Yes, it’s early. Too early for anyone to pop the champagne corks, declare victory and stand over the other guy with the scowl of a champion. But Microsoft MSFT -0.97% has a problem with the Xbox One in its war with the PS4 and it had better solve it soon or else it risks having a much smaller installed base, perhaps half the size by the holiday shopping season in 2014. As Paul Tassi wrote here in Forbes, Sony announced the sale of the 7 millionth PS4, which it turns out occurred two weeks ago. That led Microsoft to respond with a report of its own claiming 5 million Xbox Ones shipped to retailers. The careful observer has already caught the difference between sales and shipments, suggesting Microsoft’s number is soft.
But worse for the Redmond, Wash. software giant is the trend: Each month this year, Sony has sold nearly a million PS4s while Microsoft has barely shipped 400,000 Xbox Ones to retail. If we assume, perhaps generously, that Microsoft’s installed base is up to 4.5 million at this point and that the channel isn’t getting stuffed with unsold consoles (a trip to my local Costco suggests those Xboxes are literally piling up), Microsoft could have barely 8 million Xbox Ones in homes by year end.
Sony, by contrast, is on pace to double that total if things continue as they have so far in 2014. Certainly, things could change the equation, though Dave Thier notes that even with Titanfall, the Xbox couldn’t outsell the PS4 in March here in the U.S. Everyone seems to agree the biggest issue is the $100 price gap between the two systems, which is mostly a function of the decision to bundle the Kinect with Xbox One. But there is little doubt that ill will associated with the botched Xbox launch hasn’t helped matters much.
The question is when, whether and how Microsoft will react. It’s certainly not the case that the Xbox One launch numbers are a disaster overall. But if these tepid monthlies continue, they might seem like one a year from now. And there doesn’t seem to be any catalyst that will alter the equation short of either a price cut by Microsoft or, ironically, some slowing in the sales of PS4. There, perhaps Microsoft has some room to be encouraged. If you look at the chart, you can see a trendline for each console which closely matches the actual data points. While the Xbox line is getting awfully flat, Sony’s higher line is also beginning to crest.
Microsoft’s “problem” looks a lot less serious if the PS4 doesn’t run away from it with a much larger installed base too quickly. On the other hand, if it does, the question is when does it become too late for Microsoft. And there’s an issue of whether the company should even bother. While Xbox is a hugely popular product, it’s not an especially important profit center for Microsoft. Some have even speculated the gaming division has lost billions over the past decade. It’s easy to say, “Well, Microsoft should just trim $100 off the Xbox One and eat a billion in losses on the next 10 million consoles” but it’s not readily apparent new CEO Satya Nadella would see that as a good use of corporate cash (even though Microsoft has plenty).
Still, momentum has a way of snowballing. And right now, PS4 is not only outselling Xbox One, it seems to be outselling it by more and more as time passes. Microsoft will have to decide soon whether to do something about that or risk also-ran status.