “I actually wish Kinect wasn’t a requirement,” he says. “It feels like an unnecessary addon to me. Maybe it’s because we’re in England, and it doesn’t really use the TV stuff, but it feels more and more like a joke. My son and I sit there saying random things at it, and it doesn’t work.”

Xbox One’s problems in the UK aren’t limited to hit-and-miss voice recognition: at launch, its TV functions didn’t support the 50Hz standard. That, like so many other things, has been addressed now, but for Molyneux the removal of that under-used camera is a no-brainer. “They could cost-reduce it [by removing Kinect]. I’m sure they’re going to release an Xbox One without Kinect. It would be unthinkable that they wouldn’t.”

Peter Molyneux

Former Microsoft man Peter Molyneux: “I’m sure they’re going to release an Xbox One without Kinect. It would be unthinkable that they wouldn’t.”

Molyneux’s feelings likely hew closer to the layman’s, but Spencer makes a compelling counterpoint beneath the marketing sheen. While in the run-up to launch Microsoft needed only to cater to potential customers, now it must also satisfy existing owners, none of whom will be thrilled at the prospect of Kinect being discarded and the cost of entry slashed. Only one thing unites those two groups, and it’s nothing to do with TV functionality, app-snapping or media partnerships. Molyneux puts it best: “There’s only one thing they need to do. Give us some good fucking games and we’ll forgive every sin.”

Unfortunately, Xbox One doesn’t seem to make life easy for game creators. While the console had a bigger, and arguably better, launch lineup than PS4, the months since have served only to raise worrying concerns about the system’s power, with Xbox One versions of multiplatform games consistently performing worse than their counterparts on PS4 and PC. To thirdparty studios and the people who play their games, Xbox One means lower resolutions and framerates. Microsoft may be playing a long game, but if a console cannot keep pace in the year-one sprint, what chance does it have of winning a marathon lasting a decade?

Microsoft may be playing a long game,
but if a console cannot keep pace in the
year-one sprint, what chance does it have
of winning a marathon lasting a decade?

“Developers in the early years of any console generation are working hard on a platform that’s emerging as they’re trying to ship their game,” Spencer notes. “Over the lifecycle of the generation, you’ll see people getting closer to the metal, understanding exactly how the content and the pipeline works, what the consoles are capable of. And I’m confident that the resolution and fidelity of things that people will be playing on Xbox One will be top notch.”

Fair enough, but it’s early days for PS4, too, and Sony’s console has already earned the perception of being the better system on which to play multiformat releases. That disparity, it seems, is not only due to PS4’s more powerful innards, but the quality of its tools and SDK, which have clearly benefited from the dev-friendly, new-look Sony. A recent update to the Xbox One SDK has helped, but Spencer speaks of development tools evolving as Microsoft works out what studios need from them. “You ship with a certain idea about what the profile of a game running on your box will look like,” he says, “but you learn in terms of what people are really doing, and how you can make it most effective for developers.” This might be the most telling indicator of why the gulf in performance between the two consoles exists: Microsoft is relying on having conversations that Sony has already had. If multiplatform performance parity is out of reach for the time being, Microsoft only has one option if it is to bolster Xbox One’s software catalogue. Luckily, it’s something it’s always been very good at.

Phil Spencer on improving Xbox One’s development environment: ““You ship with a certain idea about what the profile of a game running on your box will look like, but you learn in terms of what people are really doing, and how you can make it most effective for developers.”

Microsoft needs exclusives more than ever.

“I run firstparty studios, so I’m all about exclusives,” Spencer says. “When we talk to people, that exclusive content is the number one reason that gamers buy a given console, so I’m going to stay extremely focused on bringing great exclusive content to the box. It’s critical.”

Despite this, information is bafflingly scarce. 343 Industries’ new Halo will doubtless form the backbone of Xbox One’s Q4 lineup, and Insomniac’s open-world shooter Sunset Overdrive is also expected this year. Those aside, little is known about Microsoft’s plans, and Spencer won’t talk specifics. He’s teasing a big release from a “wonderful” Japanese studio – his choice of adjective sparking speculation that Platinum Games is the developer in question – but until Microsoft shows its hand at E3, it’s hard to see where the next big thing is coming from. Halo defined the first Xbox, and Gears Of War did likewise for 360. New games in both those series are coming, the latter in development at Black Tusk Studios after Microsoft bought the IP from Epic Games, but new consoles are rarely sold on sequels alone. Spencer says E3 will be “great… a real moment for us in this generation”. In the meantime, he has little choice but to talk up Titanfall. “That’s a definitive experience for us. Cloud-powered, multiplayer, it looks beautiful, it plays beautifully: all the things that have been [attractive] about an Xbox [One] game, it embodies a lot of them.”

Yet these days, a console’s software lineup is about more than big-budget blockbusters. While Microsoft’s lack of a plan for indie games at Xbox One’s launch is perhaps the most confusing of its litany of oversights, it has belatedly got things back on track with ID@XBox, an indie self-publishing programme whose first 25 games were unveiled last month. “We’ve been inundated with applications,” Harrison says. “Two- hundred-and-fifty developers already have devkits and are building games for Xbox One; that is more than the entire independent developer count on 360 throughout its entire lifetime. To have that many developers, and that much interest, is really healthy for players, and it’s also super-healthy for the game industry. It’s a better on-ramp for developers to get into our space.”

“250 developers already have devkits and are building games for Xbox One; that is more than the entire independent developer count on 360 throughout its entire lifetime.”

