The impact of Microsoft’s Xbox One

As we reported yesterday, Microsoft finally debuted it’s long-awaited Xbox One after a 360 console cycle that was nearly a decade long. Specs and additional information can be found here, although in this article we will examine the impact the One is expected to have on consoles and the gaming world in general, courtesy of analysts at DFC Intelligence.

“With the collapse of Nintendo Microsoft and Sony both have a huge opportunity for their new game systems. Based on recent track record Microsoft has an advantage in North America and Sony has an edge in the rest of the world. However, as Nintendo showed with the surprising success of the Wii, the game industry is always up for grabs. Right now we are in the early stages of positioning so a great deal could change. Nevertheless it is clear where these companies are heading.

“Just the name Xbox One says a lot. Microsoft desperately wants to have their system be the centerpiece of living room entertainment – not only in name, but also in functionality. Sony also wants that position in the home but they seem to be going in a much more game centric direction. In terms of which strategy will win we would put our bets on targeting gamers. The concern with Microsoft is that they are going after a forward-looking need that isn’t really there. Yes it is convenient to have your game system play video but there are all kinds of devices that do that. We admit that Microsoft has improved significantly on the form and function of a home entertainment hub, but is that what will sell consoles? Neither did Microsoft say how much all this connectivity will cost us. If a consumer is putting that kind of money down they want the system that plays the best games.

“That being said exclusive content deals like with the NFL could help get the ball rolling. There are a lot of NFL fans that play video games but are not necessarily wedded to any one device. Now if Microsoft could do something similar for soccer they may be really onto something. Other deals like a Halo TV show directed by Steven Spielberg are examples of exclusive content that will help tip the scales for certain consumers.

“One evolution from Xbox 360 would be to support true plug and play USB 3.0 external hard drives. The playback of digital recordings will require huge hard drive space, not to mention the the DVR capability which is obviously a big, big feature for an “all in one set-top box vision.” So HD space will be a big deal. Storage, whether in the cloud or in the box, is critical in the future of retail versus digital download of full games. How many 20GB-plus games do people want to buy digital only? Even a terabyte of space would fill up your drive real fast. Retail might come out looking very sweet to gamers, cloud or no cloud. Also, how does the Xbox One handle households dependent on more than one set-top box? The current data says that the majority of U.S. households have two set-top boxes. The system may be a great one-room solution that works great for the core gamer demographic, but what about everyone else? Like the Xbox 360, the Xbox One seems more like a multi-purpose entertainment device for single males.

“Overall there has to be some concern that Microsoft is biting off more than they can chew. With no backward compatibility the Xbox One is starting from scratch. Microsoft had a huge success with the Kinect and that could be their downfall. The Kinect helped draw in a significant number of mainstream consumers. However, the Xbox brand resonated primarily with a core gaming group. Microsoft shouldn’t assume they that group will automatically stay around as they try and target the elusive mass market.. Sony learned that lesson the hard way in the transition from the PlayStation 2 to the PlayStation 3. In the U.S. Microsoft has a major advantage but they could easily screw that up very quickly. We only need to look at Nintendo’s disastrous recent product launches for a lesson. This will be a marketing game and right now Sony seems to be winning.

“Pricing is likely to be a key issue and that has not been addressed at all. Not the hardware price, nor the price of Xbox Live. The latter is a mandatory subscription that includes bundles with entertainment providers and other cost issues which will be the real key. We expect a lot of great exclusive content from both Sony and Microsoft but how they package and market it will be what matters at the end of the day. It is still too early to make any major calls.”