Why Xbox 360 is Crushing the Playstation 3

Halloween is over and the Holiday 2007 sales push is officially on for video game manufacturers. This is a pivotal time for Sony and Microsoft. While Microsoft is looking to expand their current lead in Next Generation hardware sales with games like Mass Effect and Halo 3, Sony is just trying to get back in the race with price drops and some big games of their own. It's certainly a huge change from just a few years ago when Playstation 2 was king and the original Xbox was struggling to gain a foothold in the consciousness of gamers. How is Xbox 360 crushing the PS3? More importantly, what will the future hold for these two behemoths?

November 2005, I remember it well. Excitement was high for the release of the Xbox 360. Microsoft had announced their new console before anyone else even had a "Next Gen" offering beyond the drawing board stages. Sony was no where near releasing the PS3 and in fact they had not announced final specs for it; only a wish list of "features", many of which never materialized. The early announcement of the 360's release which would pretty much guarantee Microsoft at least a six month jump on their competitors was seen by many as risky in light of the fast moving pace of technological advancement while others viewed it as necessary considering Sony's domination in the previous hardware generation when it was estimated that they controlled 70% of the overall console market.

When the Xbox 360 hit retail, the reviews were mostly favorable for the console, but it was a mixed bag as far as the software was concerned. If examined in an unbiased manner, the 360 software lineup was undoubtedly the strongest of any new hardware launch. With 18 titles available on day one including Call of Duty 2, Project Gotham Racing 3, Condemned, and Kameo: Elements of Power all of which received very strong reviews at the time of their release, the Xbox 360 had something to offer everyone right from the get go. The downside was that many third party games, most notably the entire sports lineup from EA, were all seen as lacking in features and depth.

Shortly after the launch, and straight through to the present day, the 360 has been haunted by reports of hardware failures which have come to be known as the dreaded red ring of death. However, with a continuous stream of quality software titles including consecutive Game of the Year winners in Call of Duty 2 and Oblivion or Gears of War (depending which game sites you follow), the 360 was able to maintain strong sales through it's hardware troubles by giving gamers what they truly crave...good games and customer service. At the same time, with the introduction of achievements and gamer scores, Xbox Live evolved to unprecedented levels of user friendliness and online gaming goodness, giving Microsoft yet another arrow in their suddenly formidable console quiver.

November 2006 saw the release of the Playstation 3. This was six months later than Sony had originally announced. Sony reported that the delay was the result of problems getting the finalized specs on the PS3's Blu-Ray HDMI output. Others pointed to Sony's difficulty in manufacturing the Blu-Ray player itself as a primary reason for the delay. Either way, instead of Sony facing a six month head start for Microsoft, they were looking at a being a full year behind.

When the console was released, many critics found it to be big and ugly, which was ironic as those were criticisms levied against the original Xbox at it's launch. However, in terms of engineering, most people agreed that the PS3 was well-made and almost seemed to emanate an aura of power. Unfortunately for Sony, how much of this power was real and not just imagined was difficult to say due to a lack of compelling software for the console at the time of it's release. Of the three Next Gen consoles, the PS3's launch lineup was the lowest rated of the group. The only PS3 launch title to receive any kind of widespread critical acclaim was Resistance: Fall of Man. The rest of the PS3 launch lineup were either weak third party efforts or straight ports of Xbox 360 games that, for the most part, failed to match their 360 counterparts, both in terms of graphics or performance. Considering Sony was perceived to have had an advantage in terms of processing power combined with an extra six months to a year of development time on these games, their failure to exceed the Xbox 360's technical performance was seen as a major failure for Sony. While Sony talked up the supposed technical superiority of the PS3 pre-launch, several developers have come out and refuted those statements, such as here and here. In fact, according to these game developers, the Xbox 360 is the more powerful gaming platform.

