Microsoft – Generation game.

Microsoft is determined not to make a mess of this generation.

• Microsoft is still licking its wounds from being trounced by Sony in the last console generation but is showing all the signs of not repeating the mistakes that allowed Sony to outsell it 2 to 1.
• Ahead of Sony’s event next week, Microsoft has announced that its new console the Xbox Series X will have the best backward compatibility that has ever been seen in the games industry meaning that there will thousands of games available at launch.
• By contrast, the PlayStation 5 is expected to launch with just 38 games and will be backwards compatible with PS4 games only.
• Microsoft (see here) has announced that backward compatibility all the way back to the original Xbox (2002) will be offered and in some instances, the games will work better on the new console than they did on the old.
• This is by far the most wide-reaching backward compatibility ever announced and will be a major selling point for the new console when it launches in Q4 2020.
• Microsoft claims that it is not using sandboxes or emulators for this compatibility but has instead designed its processor, operating system and hypervisor from scratch with this in mind.
• It is not clear whether all of the old games will be playable in the form that they were originally written or whether some modification will be required, but it is clear that this has been a major focus of development.
• Furthermore, the original developers do not need to do much, if anything, to get their old games running on Xbox Series X and many of these titles will benefit from the improved hardware performance.
• When the Xbox One launched in 2013, Microsoft made a complete hash of it (see here) and as a result, became the also-ran in the current generation.
• Sony PlayStation 4 was cheaper, less restrictive and would work offline while Microsoft tied itself and its users up in knots and lost market leadership as a result.
• Microsoft is much better at learning from its mistakes and it clearly is pulling out all the stops to ensure a much better showing in the next generation.
• In addition to this, Microsoft has a much better understanding of its users and in this generation, the user experience, compatibility with 3^rd party hardware and software and the ecosystem will be far more important than they have been historically.
• Traditionally this is an area where Sony really struggles as it has such a high opinion of its own appeal that it thinks that locking users into its environment and having a mediocre user experience will not cause users to leave.
• I think Sony has made progress here but in the next generation, I think Microsoft has the edge.
• Hence, I think that Microsoft has a shot at closing the gap on Sony in this generation.
• Xbox is still an oddity at Microsoft with almost the entirety of the rest of the company focused on productivity and the enterprise.
• Hence, I would still not be surprised to see Microsoft sell it at some point.
• If it does a good job in this generation, demand and pricing for this asset may reach a point where Microsoft can’t refuse.