June 13, 2013



Over the past few days, there has been no end to the hand-wringing and speculation surrounding the announced launches of the new “Xbox One” and “PS4”.  The general sentiment seems to be that Microsoft is “giving the bird to gamers” and Sony is picking up the pieces.  But it’s much more complex than that.  After all, nobody is even mentioning Nintendo’s “Wii U”, which has actually been available for some time now.  How did we get here, and what can we predict for the future?

To know how we got here, you have to go back to the early 2000s, when there were three competing game platforms. 

The Setup:
Nintendo had the Gamecube, which was a nice, simple box that did exactly what it claimed:  It played games.  However, both the Sony PS2 and the Microsoft Xbox were technically superior and were capturing an increasing share of the “gamer” market with superior graphics and sophisticated gameplay.  Between the two giants, Sony originally had more cachet within the industry but Microsoft had invested a ton of cash into their product and had an ace-in-the-hole that kept the two relatively even:  Xbox Live.  At this point, Sony was considered the industry leader, but both Nintendo and Microsoft had strong footholds and reason to believe they could carve out more of the pie for themselves.

The Three Plans:
As the time drew near for the next generation of consoles, each company read the tea leaves and tried to design their system accordingly.  Nintendo, whose GameCube was already lagging behind Microsoft and Sony in terms of horsepower, decided that it would be cost-prohibitive to attempt to keep up with the Joneses in terms of hardware performance. They bailed on having the best graphics, dynamic features, etc.  Instead, they re-focused their system on capturing what they believed was a huge untapped market of folks who weren’t “gamers” but could be consumers if they were offered simpler, more social games.  The secret sauce was using motion-sensing technology in the peripherals, and the Wii was born with a huge emphasis on physical interaction with your TV and “party” games with friends.

Microsoft felt like it needed more “heft” within the industry and built its new system around gathering in as many game developers and publishers as possible.  It designed its new system to be very similar to standard PCs, in order to facilitate easy coding, testing, and porting of games.  It also promised developers (and gamers) a robust, proven network model in Xbox Live, which could also feature independent games and direct-to-home sales.  While the new Xbox was not going to be a technical marvel, it would be competitive in that realm and hopefully garner Microsoft more gravitas within the gaming industry at large with its avenues to easy development.  One key decision was to leave out any “next-gen” (at the time) high-definition disc reader, although Microsoft early on added an HD-DVD reader peripheral once Sony made it clear that they would support their own native Blu-ray format.

Speaking of Sony, they were generally considered the “winners” of the previous generation.  The PS2 had sold very well, and had more exclusive titles with more rabid followings than either GameCube or Xbox (although the Xbox-exclusive “Halo” was a very real concern).  With the clout of being the biggest name in the industry, Sony placed its next-generation bet on hardware.  The PS3 was the most powerful next-gen system, with integrated Blu-ray support and a sophisticated “cube” processor architecture that promised incredible graphics and speedy calculations.  Yes, the price tag would be high, but the goal was to be the “premium” choice for video games, with the best titles and highest performance.  With so many developers already in the fold, and the added draw of native high-res Blu-ray playback, Sony figured that they were offering consumers a Lexus sedan to compete against everyone else’s Yugo.

The Fallout:
Although derided by gamers and techies, Nintendo’s Wii actually exploded into the wider culture and sparked a sales run that shamed Microsoft and Sony.  Nintendo’s wildest hopes of engaging a casual gaming audience were all fulfilled as Wii consoles flew off shelves, threatening to end the console wars with a 1st-round KO.  For months, Nintendo put its console into living rooms everywhere, bringing in families and folks that never considered “video-gaming” to be a hobby worth pursuing.  The physical controls allowed “Moms and Dads” to enjoy video games where previously inscrutable button combinations had proven to be an overwhelming hurdle.  The Wii’s emphasis on titles like “bowling” and “tennis” were easy to relate to, and brought in a large audience.  The success of the Wii left both Microsoft and Sony scrambling to reach this new gaming crowd.

