In a recent court hearing with the Federal Trade Commission (FTC), Microsoft confessed to losing the console wars against its competitors, Nintendo and Sony. The document submitted by Microsoft revealed that it has been trailing behind in console sales since it entered into the gaming market with the original Xbox in 2001.
According to documents filed with the court, Microsoft acknowledged that both the GameCube and PlayStation 2 outsold the original Xbox by a significant margin. The trend has continued over the years, with Xbox consistently ranking third behind PlayStation and Nintendo in sales. As of 2021, Xbox had a market share of 16%, while Nintendo and PlayStation had shares of [redacted] and [redacted], respectively. In terms of console revenues and the installed base of gamers, Xbox trails with 21% compared to [redacted] and [redacted] for PlayStation and Nintendo, respectively.
The latest sales figures from VGChartz show that Microsoft’s current consoles, the Xbox Series X and Xbox Series S, have sold approximately 21 million units as of April 2023. In contrast, the PlayStation 5 and Nintendo Switch have reached approximately 36 million units each, with the latter having a slight lead.
In response to its competitive position, Microsoft has shifted its strategy and is focusing on delivering software and expanding its Game Pass subscription service. The company no longer aims to be the market leader but instead seeks to generate profits through game sales rather than console sales. This approach involves selling consoles at a loss and recouping revenue through game and accessory sales.
The FTC’s “findings of fact” document, filed in relation to the Xbox Activision acquisition, also highlighted the competition between Sony and Microsoft in previous console generations. While Microsoft was declared the winner in the Xbox 360 versus PlayStation 3 battle, Sony emerged victorious in the PlayStation 4 versus Xbox One competition.
It’s worth noting that the FTC’s document acknowledged Nintendo’s differentiated position in the market, emphasizing the unique nature of the Nintendo Switch with its hybrid functionality and focus on first-party games. The FTC estimated that the Xbox Series X and PlayStation 5 are significantly more powerful than the Switch, with a performance difference of at least 26 times.
As the legal proceedings continue, it remains to be seen how the courts will interpret the competitive landscape and the potential implications of the Microsoft Activision merger. Nonetheless, Microsoft’s admission and strategic shift indicate a new direction for the company as it aims to thrive in the gaming industry.