Since that time, things haven't gone much better for Sony and it's PS3. Originally released in 20GB and 60GB iterations, the high price points of $499 and $599 respectively made it a hard sell for most gamers, despite Sony's assurances that the inclusion of Blu-Ray playback made it a bargain. Launch shipments sold out everywhere mainly due to a severe shortage of units on store shelves. Many were listed on Ebay with one listing selling for an incredible $10,000. While Sony continued to spin and spin these events as signs of huge public demand for the console, the truth was that three months after the launch when PS3's were readily available in stores, demand had slowed so much that millions of units sat unsold across North America. Eventually, Sony discontinued the 20GB version completely and introduced a larger 80GB model in reaction to Microsoft's 120GB Xbox 360 Elite.

Even with all the mistakes they have made, Sony is not dead, and either is the Playstation 3. It may have been slow in coming, but Sony has responded to some of the criticism of their approach so far (or at least the lack of sales) this generation by offering the new 40GB version of the PS3 at a more palatable $399 price point and lowering the price of the 80GB model to $499. While the 40GB version sacrifices all PS2 backwards compatibility and lacks the different memory card slots of it's bigger brother, it still offers consumers a Blu-Ray player with the ability to play all PS3 games at a price more in line with their primary competition, the Xbox 360. Perhaps with some highly anticipated games like Uncharted: Drake's Fortune, Army of Two, Assassin's Creed, and Haze coming between now and January '08, maybe Sony can gather some momentum moving into the all important Spring and Summer of 2008 when the console's really big guns, GTA4, Killzone 2 and Metal Gear Solid 4 are expected to be released.

While this story is focused on the PS3 and Xbox 360, we can't completely ignore the Nintendo Wii. While I don't consider the Wii to be a direct competitor of either MS or Sony consoles, there is no doubting that it will play a role in the sales of all consoles over the next two to five years.

When I look at the events of the past two years, I see Microsoft as a visionary future thinker, Sony as reluctantly reacting to changing market conditions, and Nintendo as thinking outside the box while ignoring some important trends.

Clearly Microsoft's future goals go far beyond just the world of video games. Their reasons for getting into the console business from the outset included a future vision of set-top boxes delivering all kinds of digital content to your living room. The Xbox 360 is starting to realize some of those goals by offering games, movies and television shows through Xbox Live in addition to excellent online gaming. The deepest pockets in the world allowed them to lose over a billion dollars without blinking in their efforts to establish the Xbox brand last generation. While they have had their share of struggles, they have undeniably gained a solid foothold in the console market far surpassing anything they ever achieved with the original Xbox.

Having dominated the last generation of console hardware, Sony set the precedent of offering a new media format (DVD) with their new console (PS2) and are following that strategy again by packing in Blu-Ray with the PS3. Their goals center around making Blu-Ray the dominant High Definition DVD format for years to come. However, the stakes are much higher for Sony this time around. With their company as a whole bleeding money over the past couple years, the success or failure of this strategy has far reaching ramifications across their entire electronics division. Unfortunately, the sometimes ham-handed execution of their plan has managed to alienate a large portion of their user base, placing the wisdom of their plan in serious doubt. Now they are faced with the challenge of reacting to change instead of being in the confident position of clear leader. How and if they can turn the tide remains to be seen, but I wouldn't write them off just yet.

Founded over a century ago, Nintendo is the oldest company of the three, and while that stability gives them the confidence to explore new ground such as the motion sensing control of the Wii, it also seems to have made them blind to the potential impact of some newer technology trends like online gaming and cutting edge processor power. Their long-held stubbornness in regards to third party game development is a major problem that will continue to plague them; you need more than two big games a year to maintain hardware sales over the long term. There is also the "Pet Rock" factor to consider. The Wii's controls may seem revolutionary now, but by the time this generation ends, will it be utterly "played out", relegating it to short-lived fad or will Nintendo find another way to sell the Wii II? Recent software sales already suggest the fad factor is a very real worry for Nintendo.

My belief is that by 2010, Microsoft and Sony will own a roughly equal 35% share of the gaming market, with the Wii holding a solid 30% market share. My reasoning is pretty simple; different management philosophies will determine the outcome for everyone. The real showdown comes in 2011-2012 when the next "Next Generation" begins.