As the first phase of the new consoles wound down, both Microsoft and Sony suffered problems that would only further cement Nintendo’s early advantage.  The new Xbox wasn’t the most technically demanding piece of hardware, but even then Microsoft had apparently screwed it up and the first run of Xbox 360s started having heinous dropout rates.  The “Red Ring of Death”, usually brought on by an overheating processor, killed a ridiculous number of consoles.   Virtual mobs with pitchforks raised towards Redmond nearly made Microsoft drop out entirely, before the company decided instead to take a financial bath by replacing everyone’s console for free.  This expensive program brought new meaning to the term “loss leader”, but at least it preserved a growing customer base that was previously threatening to mutiny.

As expected, Sony’s platform proved to be the most technically adept, featuring games of the highest quality.  Upon launch, the PS3 was “the” console to have for any dedicated gamer, and folks who owned one were seen in the same light as persons who drive a luxury sports car.  Sony’s initial sales numbers were reasonable, but it soon became clear that the hefty price tag was simply too much for most gamers to stomach.  Sure, it was great that a good number of gamers were driving their “Lexus”, but it turned out that the competition wasn’t a bunch of Yugos.  Many gamers were perfectly happy playing on the “old-technology” Wii, and the Xbox 360 proved to be closer in performance to the PS3 than originally thought.  So Sony completely lost out on the casual audience, which was never interested in paying a premium for a games console, and found itself in a dogfight for the hardcore gaming crowd, many of whom didn’t have the cash to splurge on the PS3.

At this point of the story, Nintendo was king of the world, and both Microsoft and Sony appeared to be fighting for a Pyrrhic victory. Yet here we are a few years later and the opposite is true.  Microsoft and Sony are both positioning themselves for round two of their war, and Nintendo is hardly even an afterthought.  What happened?

It’s the games, Stupid:
A long-held truism of video game consoles is this:  It all comes down to the games.  The consoles are like razors:  shaving companies sell the handle for virtually nothing, because the real money comes when people buy blades to fit on them.  The long-term draw for video game consoles is the games people play on them.  And it’s this fact that eventually turned around the console wars.

After its initial explosion of popularity, Nintendo’s Wii console faded rapidly.  Out of all those “casual” gamers that had flocked to the console initially, very few ever expanded their game libraries.  After all, they were casual gamers….one or two games was plenty to satiate them.  Once users figured out the somewhat gimmicky controls, it turned out that those casual games simply didn’t have the depth to keep folks entertained for long.  That left any potential “gamers” looking at other video game options, such as the Xbox 360 or PS3.  Nintendo was suddenly in a bad place.  They tried, but they couldn’t make enough gameplay improvements to expand their base.  The motion controls were limited, the Wii console hardware was grossly underpowered compared to the competition, and the company had long ago decided against investing major funds in a direct hardware race against Microsoft and Sony.  Yes, the Wii had completely blown past its competitors in terms of consoles sold, but the real money comes in games, and that’s where Nintendo was finding itself quickly becoming irrelevant.

Meanwhile, Microsoft’s bet on becoming a developer’s best friend was starting to pay dividends.  The Xbox 360 proved to be exactly the kind of “friendly” development platform Microsoft planned.  More and more developers put the Xbox in their plans, and the ease of transition from PC platforms meant that ported games usually appeared on the Microsoft platform long before hitting Sony’s box (and never even considered the underpowered Wii).  The robust Xbox Live marketplace also provided a big outlet for game developers and a dedicated gaming community to consume their offerings. 

Sony took a back seat to nobody when it came to the quality of their games, and their list of exclusive titles remained impressive.  However, Sony never found that “killer app” to compete with Xbox 360’s “Halo” franchise (although “Little Big Planet” came close).  One reason was that game developers were reluctant to invest the time needed to maximize the PS3’s potential.  Programming for the PS3 proved to be a terrible chore. True, the hardware was capable of doing significantly more than what Xbox offered, but it took so much more effort to code for it that publishers threw up their hands and quit trying.  Instead, programmers would create their games for Xbox (or PC, since the architectures were similar), and then make a later port of the game for PS3.  Often, the perverse result was that a game would actually play better on the “weaker” hardware of the Xbox 360 than it did on the PS3, simply because the game code was more “native” to the former.   Another shot to Sony’s pride came when there was a highly-publicized security breach into their Playstation network.  Even though it’s likely that similar issues happened on Xbox Live, the breach was an embarrassing relations snafu that cemented the PS network’s status as being 2nd-class. 

