Sony, Microsoft, and Nintendo’s strategies going into the next generation

PlayStation 5 and Xbox Series X are now dated, priced, and basically sold out. We have less than two months before consumers will (presumably) be able to have these in their hands and start playing next-generation games.

So here’s a pertinent question, what are the major three console companies going to do in order to “win” this generation? To answer that, I think we first have to examine the question.

If you were to believe the angry tribal people on social media, you might believe that each of these companies wants to be the “better” console that stomps out all other consoles simply by virtue of having better games and providing a better gameplay experience. This is not true. It’d be great if it happened for any company involved, but it’s not true.

Rather, a company “wins” not by necessarily destroying its opponents, but by obtaining profit at or above their predicted values. This means that, yes, every single company can “win” this console generation.

So how do they do it?

Sony

Sony is the preferred winner right now. I’m sure there are going to be people rabble rabbling in the comments about how Microsoft’s lineup and tech are better, but really that’s not the point. The point is whether or not Sony’s offerings are perceived as better.

Sony’s Playstation 5 and Microsoft’s Xbox Series X are being sold at the same price point… except not really. The version of the PS5 with a disc drive and the standard XSX are being sold at the same price point. Sony is offering an all-digital PS5 at $399 while Microsoft is offering Xbox Series S at $299, undercutting Sony on price. However, they are also undercutting them on tech. Xbox Series S is not as powerful as Xbox Series X, and doesn’t run many games with the tech advantages Xbox Series X is advertising. Meanwhile, the standard and digital versions of PlayStation 5 have the same specs, except for a smaller SSD and, of course, no disc drive on the digital version. What this means is that you can still get the full power of a PS5 for cheaper than the full power of the Xbox Series X, provided you go digital.

Sony also has a more powerful launch lineup than Microsoft does, primarily in quantity. Sony has showcased more titles by more developers than Microsoft has. Of course, many people will argue quality over quantity, but that’s the thing, quality is subjective. Halo Infinite might trump all other games for you, but it won’t trump all other games for the average consumer.

What does this all mean? Well, it means that Sony needs to lean in to the traditional model of winning the console war. That is, they have to secure as many exclusives as they can (which they have been doing through several partnerships with major studios), position themselves as the natural value purchase, and push out as many units to meet the demand as possible…

Whoops…

Unless you have been living under a rock for the last few weeks, you have probably noticed that Sony fumbled that last part. PlayStation 5 consoles sold out in mere seconds (largely due to scalping bots) from retailers that had no fully advertised launch date, which means most consumers that want a PS5 won’t be able to get one. Sony has said that it will increase the availability of the console in the coming months. The thing is, the longer they take to do this, the more sales they lose.

That’s the problem with the “traditional” model of console selling. As time goes on the demand lowers, your “launch lineup” just becomes a lineup, which allows people to purchase a console based on what’s already out, not the promise of something cool coming out. It also allows people to see how your console fares in the wild. This is more likely to cause people to lose interest rather than gain interest when as of yet unforeseen bugs and technical issues come to light.

In short, Sony may be winning this race but that also means it’s their race to lose. Their throne of hype rests on wobbly supports, and unless they play this game perfectly, every tiny hitch will make people less and less interested in their product. That means they need to keep scoring exclusives (or timed exclusives), keep pushing out consoles to meet consumer demand, and keep positioning themselves as the obvious purchase.

Microsoft

Microsoft is a different story. Believe it or not, Microsoft is just not as interested in beating Sony in the console wars. Why? The keyword there is console.

Both Microsoft and Sony sell their consoles at a loss. They actually lose money for every console they produce. Why would they do this? Because consoles are a vector for the sales of software, and software is extremely profitable. They get money for each title sold, money for listing it on their stores, money for patches and DLC, and they might even be able to get a bit of extra profit from peripherals as well. So succeeding in the gaming world is a lot less “who sells the most consoles” and a lot more “who sells the most software.” Console sales are just a means to increase the size of your software buying audience.

Microsoft, however, has another way to increase the size of their audience: the PC. I don’t know if you noticed but major Microsoft exclusives are only CONSOLE exclusives on Xbox Series X. Nearly every big title Microsoft has to offer is also coming to Windows PCs. Since Windows is still the most used operating, that means that they open up their software market to everyone with a Windows computer. Considering that Windows 10 puts the Microsoft Store right front and center for you, ready for you to make impulse purchases whenever you want, it’s fairly clear that they expect to be getting a decent amount of their software sales from the PC crowd.

This doesn’t mean that Microsoft has given up on the console crowd, far from it. Each console sale is still an expansion of its software market. However, the cost of powerful PC parts has gone down in recent days, which means that many people, even people who aren’t specifically looking to purchase or build a gaming PC, can play Microsoft licensed games on their computers (though some might need to run on low spec.)

“But I buy games from Steam, not the Microsoft store!” you might be saying. Here’s a secret: doesn’t matter. First of all, the Microsoft Store will simply appeal to people who are less tech-literate than the standard PC gamer. It’s right there, it requires no technical knowledge to use, and it works like an app store on a phone.

Second, you see that Microsoft Flight Simulator is on the Steam store right? The keyword there: Microsoft. While they might not get as much profit from you buying that title on Steam, they still make money.

So it’s in Microsoft’s best interest to get as many of their software titles to as many distribution platforms that can be accessed by as many different people as possible. This is why they are making power plays like buying ZeniMax Media and their subsidiaries like Bethesda and id. Microsoft is now going to make money any time you purchase games in The Elder Scrolls, Doom, Prey, Wolfenstein, Fallout, and many more franchises. Yes, even on Steam. Yes, even on Playstation (if they allow these titles to go multi-console.)

