Why Microsoft's Dumb Move On Xbox One Might Actually Be Smart

| About: Microsoft Corporation (MSFT)
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No lie, I was one of the many gamers who criticized Microsoft (NASDAQ:MSFT) after the confirmation that gamers will have to pay additional fees to play to a second hand game. But during the following days, I totally changed my mind.

What makes a console appealing?

It's probably not because of the power. The Nintendo (OTCPK:NTDOY) Wii was successful even if its hardware was way weaker than the PS3 and Xbox360. What mattered and lead customers to buy it was its original and exclusive way to play games. With the hardware being highly similar between the Sony (NYSE:SNE) PS4 and the Microsoft Xbox One, exclusive content will matter more than ever.

Why would Microsoft do a very unpopular move?

Microsoft's decision seems very illogical since it will surely be very unpopular among gamers. So is the Redmond giant devoid of judgment? Probably not. For several years, the video game industry has been fighting the second-hand market which represents a considerable loss of money to the company. As an example, Electronic Arts (NASDAQ:EA) used to provide an "Online Pass" with new games that allowed the first owner to use the online mode. In case the game was sold to a second individual, the Online Pass had to be purchased one more time. EA is not the only company that fought second-hand business and I think that the industry applied pressure on Microsoft and Sony, and each reacted differently. Sony preferred to satisfy the gamers directly by adopting the most "popular" position, while Microsoft took the most "unpopular" one. The choice of Microsoft might not please the gamers, but it sure pleases the industry and this is critical.

Satisfy the industry and it will please you.

As I mentioned in my first point, exclusive games are the most prominent factor in the decision making of a gamer who wants to acquire a new device. My hypothesis is that Microsoft adopted an unpopular position to please the industry in order to obtain more exclusive games in exchange. And indeed, there are currently 15 exclusive games announced on Xbox One and only 7 on PS4. The other possibility is that Microsoft spent much more money than Sony to push developers to make games that are exclusive to the Xbox One-- although I find it unlikely.


The effectiveness of this strategy remains to be proven yet. As I'm writing these lines, most of the polls that I have seen (including the one present in the link provided above) show that gamers are twice as likely to buy a PS4 as they are to buy an Xbox One. But I would wait a bit longer before saying that Microsoft made the wrong choice, since you shouldn't underestimate Microsoft.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.