The Casual Conundrum:
One critical sideshow took place during the time Nintendo’s lead ebbed away.  Both Sony and Microsoft, seeing the incredible early success of the Wii among the “casual” crowd, green-lighted projects to expand their consoles in that direction.  Sony launched first with the “PlayStation Move” controller, a blatant rip-off of the Wii controller, only with more precise electronics.  As one might have expected, it was met with overwhelming apathy by the PS3 crowd, who had no intention of setting down DualShock controllers to pick up a “casual” gaming device.  The PS3’s high entry price was still a bridge too far for most casual audiences, and Sony probably would like to forget the whole thing ever happened.


Microsoft took a more interesting approach.  Rather than just emulate the Nintendo controllers, the “Kinect” device sat on the TV and used a combination of cameras and a microphone to detect users’ input.  The users themselves didn’t even have to touch a “controller” to manipulate the action on the screen.  This innovative approach, combined with a massive marketing push, proved to be a hit when the Kinect hit the marketplace.  Initial sales for the Kinect were huge, and Microsoft quickly doubled-down on the Kinect by making it part of the main Xbox 360 sales bundle.  But as with the Wii, the novelty of the Kinect wore off quickly and its flaws (shoddy motion detection and inaccurate input translation) became noticeable.  On top of that, the additional cost of the Kinect brought the Xbox 360 price close to that of the PS3, negating a previously important advantage.

The early success of the Wii (and the Kinect, to a lesser extent) showed that there IS a potentially huge market for casual gamers.  But nobody has been able to make it pay off.  Nintendo bet everything on winning that crowd, and ended up with little to show for it after the initial hype. Both Sony and Microsoft made plays for it later on, but neither were able to really gain much of a foothold.  The casual gamer remains something of a legendary creature.  Like a leprechaun, nobody is sure if he or she even exists, but the companies want to find that pot of gold!

Where we stand:
As the years passed, Sony and Microsoft pushed Nintendo virtually out of the market, despite the overwhelming early success of the Wii.  Between the two giants, Microsoft has increasingly cut into Sony’s share of hardcore gamers by offering more titles and easy access.  But it’s hard to say that Microsoft “won” this generation.  The “RROD” problem of the early Xbox 360s was a financial disaster for Microsoft, regardless of how later events turned out.  Sony still has a massive stake in the game, and the PS3’s ability to play Blu-ray discs DID boost sales over the years, even if not as much as Sony originally hoped.  Sony also has a strong presence in portable gaming, something Microsoft can only dream about.

The only thing that everyone can seem to agree on with regards to picking winners and losers is that Nintendo ended up as the loser.  The same company that seemed to have everything going for it a few months into the battle is now an also-ran.  If it weren’t for their robust portable game offerings, Nintendo might have given up the ghost already. 

Desperate to re-energize their base and re-capture some of the market, Nintendo rushed a new platform into the marketplace long before Microsoft and Sony were ready to do the same.  Unfortunately, the “Wii U” has been a massive flop thus far.   Nintendo doesn’t have the technical clout to create a high-end offering, nor have they shown any inclination to compete on that level.  Instead, they worked on peripherals featuring additional screens and their tried-and-true motion detection systems.  The idea was to integrate the demand for personal tablets and such with the big-screen TV at home.  But the expensive peripherals have turned off the very casual audience they’re courting.  In terms of games, Nintendo would much prefer to focus on their family-oriented game successes (Various versions of Mario and Zelda) than engage third-party developers that are just as reluctant to develop for a platform that doesn’t easily translate to other venues.  The result is that a shrinking library of titles on the Wii has become even smaller on the Wii U, with no hope for change in sight.  Never say never, but it looks like Nintendo is done as a console provider, and will soon have to go the way of Sega and become just a games company.

