Xbox One to overtake PS4 in US by 2015, says analyst

Just how big is the impact of unbundling the Kinect camera from Xbox One? Analysts weigh in on the strategy

Xbox made big waves today by announcing a cheaper version of Xbox One sans Kinect slated to go on sale for $399 on June 9. Unbundling the camera wasn't entirely unexpected, as numerous industry observers had speculated that Microsoft would make such a move to close the price gap with Sony's PS4, but the fact that Microsoft unbundled Kinect so quickly after last fall's launch did surprise some. And now that it's happening, Xbox One hardware sales could jump considerably.

IDC had already forecast Xbox One to emerge in North America with the largest installed base by 2016 (factoring in a likely Kinect unbundling) but because Microsoft acted so quickly, IDC research manager Lewis Ward told GamesIndustry International that he now believes Xbox One will surpass PS4 in the US by next year.

"This change will be enough to push the Xbox One installed base higher than PS4 in the U.S. and Canada in 2015 rather than 2016. It kind of reminds me of Microsoft's evolution on Windows and IE. The initial design needs some serious help (i.e., last summer's DRM 'Xbox 180') and then improves to point of being a serious contender (this Kinect unbundling) and then vies for market share dominance (although I continue to believe PS4 will have the largest global installed base of any console at the end of 2016)," he explained.

RW Baird analyst Colin Sebastian agrees that Xbox One sales should start ticking upwards now. "We note the Xbox One pricing action is early, by historical standards, for a relatively new video game console. However, we estimate that price cuts on the Xbox 360 in August 2007 and September 2008 each drove more than 100k incremental monthly unit sales," he said.

"Sony will need to re-group to maintain its momentum in the market with the E3 press events taking on even more significance for both companies now"

Piers Harding-Rolls

Former EEDAR analyst and current Tilting Point exec Jesse Divnich noted that consumers are still evaluating the new consoles this early in the cycle, and that Xbox One should gain some momentum from the price drop. "Early in a console's cycle, pricing has shown to correlate with install base. Later in a cycle, the strength of the software library, digital offerings, and social influences tend to have a stronger weight in the consumer decision process. As we witnessed with the PlayStation 2 to PlayStation 3 transition, being the market incumbent doesn't always give you an advantage at the start of a new console generation. It's almost as if consumers hit the reset button at the start of every cycle and re-evaluate their gaming needs from a home console," he said.

Independent analyst Billy Pidgeon added, "This is a good competitive move for Microsoft. Price is an important factor at this point in the console cycle and in the consumer market, and Kinect lacks strong value for most gamers. Xbox One without Kinect should sell strongly at $399 and could out-perform PS4 at the same price on a month to month basis, although I think market share competition between Xbox One and PS4 will remain tight for most of the cycle."

Pidgeon also expects sales of the $499 SKU to "steeply decline," meaning that fewer Xbox One owners will have a Kinect in their living room. So the question has to be asked: does Kinect really have a future? Well, maybe... unbundling certainly diminishes the importance of the camera currently. IHS analyst Piers Harding-Rolls commented, "In effect, Microsoft has reverted to its Xbox 360 Kinect strategy and with a likely drop in interest from third-parties, Kinect for Xbox One has suddenly shifted from central to the Xbox vision to the periphery. However, later in the cycle when adoption is more mass market aligned and entertainment functionality is more heavily built out, Microsoft will be hoping that the value of Kinect will be more easily demonstrated and in demand."

The unbundling of Kinect also has deeper implications for the Xbox business. Perhaps most important of all is that it could make it more profitable for Microsoft, IHS said. "A de-coupled strategy may be more profitable to Microsoft: The cost of the Xbox One Kinect peripheral is well documented, with IHS' teardown team pegging the bill of materials at around $75. By charging separately for Kinect at a similar price point to the original Xbox 360 Kinect - $149.99 - it's conceivable that this may deliver more profitable sales to Microsoft in the long run," Harding-Rolls said.

Furthermore, unbundling the camera gives Microsoft more room to maneuver and stay competitive with Sony. "With two SKUs in the market, Microsoft has reverted to its Xbox 360 strategy. This gives the company some better flexibility with pricing, bundling and product positioning. Microsoft has already described the Xbox One with Kinect as the premium offering," Harding-Rolls noted.

Ultimately, the move sets the stage for an even more heated battle at E3 and the months ahead in 2014. "Sony will need to re-group to maintain its momentum in the market with the E3 press events taking on even more significance for both companies now," Harding-Rolls added.

