Microsoft has done the unthinkable. Or to be more precise, has done something that would have been considered unthinkable just a few months ago. With an aggressive pricing and bundling strategy they managed to grab the US market back from the apparently solid grasp of Sony’s PS4, at least for the all-important Holiday months of November and December.
Sony didn’t respond to Microsoft’s aggressive moves so far, at least not in the same way. We’ve seem some pretty good bundles, but the price of the console did not drop officially. The folks in Tokyo and in San Mateo probably thought that they could take a loss in order to preserve profitability, waiting for the Xbox One’s price to go back to where it was and for the status quo to be restored.
It happened, but just briefly. Everyone enjoys winning, and Microsoft does more than many, especially after almost a full year as the underdog in its own North American home turf. The Xbox One’s price has been slashed again to $349, and this time there’s no end date announced. The status quo might not come back.
Sony has the advantage of a very strong upcoming first party line-up, with The Order: 1886 and Bloodborne coming in hot, and this might entice them to think that they can afford taking a wait and see stance, gauging the effect of some of their strongest games on sales.
On the other hand, they might figure out that a price cut associated with the release of said games would propel the PS4 to even greater success, and finally decide to drop the saw-cleaver on the price to retaliate against Microsoft’s latest move.
Ultimately profitability on the console itself is only part of the picture. A lot of the gains on a console platform come from game royalties and software sales, and in order to sell more games, you have to sell more consoles.
Moreover, PlayStation Plus is proving to be one of the most profitable businesses for the Japanese company. Due to the new mandatory nature of the service to play online, more PS4 sold mean more PlayStation Plus subscribers. Due to the monthly nature of the service we could very easily say that profitability on PlayStation Plus is even more relevant than gains on hardware sales.
That said, Sony already announced during its financial reports that cost reduction efforts on the PS4 are well underway, which means that the company could afford reducing the console price without losing profitability, or at least while still breaking even on the hardware.
Ultimately, it’s easily seen how a price cut for the PS4 may be advisable at this point. A lower price associated with strong exclusives worked very well with Microsoft. Now it’s Sony’s turn to deliver the strong exclusives, and a slashed price would amplify their effect, in turn earning the company more money on software sales, and from new PlayStation Plus subscribers.
This is the effect of competition, that makes the console market a battle of action and reaction. At times companies just wait and see the effects of their rivals’ moves before acting themselves, but you can wait and see only up to a point before the time for action comes.
That point is probably now. Of course we can’t know if Sony will really slash the price of the PS4, but the new cut to the Xbox One probably served as a wake up call for them. We don’t know exactly how, but they have to react in some way, and that reaction is most possibly going to be good for the customer.
Sony will probably react to Microsoft’s move, and will possibly get back on top. Then Microsoft might react again, and places might be traded once more, in an endless cycle of action and reaction where gamers would be the real winners.
This is why you should not be chagrined if your favorite console brand ends up on the losing side for a while in this or that market. Defeat drives evolution, and evolution is good for everyone.