3 Ways Sony Can Fight Microsoft
Sony has had a rough few days. The Japanese tech giant has lost US$14bn (£10bn), around 9% of its total value, since rival Microsoft announced it was buying popular video game maker Activision Blizzard for nearly 70 billion US dollars.
While part of Sony’s loss is no doubt due to short-term panic selling in the wider market, the company is clearly in a corner. PlayStation is Sony’s largest, most profitable and fastest growing business, and the loss of a key gaming content provider to its rival could make its consoles less attractive to gamers around the world.
Sony stock price
Pulling Activision content from Sony consoles would of course be a huge decision for Microsoft. Activision’s high cash price partly reflects all of the current and future profits it derives from PlayStation – new PlayStation 5s are expected to outsell Microsoft’s Xbox Series consoles by roughly two to one in 2022. And note that Almost eight years after Microsoft bought Minecraft developer Mojang, that game is still on PlayStations.
The latest takeover will also take at least a year, and Microsoft will inherit the ongoing investigation and lawsuit against Activision by US authorities for alleged abuse and harassment of female employees, among other human resources issues. This could clearly cause problems down the line.
This gives Sony leeway to boldly respond to this existential danger. Here are three suggestions:
1. Buy Google Stadia
Sony’s biggest threat from Microsoft is actually the Xbox Game Pass, a Netflix-like subscription that lets users download or stream hundreds of titles for just $15 a month. Game Pass has 25 million subscribers and is a boon for price-sensitive PC and console gamers, frequently delivering hit titles on launch day.
Every time Microsoft buys a video game maker, it puts its entire catalog of games on Game Pass, giving gamers a fear of missing out (or FOMO) similar to what keeps many people going with their Netflix subscriptions. Although the benefits of Game Pass are still debatable at this early stage, the number of subscribers is growing exponentially.
Sony’s similar service, PlayStation Now, has just 3.2 million subscribers. Despite a much larger catalog of games and a competitive monthly price of US$9.99, its streaming performance and availability are among the worst of its peers: Sony is still using technology that’s almost nine years old, since its purchase from a startup called Gaiki.
When a market-leading company is replaced, the upstart almost always starts by selling to overlooked low-budget users – see how digital cameras beat Kodak, for example, or how Netflix took on DVDs and BluRays definitely the low end of the market. By allowing Microsoft to gain a foothold with budget gamers, Sony has exposed itself to an emerging business model that it may not be able to compete with.
The quickest way to catch up might simply be to buy Google’s struggling Stadia streaming service. Stadia’s performance and reach are among the best, and its failure can be attributed to a lack of content and a business model that charges users separately for games and access to the platform. Combining Stadia’s technology with PlayStation Now’s vast catalog and simple price could put Sony back on the offensive.
2. Get out of semiconductor addiction
The global semiconductor shortage has hit console sales by slowing production. Sony, however, has a slight advantage in deciding to ramp up production of its older PlayStation 4 consoles. These are much older than Microsoft’s Xbox Series S equivalent, meaning they use chips simpler and easier to manufacture.
Still, this advantage is not sustainable, given that the semiconductor drought will likely continue for several months and the growing appetite for gaming. The solution is to allow gamers to stream titles to devices other than dedicated consoles, but PlayStation Now is far from ubiquitous. This shows a clear lack of will on Sony’s part to reduce reliance on its console business, which in turn is critically dependent on semiconductor manufacturing. Whether buying Stadia or investing radically in PlayStation Now, Sony should aim to make its titles work on most, if not all, smart TVs, phones, set-top boxes, and computers.
There are, it must be said, some green shoots for Sony on other platforms. The company’s latest open-PC release, God of War, sold quite well and received rave reviews from gamers and critics. Yet thanks to Sony’s “exclusivity” strategy of prioritizing releasing its games on its own console, God of War was on PlayStation 4 four years earlier.
In contrast, Microsoft releases all of its new titles on PC and Xbox consoles simultaneously, focusing on growing the user base and not just console sales. Sony insists it will continue with the exclusivity, having relied on it to sell far more PlayStations in the past. Yet not only does Microsoft’s cross-platform approach reduce marketing costs and immediately spread the cost of developing games over a much wider user base, exclusivity makes little sense when new consoles are in short supply. . Sony better copy Microsoft’s strategy.
3. Lead the metaverse movement
Microsoft has been at the forefront of the metaverse movement, which plans to merge our digital and physical realities through an augmented or virtual reality (VR) headset. Such technology could be as big an innovation as the internet in the 1990s, and the Activision deal gives Microsoft control of game worlds such as World of Warcraft and Call of Duty, which could be the key. massive adoption of virtual reality by consumers.
Sony’s PlayStation VR was actually the world leader in such headsets until 2021, when it unofficially lost the crown to the Meta (formerly Facebook) Quest 2 device. Sony on the metaverse move is unclear. Its upcoming PS VR 2 headset will still be tethered to the PlayStation 5 console, despite customer appetite leaning heavily towards tetherless, free-roaming devices.
Sony has long been cautious about new markets and generally waits for others to develop them before jumping into them. But it’s unlikely to work against competitors as big, connected and powerful as Microsoft, Meta and Apple (which is also rumored to be developing a VR headset). Sony must act quickly and with a clear purpose – otherwise the next decade will see it lose even more ground to these tech giants as they recreate the very reality we live in.
This article by Hamza Mudassir, Visiting Strategy Fellow, Cambridge Judge Business School is republished from The Conversation under a Creative Commons license. Read the original article.