Microsoft & Sony – Deal with the devil

Sony takes a rare dive.

• Microsoft and Sony are working more closely together in a rare admission of failure from Sony that its cloud gaming and AI are simply not up to scratch.
• The MOU between Sony and Microsoft has been agreed at the corporate level and includes:
  • First: Game streaming: It looks as if Sony will move to run its game streaming service from Azure rather than its own in house offering.
  • PlayStation Now is Sony’s in house offering which has not managed to get much traction as it has been plagued with complaints with regard to the quality of the user experience.
  • This is a big move for Sony which has historically remained wedded to its own losing technologies until it is much too late.
  • In showing a willingness to ditch its losing solution early and go with Azure signals a big change in Sony’s culture and gives its game streaming a better chance of success.
  • Second, AI: Sony will also look to use Microsoft’s AI in its products rather than its own algorithms.
  • This should improve Sony’s woeful performance in this area.
  • RFM research (see here) ranks Sony as a real laggard in AI but puts Microsoft in the global No. 4 spot behind Google, Baidu and Yandex.
  • Consequently, by adopting Microsoft AI in its products could give Sony a leg up against many of its direct competitors who are as weak if not weaker than Sony when it comes to AI.
  • RFM has long identified AI as an important component of the digital ecosystem and should Sony end up using Microsoft’s rather than its own would give it a fighting chance.
  • Third, image sensors: Microsoft will look to integrate Sony’s image sensors into its Azure products and in edge devices in what will represent a boost for Sony’s revenues especially as the handset market drifts.
  • This makes complete sense from Microsoft’s perspective as Sony makes the best sensors and Microsoft would have to buy some anyway as it does not make them.
• At a corporate level, this co-operation makes complete sense as Microsoft is increasingly focused on the enterprise while Sony is purely a consumer company.
• It is in gaming where the questions arise as these two are head to head competitors in console gaming and improving Sony’s streaming service through Azure obviously negatively impacts the appeal of Xbox.
• However, the potential benefit to the rest of Microsoft is arguably larger than the loss to Xbox explaining why Microsoft has chosen to make this move.
• This is why Microsoft is the main beneficiary from this partnership which also signals the difficulties with which Sony is faced given that it is considering abandoning its traditional proprietary ways.
• This is a very unusual move for Sony which historically has held onto losing proprietary technologies for far too long often costing it commanding market positions.
• The net result should be better long performance for Sony but between the two I would still continue to prefer Microsoft which I think has got far more out of this arrangement than Sony has.