PS4 vs Xbox One: why Sony has taken the lead, and how Microsoft can catch up

Sony’s console is currently sitting in 1.2 million more homes than its rival Xbox One. Here, we examine why.

4.2 million plays 3 million in the face off between PS4 and Xbox One. The global sales figures, accurate as of the end of 2013 and confirmed recently by each platform holder, could fit neatly into several different narratives. Some might attribute Sony’s lead to Microsoft’s pre-launch blundering or PlayStation’s effective targeting of dedicated players, but there are also rather simpler factors at play – PS4’s lower price and its availability in a far greater number of territories, for example.

So it’s the combination of these influences – plus a few others – that have led us to this point, with Sony’s console now sitting in 1.2 million more homes than its rival. It’s a surprising turnaround for IHS Technology’s director and head of games Piers Harding-Rolls, who expected Xbox One to have the early lead.

“I think this reflects that the UK consumer is very price sensitive at the moment and perhaps also that there was no Halo game at launch which helped establish the brand so strongly in the UK,” he tells us. “In addition, the clear cut lead that Xbox 360 had at launch in terms of Xbox Live has been slowly dismantled by the evolving PSN service during the life of the PS3. The advantages are less clear cut now, so pricing becomes more of a deciding factor.”

Sony’s lead doesn’t surprise Games Investor’s Nick Gibson, but the volume of combined consoles sales has certainly exceeded his expectations. Colossal PS4 and Xbox One launch figures reflect “effective launch hype and pent-up demand following a very drawn out previous console generation,” says Gibson. He also references PS4’s price and the strength of its online services as a major factor in its lead, noting that some online services are “free to access on PS4 but locked behind a subscription on Xbox One.”

Sony’s triumphant E3 gave PS4 a real sense of momentum, one which is reflected in its current lead over Xbox One.

Newzoo CEO Peter Warman believes that PS4’s lower price isn’t as important as some may believe this early on in the console race, however. “I do not agree with Michael Pachter that price is the sole reason for lower sales,” Warman tells us. “Early adopters are not so price sensitive. Actually, a large share of the early adopters will want to have both consoles. In the UK for instance 35 per cent of PS3 owners also have an Xbox 360 at home.

“Price becomes more important as a broader audience gets ready to transition from their curent-gen to a new machine. And that process will be slower than last time, especially for Microsoft as they continue to promote and sell their Xbox 360 contrary to their last transition where they practically killed the Xbox at launch of the 360.”

That slower transition will be carefully managed, says Warman, because “the revenues generated by the previous generation will outscore PS4 and Xbox One for quite a while,” he says. “On full game sales, Xbox 360 sold almost seven times the number of games than Xbox One last week. PS3 game unit sales are six times higher than for PS4. This illustrates that, when evaluating Sony and Microsoft, we need to take a broader look than only next-gen.”

In the cross-generation release of blockbusters like Destiny and Watch Dogs, we can see Activision and Ubisoft implicity acknowledging that the huge cost of developing these games will never be recouped by a next-gen exclusive. Better to continue to release them on 360 and PS3, as well as developing superior PS4 and Xbox One versions, until the newer consoles establish themselves as truly profitable platforms.

Games like Watch Dogs and Destiny will straddle console generations, and are indicative of a more gradual transition.

The trick from here, then, is for Sony and Microsoft to offer truly compelling reasons to buy these new consoles. That 1.2 million lead suggests that Sony has done the better job so far, says Kantar Worldpanel retail analyst Andrew Saxton. “Although Xbox 360s can be found in more British households than the PS3 – 25 per cent versus 21 per cent – Sony has so far been more successful at convincing its existing users to upgrade,” he tells us. “By summer 2013, 17 per cent of existing PlayStation owners had pre-ordered a PS4, whereas just 14 per cent of Xbox 360 owners had pre-ordered the Xbox One. Engaging owners with the next generation consoles prior to their release was a key factor in driving Sony’s success over the period.”

Sony’s consistent and effective messaging will have been helped, of course, by the unprecedented backlash against Xbox One’s policies and positioning we saw last summer.