The next generation:
So now Microsoft and Sony seem to be on relatively equal footing, with the new consoles hitting this Christmas.  We can guess at the strategies each side is employing, and use the past to explain why they’re going in that direction.  

In terms of base hardware, both Microsoft’s “Xbox One” and Sony’s PS4 are very similar.  Sony has slightly faster RAM, and Microsoft has a nifty Windows 8-based threading algorithm.  But those are minor points.  The only real difference in hardware is that Microsoft is including a new Kinect.  This new Kinect device is not just an optional add-on.  It is required for the system to work, even though its functions can be almost entirely disabled.   Conversely, Sony is supporting their current Move controller, but it is completely optional along with an improved PS camera that can work in concert with it.

The Strategies:
This reveals the strategies of each player.  Microsoft is clearly going after the semi-mythic “casual gamer.”  They believe that the Kinect can capture all those folks that fell out of love with the Wii.  To keep them where the Wii couldn’t, they’re investing heavily in non-gaming uses for the Kinect, such as TV guide control, application integration (such as Skype video-calls via the Kinect), and voice control for almost all functions.  While the Xbox One can certainly play games (again, the base hardware is very similar to the PS4), the real play for Microsoft here is to be everything for everyone.  Hence the name “Xbox One”.  Microsoft is positioning its new console as THE one device to rule the living room, for all people from hardcore gamers, to casual gamers, to folks who just want a single device to run all their audio/video stuff.  Microsoft is thinking big.  Bill Gates may no longer be trying to rule the world, but his company is still acting like it.

Sony, on the other hand, is positioning itself strictly as the GAMING platform of choice.  Sony is embracing traditional controls (although again, they say that the combination of the Move and the new camera can do similar functions to the Kinect).  Sony is embracing hardcore gamers, their traditional field of strength (remember that in the current generation, the PS3 never relinquished its claim to be the luxury brand).  They’re also wooing the hardcore crowd with a revamped network service including the “Gaikai” brand, a tool that will allow games of all types to be shared across multiple platforms, including Sony’s portable Vita device, and potentially Google, Apple, and PC-based platforms (think tablets and smartphones).  They’ve also scrapped their developer-unfriendly PS3 hardware for a more standard (yet still powerful) setup.  The idea is that PS4 will be all about games. Games on your TV.  Games on your remote devices.  Standard games of high quality played everywhere.

So what’s the big deal?  Why all the gnashing of teeth and wringing of hands about the announced platforms? Why don’t folks just wait and let the chips fall where they may?  The reason is that in addition to the big strategies just discussed, both Sony and Microsoft have made opposite but firm stands on one issue that is small in the wider world, but huge in the world of gaming.

The dilemma of used games:
One of the biggest sticking points in the gaming industry revolves around “used” games (note that we’re not even talking about “pirated” games, where folks have somehow obtained a game illegally.  We’re talking about legitimate transfers of games, not endless copies burned onto CDs for your friends).  Game developers and publishers are adamant that they deserve a cut whenever a game is transferred from one person to another.  Beyond the initial sale, game developers want to be paid when another person “buys” their game, whether they got it at retail, from a used-games store (like Gamestop), or handed over from a friend.  In their view, that’s their IP being casually passed around, and if 5 people are going to enjoy playing a game, they want to be paid for each of those 5 people.  A related issue is “hacked” games and multiple game versions.  In an online environment, game creators want to ensure that the “real” game is the one out there in the market, and they also want a single version to be the one in use everywhere.  It makes it easier to support the game, and easier to manage things like online leaderboards and achievements.  But some gamers prefer to choose which version they play.  If an update to a game “nerfed” (significantly weakened for game balance purposes) your favorite character, you might want to keep playing with the old version (or even get a “hacked” version that works to your liking). 

There is no perfect answer to this dilemma.  Being restrictive may make game publishers happy, but may also cut off a large segment of gamers who will stop buying your product.  Being too loose may make “WAreZ DOOD” happy, but may also turn your carefully crafted game system into a minefield of problems that no developer would touch.  This problem lies at the heart of what Microsoft and Sony have decided to do going forward.