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Latest comments (15)

Peter Dwyer Games Designer/Developer 4 years ago
Presumably this prediction was made before the Kinect was unbundled.
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James Brightman Editor, North America, GamesIndustry.biz4 years ago
Peter, the initial prediction was made before it was unbundled, which Ward said would happen. But now he's saying that because MS acted quickly it accelerates his forecast so IDC expects Xbox One to overtake PS4 in US by 2015 instead of 2016.
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Peter Dwyer Games Designer/Developer 4 years ago
Hey James, yea I see that. You should do an article on all of the misses these analysts make. It is quite amusing to do a hindsight review of just how correct your readers are compared to these highly paid analysts. Makes one wonder who is paying these guys and more importantly why. If companies are listening to them then surely someone must answer for some of the most horrendous miss-steers or U-turns they've caused over the years. Or at the very least call into question how they are coming up with these so called predictions. The Microsoft one for instance seems to be based on nothing more than expecting Americans to prefer buying domestic i.e Xbox instead of the Japanese made PS4.

Ironically the PS4 only really exhibits such a performance boost over the Xbox One because of the larger amount of system resources the Xbox dedicates to it's not gaming sub-systems.

Edited 1 times. Last edit by Peter Dwyer on 13th May 2014 10:02pm

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Show all comments (15)
Greg Wilcox Creator, Destroy All Fanboys! 4 years ago
Someone needs to tell these ball-gazing fickle analysts that GAMES sell a system at the end of the day, not a price drop that's not really a price drop once one realizes they needed that Kinect in the first place about three or four months later. The best exclusives (and in a few cases, any cross platform games that perform considerably better on one console over another, usually in homes with more than one system) will determine who "wins" and who "loses" this new silly "console war"
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John Karageorgiou consultant 4 years ago
I sense that MS is throwing the kitchen sink at the Xbox One, in an attempt to gauge consumer uptake and also to assess whether the gaming services division has the legs to stay through the course of this long marathon.
If not, I would not be surprised to see Xbox services decoupled from MS's product and services portfolio.
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Rick Lopez Illustrator, Graphic Designer 4 years ago
I roll my eyes and ... sigh... alot of the features microsoft were implementing on XB1 had no reson to be, and people didnt want it. Many of those features were nothing more than microsoft attaching a ball and chain to there products. Of course people didnt want them.

They essentially got rid of all the stuff people, including myself were complaining about. One would wonder why in the world you had to be online all the time or have a device connected 24/7 to monitor yours and your entire families moves. Lets not forget about games having to be registered and always online for you to play a single player offline game.

I dont know if the XB1 will overtake the PS4, I still think the price should be a bit lower. Ill probably wait for a price drop, but Id like to get an XB1 if for Killer Instinct alone. But im not that crazy, so its going to come down to the games. Which XB exclusives come out down the pipeline. Im waiting for that. But now I can seriously see myself getting an XB1.
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Robin Clarke Producer, AppyNation Ltd4 years ago
So IDC were predicting that the Xbox One was on track to eventually outsell the PS4 in the US *even without* unbundling Kinect? Ridiculous.
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It's like the war o. Terror,looks like console manufacturers have their own analysts to predict their glory beforehand
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David Reeves Consultant 4 years ago
...oh and presumably before a possible price drop of PS4 in the Fall?
This time XBone will never catch up....
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Richard Browne Head of External Projects, Digital Extremes4 years ago
I don't think Sony is in any position to price cut the PS4 ; look a their finances.
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James Brightman Editor, North America, GamesIndustry.biz4 years ago
@Robin, no they were predicting that Kinect would be unbundled and that got factored into Xbox One overtaking PS4, but then Ward let me know that because it got unbundled so soon it accelerated their forecast.
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Nick Wofford Hobbyist 4 years ago
Yeah, it's important to recognize that this isn't a price cut. It's just a different SKU. This early in the life cycles of the X1/PS4, any price cut would have to be taken from money that Sony/MS eat to cover such a cut. And of the two, MS is in a much better position to be doing that sort of thing if necessary. Sony's financial report today means a PS4 price cut isn't coming before 2015 at the earliest.
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Axel Cushing Freelance Writer 4 years ago
At least we didn't hear any drivel from Michael Pachter.
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David Reeves Consultant 4 years ago
I do believe that the Mgt at PlayStation make the right pricing move at the right time, Finances are one thing but dropping the price of the Hardware is a question of if the manufacturing economies that have been made in the first year (look how small and low priced PS2 and PS3 became), then the price can come down. They also have the option of a BD less version. On verra!
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the change in strategy now is content. Make great content, not necessarily exclusives in a stable gaming environment and we are onto a winner. Heck I use the PS4 for netflix as much as gaming
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