That ramp, though, is not without its bumps. Chief among them is Microsoft’s notorious parity clause, which forbids developers from releasing their games anywhere else before they’re available on Xbox. Not having an equivalent is why Sony was able to show off such a spread of indie games at E3 last year: many of them either already have, or will, hit Steam before launching on PS4. The parity demand is a policy that served Microsoft well in the early days of Xbox Live Arcade, when competition was scant, but these days Microsoft needs indies much more than indies need Microsoft. Small studios have plenty of options elsewhere, not least a rival platform holder that is willing to handle the port work for them. Barely a month goes by without another announcement of a coveted indie title heading to PlayStation, and independent studios have played a vital role in fleshing out PS4’s release schedule. A Microsoft rep told us earlier this year that the parity clause was up for discussion on a case-by-case basis, while the GDC rumour mill had it that it will soon be discarded. That would have been unthinkable from Microsoft in the 360 generation, but the position of strength it enjoyed is gone. It would be no surprise to see that outmoded policy thrown on the bonfire with all the others.

Strike Suit Zero was among the first releases to emerge from Microsoft’s ID@Xbox programme.

And the longer it stays in place, the greater the opportunity for Sony to further increase its standing. On the eve of GDC, Sony’s VP of publisher and developer relations, Adam Boyes, tweeted a picture of a mocked-up presentation slide titled “Platforms that you are not allowed to release a game on prior to releasing it on PlayStation platforms”. Below it was a blank list of bullet points. A cheap shot, perhaps, but Sony reaps the mindshare rewards with every blow it lands, and Microsoft keeps leaving its guard down. Harrison says he laughed at Boyes’ tweet, but it was a timely reminder that exclusive and indie games, improved dev tools and user interfaces, and even revised policies will only take Xbox One so far. Its biggest problem remains Sony, which offers the more powerful box at a more attractive price, and has a better standing among developers and players alike. The hubris that gave rise to PlayStation 3 has gone, as are many of the execs associated with it.

It may help Microsoft that many of the faces associated with Xbox One’s bungled beginnings are also now gone. Don Mattrick, former president of Microsoft’s Interactive Entertainment Business (the division responsible for Xbox), quit to go work at Zynga. CEO Steve Ballmer has retired. And on the eve of GDC, chief product officer Marc Whitten left to take up the same position at wireless audio leader Sonos. Microsoft has a new CEO, Satya Nadella, and IEB has a new president in former Nokia CEO Stephen Elop, but Molyneux believes that the most significant departure of them all will be Whitten’s.

It may help Microsoft that many of
the faces associated with Xbox One’s
bungled beginnings are also now gone. 

“He was very influential,” Molyneux explains. “Perhaps more than you realise, because he was in charge of all of the software – the operating system side. A lot of the things Phil Spencer’s group wanted to do, quite often they didn’t happen because they weren’t implemented on the operating system side. Him leaving softens quite a few lines.”

It leaves Harrison and Spencer as the public faces of Xbox, and being able to put two execs with extensive experience of the game industry in front of press, players and creators will surely help with image repair. Epic CEO Tim Sweeney says the two Phils “have done a great job of opening up to the community and talking as real human beings about Microsoft’s plans, and that’s a really welcome change from what was previously a very PR-driven company. I’m very hopeful Microsoft is getting through this long winter of mismanagement. It came from the top, despite the best efforts of the guys in the trenches, and I’m hopeful they’ll do a lot of good things.”

The departure of chief product officer Marc Whitten “softens quite a few lines” for Phil Spencer and Phil Harrison, says former Microsoft exec Peter Molyneux.

Yet even those management changes have brought on bad headlines. When he was in the running for the CEO gig, Elop was reported to be considering selling off the Xbox business, something investors and analysts have long called for. In his first memo to staff after taking up the CEO role, Nadella spoke of a “software-powered world” and a “mobile- and cloud-first world”, which on the face of it doesn’t seem to leave much room for Xbox. The financial press believes Nadella will seek to sell the division, or spin it out into a separate company for which he would not be ultimately responsible.

“You’ve never heard that from us,” Spencer says. “Xbox is maybe the most relevant brand that Microsoft has with consumers today. We’re going to maintain our consumer focus. We’re spending a ton of money, bringing in Nokia [with] 30,000 people joining the company to go build consumer phones. Consumer is part of what this company is. You think about the Xbox brand and all the equity around it, people lining up at midnight outside of Game to go get the console – how many Microsoft products have that? It’s an asset that’s extremely valuable, and since our future ambition is to grow our consumer relevance, Xbox has to be at the centre of that. When I have discussions with Satya, or Stephen, or [EVP of operating systems] Terry Myerson, it is more about how we make this brand, this product and this proposition more relevant to our customers, and not at all in the opposite direction.”

These words are encouraging. Xbox One’s troubled start had many causes, but none would have been quite so disastrous had Microsoft’s messaging not also been so incredibly misguided. The common perception created was of a box built not to serve players or developers, but Microsoft’s business goals. With the suits who defined those goals now gone; a management team in place focused not on the needs of those selling the box but on the people working and playing on it; patches to solve many of its teething troubles; and the worst of the PR nightmare now hopefully behind it, Xbox One is in its best position since May 2013 and its disastrous unveiling.

Microsoft should also be able take heart in Sony’s experience with PlayStation 3, which began with $599 and Giant Enemy Crabs and ended with The Last Of Us, PlayStation Plus and eventually even better sales than Xbox 360. Whether or not Nadella and Elop give Harrison and Spencer enough time to see things through is another matter.