“Sony’s simple yet strong positioning in the months leading up to the launch, centred on the early adopter console gamer, has been a great success,” says Piers Harding-Rolls. “In contrast, Microsoft’s positioning and marketing message has been less clear and a little watered down. It’s difficult to quantify the exact impact, but I think the changes in policy will have interrupted some momentum in the months preceding launch.”

GamesAnalytics CEO Chris Wright agrees. “Microsoft’s pre-launch challenges alienated hardcore early adopters,” he tells us. “What will be really interesting is how Sony takes advantage of its early lead. It has been more consistent, much more focused on the actual games and the early focus on free-to-play is likely to help it build customers, especially as the mass market starts to think about which console to buy. The PlayStation Now announcement is another positive step in the story.”

Early hardware sales totals suggest Sony’s PS4 is the early adopters’ choice.

This first Christmas at retail showed that Sony’s console was the choice for early adopters, but let’s not forget that Sony’s more substantial distribution network has also helped push it ahead of Microsoft. PS4 is available in more territories, and is naturally dominant in those that Xbox One has yet to reach. “This is the main reason why PS3 is now ahead of 360 in global sales despite 360’s one year head start and PS3′s various and well documented problems over the years,” says Gibson.

Harding-Rolls concurs. “It would be easy to underestimate the importance and challenge of efficiently distributing stock across a wide number of territories – Sony have done a great job here, aided by what is clearly an easier device to manufacture compared to the early days of the PS3.”

When Xbox One launches in more territories, we’ll see a fairer fight. And after that first flurry of pre-Christmas sales, most early adopters will have made their choice – where Sony has edged ahead in that regard, longterm the pivotal battle will be over the more mainstream player; the ones who’ve never heard of Resogun or Contrast, but buy FIFA and Call Of Duty every year.

“The truth is that the majority of future Xbox One and PS4 buyers will either be oblivious to the reputational ‘gaffes’ and ‘victories’ of 2013 or simply not care about them,”  says Nick Gibson. “Just as crucial but far more difficult will be for Microsoft to replicate its phenomenal North American and UK market performance in other territories. Already PS4 is available in many more territories than Xbox One and Microsoft will need to up its distribution reach and strength if it wants to challenge Sony in the long run.”

Xbox One is expected to catch up after it launches in more territories. A price cut and more exclusivity deals will help, too.

Newzoo CEO Warman expects PS4 and Xbox One “to show comparable lifetime sales.” “The previous generation also went head to head with 80 million plus sales for both Xbox 360 and PS3,” he says. “Gamers like freedom. They do not like companies to dictate their game and spending behaviour. The same accounts for developers. The company who opens their platform the most to consumers and developers will have the edge.”

What else can Microsoft do to catch up with its great rival Sony? Don’t panic, says GamesAnalytics CEO Chris Wright. “This is just the early adopter phase, the battle of the consoles was never going to be won in the initial six weeks,” he says. “The initial buyers are not the typical owner. Content will drive future sales – exclusive games will ultimately define the success.”

Piers Harding-Rolls doesn’t see any further drama from the platform holder – he says Microsoft is pleased with its launch so far “and it won’t be adjusting its strategy as yet.” “Xbox One has performed strongly and has a roadmap for increasing its value, rolling out new features for Live and releasing highly anticipated exclusive games,” he says.

The possibility remains, however. Microsoft as a corporation has enough financial muscle to absorb a price cut, and it has never been shy in spending big on marketing and securing exclusives. All of these tricks will “doubtless be used as and when they are deemed financially viable,” says Nick Gibson. Newzoo CEO Peter Warman says Microsoft should cut the price cut alongside the second wave of Xbox One launches, and suggests that it’ll also strike further exclusivity deals to boost the console’s appeal.

We’ve seen Microsoft dramatically slash the price of its hardware before, of course, and the last twelve months have shown that it isn’t afraid to adjust its strategy to suit the current climate. But it’s unlikely to do either right now. Its most immediate challenge is to launch its console in a slew of territories in which Sony’s PS4 is currently the only next gen console in town. Though it might just be tempted – as it has in Japan – to only pick the battles it can truly win, it needs to rollout that second launch phase. And quickly.

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