While 2012 may not have been the worst year for Microsoft (MSFT), it's becoming more apparent that the company is struggling to maintain relevance lately. Last year saw Apple (AAPL) and Google (GOOG) rise to new levels of prominence, while Microsoft's allies fell left and right due to the death of the PC. For now, Microsoft is still a cash-rich company, but its growth is definitely slowing; if it doesn't act fast, the software maker could soon be facing major losses. All this week, Minyanville will be posting articles that describe the ways in which the company could successfully get its groove back.
Release the Xbox Before the PS4
Last year, even in its darkest moments, Microsoft's constant beacon of light was its Xbox 360. 2012 saw a continued increase of sales in the system along with its Kinect attachment, and the company claimed a 47% market share, although some considered it dubious. Regardless, Microsoft's Xbox brand is now among its most profitable, and a fair amount of analysts are predicting that its next console is likely to remain a major player in the video game industry.
While recent rumors have suggested that Microsoft will announce its new system at E3 in June, analyst Michael Pachter believes that the 720 might not be officially released until the beginning of 2014 to ensure that its launch goes as smoothly as possible, and to avoid a head-to-head confrontation with Sony's (SNE) PS4 this holiday season. While this delayed release date seems like a safe move, launching the console much earlier could present a greater windfall for the system.
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For starters, a big part of the Xbox 360's success was that it was released almost a full year before its major competitor, Sony's PS3. Before the 360's release in 2005, Sony's PS2 dominated the video game market, with 87.47 million units sold as compared to 21.9 million Xbox units and 20.61 million Nintendo (NTDOY) GameCubes. However, perhaps because of the company's late release of the PS3, Sony's lead was quickly reversed as only 3.5 million units of its new system were sold in 2008, while the 360 leapt ahead to 4.7 million and Nintendo's Wii led the industry with over 10 million units sold. Sony didn't catch up to Microsoft until September of last year, which is when both companies had sold roughly 70 million units.
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Clearly, getting the 360 system out ahead of Sony helped Microsoft gain ground in the market for sales purposes, but there are other reasons that a fall or holiday-season release could greatly benefit it. For starters, releasing the new system in the fall would mean it would coincide with the annual fall rush of triple-A titles. While this strategy is heavily dependent on developer cooperation, the "Durango" development kits for the 720 have been in the hands of game studios for months now, meaning that game creators already have the equipment to port their best titles over to the new system.
In addition, going head to head with Sony during the holidays might be a fight that favors Microsoft. Sony has an infamous reputation for marring its own launch events with fatal software and hardware problems, and failing to even come close to having supply meet demand. Both the PS2 and PS3 were subject to these problems. Considering that Sony is most likely rushing to get its console out before Microsoft's, the PS4's launch will likely share the same story. With this in mind, if Microsoft is able to successfully launch around the same date, it may be able to steal the attention of gamers who wanted a next generation system at launch, but are unwilling to wait for Sony to restock. Of course, to achieve this, meticulous planning and bug testing is needed on Microsoft's end as 360 was no darling of consumers with the "red ring of death" plaguing many early units.
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As I wrote in a previous article, Microsoft's next Xbox will have a variety of new features that will help endear it to new consumers, but a successful launch could help it maintain its position in the market. It's likely that the company will continue doing a great job of securing popular titles for its consoles, and could even take a bigger bite out of the casual market with its Xbox TV device. Playing it safe by launching in 2014 could be a respectable move for Microsoft, but its managers need to remember that no risk means no reward.