Their strategy can really be summed up by the existence of the Xbox Games Pass. Remember, Microsoft is now shifting to a software-first strategy. Whether or not they sell Xbox Series X, they want you to be buying Microsoft licensed software every month. So what happens if they have a dry spell and there’s nothing you want to buy? That’s bad news. How do you ensure that people will buy your software every single month? Well, you can do your best to nab the best games and best exclusives, but that’s not a 100% reliable strategy.

The Game Pass, however, IS perfectly reliable. It is a way to get consumers to give you money every month whether or not they are getting a game they like. All Microsoft has to do is jam the Game Pass full of as many worthwhile titles as possible. Sony and Nintendo have similar services through PlayStation Plus and Nintendo Online but these services give you older games that you are likely to have already played. Microsoft is more than happy to offer you just released titles with Game Pass. If more people purchased Game Pass than individual games, that would be fine with them. The average consumer doesn’t buy more than one game a month, and the hardcore gamer will be buying games on top of Game Pass anyway.

In short, Microsoft knows that they will likely lose the console war, but it’s really more of a console battle. Selling fewer consoles than Sony does not, in any way, mean they will be making less money off of video games than Sony. They have massively diversified their avenues of income, and quite frankly, will make a gigantic profit when, say, the next Elder Scrolls comes out and everyone needs a copy. That money is now Microsoft money baby, even several years down the line when Skyrim gets ported to your microwave.

Nintendo

The big N is kind of hard to predict because they made the boldest move out of any of the console manufacturers. They said, “I am not playing your game.” They created the Switch well before PS5 and Xbox Series X after Wii U flopped. They are more than willing to offer strange games with stranger control schemes that you simply can’t emulate anywhere else (Seriously, have you tried emulating something like Super Mario Galaxy 2 on a PC? It’s doable but it’s like pulling teeth).

If Sony is selling consoles and Microsoft is selling software, Nintendo is selling something completely different: experiences. You can actually see this in each company’s preferred advertisements.

When Sony puts together a sizzle reel you see the incredible graphics and zero load times of the new Ratchet and Clank or Spider-Man: Miles Morales. When Microsoft puts together a sizzle reel, every title is “coming to Xbox Series X and PC via Game Pass!”

But when Nintendo puts together a sizzle reel, they barely focus on the games. Instead, they focus on the people playing the games. They focus on people getting together and having parties, or in this pandemic laden atmosphere, keeping up with old friends via online play. They focus on people using their Switch on public transport or pulling it out of a backpack in a park. They show people using it as an audio device, which is funny because you can only really play music in games that support it like Smash Bros. and 3D All-Stars. They even show off e-sports which is hilarious because Nintendo is actually way behind on holding official competitions for their most competitive games.

The point is Nintendo wants to sell you something that you can only experience with Nintendo. The Switch is already exactly that, the only portable console of the big three.

However, the same philosophy extends to its software. Nintendo has the fewest cross-console games because Switch’s specs are completely different. So they make up for it by providing new experiences with Switch titles. Look at Dragon Quest XI. The Switch port is easily the worst looking port of all of them, but it also is the only port to come with a 16-bit mode, which lets you play the whole game with new mechanics in a traditionally SNES styled adventure. You can’t get that anywhere but Switch.

Similarly, you can only get the cardboard paradise which is Labo on the Switch, or the Ring Fit fitness platform. It’s the only console that offers an ARG racing game with accompanying remote control cars. It’s the only console that is still screwing with motion controls in their main AAA titles (with Sony in a slight second with their Dual Sense and PS VR), or touch screen controls for that matter.

This is both Nintendo’s biggest strength and greatest weakness. You want a Nintendo experience? You gotta buy a Nintendo platform. There is no Mario on Steam. Zelda will not come to the PS4. While, yes, every company has first-party titles, Nintendo easily has the most iconic first-party titles and mascots. Hell, they have enough that they filled a whole fighting game with them in Smash Bros. which again is something you can only play on Nintendo consoles.

But that means that they can’t sit back and wait for third parties to develop software for them. Instead, Nintendo has to take an active role in every single product that they expect to be a hit. This makes Nintendo, as always, a polarizing company, because if you aren’t into Nintendo experiences then Switch has basically no value to you.

The thing is, that’s not the case. In fact, Switch is one of the fastest and best-selling consoles of all time. So it’s fair to say that the public is invested in Nintendo’s experiences. The question is whether they will keep being invested after the PlayStation 5 and Xbox Series X launch. Thus, Nintendo has to keep their biggest announcements for major competition points with the other two companies.

Let’s spell this out for you. You know how everyone has complained about there not being a full-scale Nintendo Direct in a while? Well, it’s not just because COVID screwed everything up. During the summer dry season, Nintendo didn’t have a whole lot to compete with. Thus, they trickled out announcements from partners. Come the holiday Nintendo needs to roll out titles that can compete with full system launches. That, my friends, is when you will get the Nintendo Direct that gives us more information on Breath of the Wild 2.

And that’s how each company wins. Sony needs to sell you on PlayStation 5, Microsoft needs to sell you on any software on any platform that it has ties with, and Nintendo has to keep being a weirdo until they eventually succumb to, yet again, rolling over into a new console generation.

Now it’s important to note that Sony, Microsoft, and Nintendo aren’t the only horses in this race. There is always the Stadia, and the PC market too, but here’s the thing. They are facing so many different challenges than the main console manufacturers right now. Perhaps we will tackle their strategies at a later time.