Xboxist

What Microsoft Needs to Succeed in Holiday 2009

The Xbox 360 has enjoyed a long run of solid sales, particularly in North America where it has outsold the Playstation 3 every month for the past year - until now. At the moment, total video game console market share in the United States looks something like this: Nintendo controls 47%, Microsoft 35% and Sony holds 18% of the market (source: NPD). However, with a recent price drop in its expensive Playstation 3 brand, Sony appears strongly positioned to make a leap out of third place. In order to do so, it will have to sell an additional 15 million consoles in North America, while outselling Microsoft at a rate of 2:1. We won't even talk about what would be required to beat Nintendo, but that's a different matter. While Sony might not be able to completely turn the tide in the North American marketplace, the new price point will definitely put a dent on Microsoft's stellar sales in this country.

The most recent chart data suggests that the holiday season is going to be a total victory for Sony. Worldwide, the PS3 Slim sold 500,000 units in its first week on sale. In the UK, the PS3 is now outselling Nintendo and Microsoft consoles at a rate of 3:1. It is likely that with some upcoming exclusives on the horizon (Gran Turismo 5 and Uncharted 2) that Sony can keep this momentum going at least through the holiday.

So what can Microsoft hope to do to recover from this onslaught? There are a number of things that could keep the xbox 360 relevant to consumers despite Sony's new competitive outlook. First, they needed to drop the price of the Xbox 360 Elite to $299, which they have done. But that in itself is not enough. Our feature comparison shows that the Elite still lacks free online play and a Wifi adaptor, two things that when purchased on their own, easily increase the price of Microsoft's machine by $100. Of course, Microsoft should immediately begin bundling free Wifi, HDMI cables and a slightly larger hard drive with its $299 Elite package to make it more appealing.

A flyer for the Xbox 360 elite, showing off its new lower price.

What to do about Xbox Live, which is at once a tremendous boon for Microsoft, and a potential sticking point for price-conscious consumers? In the beginning we were comfortable paying $40 per year for Live because it offered features we couldn't get anywhere else. More than lag-free online gaming, the service now includes Twitter, streaming Netflix movies, community games, demos, and other great features. But the thing is that Sony's Playstation Network is almost as good as Xbox Live, includes a web browser and it's free. In order to remain competitive, Microsoft needs to find a way to either increase the value of Xbox Live so that it is worth the money, or drop the price entirely. We actually hope for the former option, because the company deserves to turn a profit on its online services if it can provide decent value to consumers.

One way that Microsoft could entice new consumers and justify the high price of Live is by offering free MMORPG subscriptions. Right now, there are no 'true' massively-multiplayer roleplaying games on either console, but there will be soon. Looming on the horizon is Sony's exclusive Final Fantasy XIV, which could prove to be even more important than XIII this generation. Microsoft would be smart to get some of its own original MMORPG titles up and running first. The Secret World looks like it could be just the game that Microsoft is looking for. While we don't know much about gameplay specifics yet, the title appears to have tremendous production values and could find wide appeal in the MMORPG space. Look for the company to be heavily promoting this new killer app this winter.

The October - January period is historically the most important season for video game manufacturers. This is when the lion's share of hardware and software is sold, so companies need to bring their "A game" in order to entice buyers. Microsoft is now in a defensive position, but it needs to confidently demonstrate to consumers that it has innovative and valuable products. Hopefully Microsoft has paid for a talented marketing firm this winter, because they are going to need it.