Monday, November 3, 2014

Holiday Dealz, PS4 vs. Xbox One



The holiday season is upon us and we all know what that means: massive discounts as retailers vie for our business. 

Microsoft has something to prove, and thus has come out the gate swinging in the form of a few notable exclusives, Forza Horizon 2 and Sunset Overdrive, as well as a wealth of deals for all, which I’ll detail in a moment. 

But first, let’s look at some sales figures. 
 
As you can see in the chart above, VGChartz has estimated that the PS4 has sold about 12.3 million units thus far in comparison to Xbox’s 6.1 units sold through to consumers. Worthy of note is the uptick in sales that the Wii U experienced in recent months, (according to IGN 610,000 units from July to September). The sales boost can likely be attributed by the pleasant surprise of Hyrule Warriors and the recent release of Mario Kart 8.

A few days ago Sony reported that they sold 3.3 million PS4 units in Q3, a boost to their 2.7 million units sold in Q2. They outperformed Microsoft which sold 2.4 million Xbox One units in Q3. 

All eyes are on the battle between Microsoft and Sony (but don’t count Nintendo out!). What’s the cause for the sales parity between the two consoles? I think it boils down to early pricing and messaging from Microsoft. The price of the Xbox One was announced at E3 during the Microsoft Press Conference last year. It was to retail for $500 and it came bundled with their voice/motion sensing device, the Kinect. Later that day, in the Sony Press Conference, Sony dealt a major blow by announcing that the PS4 would retail for $400, and revealed that its hardware was more powerful than the other offerings (with the exception of PC). 

The pricing strategists at Microsoft believed that people would be willing to pay the extra $100 because the system was positioned as the center-of-the-living-room entertainment system. Sony came out early and positioned the PlayStation 4 as a system designed for gamers, a similar value proposition to the previous generation of consoles. 

Microsoft stumbled out of the gate with a lot of mixed messaging; its executives weren’t in the loop about the product that they were selling and later fact-checking produced a lot of backlash from the community. The system also came out two weeks later than its competitor, the PS4 and in limited territories (Japan was left out and is seen as a lost cause for Microsoft). The system was losing by such a margin that half a year later, Microsoft announced that it was uncoupling the Kinect from the system and matching the price of the PlayStaion 4 at the $400. 

A lot has happened since then, but Microsoft is positioning itself quite well for this holiday season. The Microsoft store has the Xbox One discounted by $50 and the promotion is running from November 2 to January 3. Not only that, they have an array of bundles including Xbox One Assassin’s Creed Unity bundle ($350), Sunset Overdrive bundle ($425), COD Advanced Warfare bundle ($449). One of the more interesting promotions Microsoft is doing is offering the Xbox One for $250 when you trade it in for a working Xbox 360 or PS3. 

On the other side of the Microsoft bundles, Sony isn’t really offering any. The only thing that I’ve seen that was a bargain was a promotion on Ebay that ran for about a week that had the PS4 for $350.

Should Sony lower their prices to compete with Microsoft? The short answer is no. Why? Because right now it doesn’t have to. It’s enjoying a comfortable lead in this iteration of the console race. People are buying PS4s. They aren’t buying as many Xbox Ones and that’s why Microsoft is lowering its prices: to attract and grow its install base. Sony is riding the wave this holiday season and they don’t need to lower prices. In fact, lowering prices would hurt their current profit margins. Sony is already making a profit per unit sold with the PS4, a point that didn’t come about till much later in the history of its predecessors. 

I think that this holiday season bodes well for Microsoft. A strong lineup of exclusives for this season as well as a reduction in the price of the console will go a really long way to boost the sales of the console. But let’s keep things in perspective: both consoles are doing extremely well historically, outpacing their predecessors. Microsoft will definitely close the gap some this holiday season. By how much remains to be seen. 

I really want to see Sony discount their system (and also give me a GTA V bundle), not only because it would mean a sweet deal for me, but perhaps more importantly because I would love to see Microsoft’s reaction. Who knows, I might even consider buying an Xbox One. 

I’m also really interested to see what Sony’s ‘PlayStation Experience’ event in December has lined up. My thinking is that they will try to use the December PlayStation event to generate buzz around the PS4 and the only price drops we’ll see will come with limited supply. I would love to see surprises at the event next month, but this is likely just a piece of community outreach (spending some of that dough that the PS4 has help them make) so I doubt we’ll see any bombshell announcements. 

The holiday season is a win for all consumers. Let the fun begin!

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