As seen above, much of the Xbox 360’s eventual success was built on Microsoft’s relationship with game developers and publishers.  Microsoft wants badly to maintain this relationship, to the point that it is willing to potentially “flip the bird” to gamers in the process.  Microsoft has announced that the Xbox One will require a connection to the internet to function.  Every Xbox One will verify its internal game library via Xbox Live (through the internet, naturally).  It must perform this check at least once every 24 hours, or it will stop functioning.  This is specifically to address the issue of used games.  With this method, game discs are nothing but data holders, guaranteeing nothing about the ability to actually play the game encoded therein.  Any time a “foreign” disc is inserted into an Xbox One, the system can check online to see if that particular code has been previously used on another console.  If it has, the system may lock out the game until the new user pays for the privilege of playing it on the additional system (Microsoft has stated that this decision, and any price model, will be left up to the game publishers.  Microsoft is simply giving them the option.).  This system also guarantees that there is only one version of a game in use on the console, as online comparisons can be made each night and mismatched versions locked out (or automatically updated) on the local system.

This is the source of the complaints about the new Xbox One.  Pessimists see a very real possibility that they won’t be able to even loan a game to a friend to try.  They also worry about folks that perhaps don’t want an Xbox Live account, and just want to play games at home. The Xbox One will NOT work for those folks.  Similarly, the Xbox One has no backwards-compatibility with Xbox 360 games, which has caused a kerfuffle.  However, backwards-compatibility has always been a checkmark item, and never seems to be a real issue with the success of new consoles.  When someone gets a new console, they always want to get new games to take advantage of the new hardware.

On the contrary, Sony has made a big deal of its traditional model on the PS4.  Sticking with its strategy of being the gamer’s choice, Sony has stated that on the PS4 game discs can be shared and used as they always have been.  There will be no automatic check-in via the internet.  Sony is saying that it is “siding with the gamers” on this issue.  For backwards-compatibility, Sony is saying they’ll have streaming support for older generation games, so at least they’re acknowledging that some gamers might like the feature.


Who will win?
Of course it’s impossible to say right now.  Nobody knew how the last generation would shake out, and anyone who claims to see the future this time around is lying.   But the key is Microsoft’s gamble.  Can the Xbox One really be that much-dreamed-of device that is everything to everybody?  Microsoft believes that they have cracked the code to being the console of choice for both casual gamers and hardcore gamers.  They’ve chosen to side with publishers on used games because they believe only a small group of folks are concerned about that issue.  Why risk the stability of your system for a few hardcore gamers when you’re trying to corral all the living rooms in the world? 

But this is a HUGE gamble.  Other devices have tried to be the ONE device in the living room, and so far nobody has pulled it off.  TVs offer streaming services, as do Blu-ray players, dedicated streaming devices, and even PCs.  Entire industries have been built on managing all the remotes needed to control A/V receivers, TVs, game consoles, Disc players, MP3 devices, etc.  The Xbox One plans to replace them all. 

Can it do it?  Personally, I don’t think so.  It’s not that it’s a bad product, or even that it will hurt gamers with restrictive practices.  I just don’t think there will ever be one device that controls everything as an entertainment center.  The obstacle is the price tag.  With the addition of the new Kinect, the Xbox One will be significantly pricier (~$100) than even the PS4.  If I’m an “entertainment consumer” looking for the next thing, I probably already have a TV box.  I probably already have a Blu-ray player.  I probably already have devices that will do most everything Xbox One claims to do.  So why would I spend $500 for a box that just repeats what my other devices can do?  This is the same dilemma that faces every device that wants to “own” the living room.  People that have enough stuff to make it worthwhile to buy a box that can manage it all have probably already purchased individual components for far less than the Xbox One will cost.   And people that don’t have all that stuff probably don’t have $500 laying around in order to get into the action.

So that’s the state of things.  Microsoft is shooting for the moon, and Sony just wants to be your game console.  Make your choice.

SAH