Sony vs. Microsoft – Breathing space.

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Revenue dominance gives Sony some breathing space.

• Sony has done an excellent job at becoming the winning gaming platform in the current generation, but I am increasingly concerned that its poor user experience and lack of an ecosystem could allow Microsoft to win in the long run. (see here)
• However, the developers are currently on Sony’s side as recent results from Ubisoft, (one of the major game developers) show.
• In Q1 15A, PS4 accounted for 27% of revenues massively outselling the Xbox One at 11% and the Xbox 360 at 11%.
• It also managed to outsell the PS3 (11%) and even the PC at 23% despite a much smaller installed base of PS4s.
• This is only a small sample but it is an indication that Sony may have another strategy up its sleeve to combat the shortcomings of its user experience.
• This strategy is to get as many games as it can exclusively on the PS4 thereby reducing the attractiveness of Xbox One to gamers.
• If the PS4 continues to generate 2.5x the revenues of the Xbox One for games developers, then any game developer considering giving an exclusive will always choose Sony.
• However, most of the larger developers are likely to continue developing for both platforms as it is now reasonably easy to develop for both at the same time.
• Consequently, there is no real incentive for a games developer to give up developing for one platform when there is some revenue upside and little or no cost increase.
• Hence, it comes as no surprise that the two big exclusive games (Halo – Xbox and Bloodborne – PS4) have both been developed either in-house or by subsidiaries.
• Developers will always gravitate towards platforms where they can earn the most money and at the moment, Sony has all the momentum.
• Consequently, now is the time that developers will be most receptive to Sony’s advances and I think that Sony will be looking to snap up as many exclusives as it can.
• As good as this is, unfortunately it is only half of the long term story for the console.
• Over the next few generations this device will become increasingly integrated with other devices around it making it a part of the overall ecosystem.
• This requires a lot of software and user experience expertise which is something that Sony still sorely lacks.
• Hence, while gaming exclusives may keep Sony desirable in the current generation, there are unlikely to be enough of them to make a meaningful difference as I think that the big studios will continue to support both platforms.
• Sony remains in the position having won this battle but is at danger of losing the war in the next generation.
• Microsoft and Google remain my top choices as places to look in the digital mobile ecosystem.