Microsoft E3 analysis: victory comes from within

Microsoft delivered their strongest E3 showing in years. This went beyond expected first party exclusives. Almost every element – pacing, lineup, presenters – came together to underscore the Xbox One’s strengths. Yet Microsoft wasn’t aiming new features and games at the general public. Nor those necessarily torn between the PS4 and Xbox One. It’s aimed at the 60 million Xbox 360 owners who haven’t jumped to this generation yet.

To cater to the Xbox core, Microsoft leans on sequels that call back to Xbox 360’s boom years. There’s Gears, Forza, Halo and Fable, all out in 2015. Xbox One backwards compatibility is another big feature, the most consumer-friendly announcement of E3. The initial slate of compatible Xbox 360 titles is small, about 100 by year’s end. But that’s will grow over time, and the message is less practical than psychological. You want to play your old 360 games on the Xbox One? Go for it, and do so for free. During the main presser, Xbox head Phil Spencer underlined this message: “If you’ve been waiting to move from your Xbox 360, now is the time.”

Granted, Microsoft had more diverse offerings than usual. We saw an IP exclusive from Mega Man’s Keiji Inafune (Recore). Indie developers had more stage time. And there’s new Xbox connections to Windows 10 and PC: streaming, an early access program, and more Xbox titles moving cross platform. Yet between the lines I saw less investment here compared to the mega sequels. Consider it backup if the main strategy doesn’t pan out.

The strategy is a dramatic turnaround from Xbox One’s initial push as a convergent multimedia box. Admittedly the Xbox One will continue to add apps as a nice value add for gamers. But progress with Kinect and TV integration has stalled. They’ve ceded multimedia territory to cheaper devices from Google, Apple, Roku, and Amazon. A new Apple TV on the horizon and Sony’s Vue streaming TV service complicate matters further. So a lower Xbox profile on multimedia is reasonable, for now.

Microsoft’s focus on the Xbox gaming base is smart, but there’s several risks in the long run. First, consider the 2015 third party lineup, the strongest in years. Halo 5 has a devoted audience, yet three other first person shooters rollout around the same time. Call of Duty is downhill from its peak, but remains popular. Destiny has many active users and a splashy new expansion. And Star Wars: Battlefront could dwarf the competition from brand recognition alone.

And big third party holiday releases go beyond shooters. There’s MGS V, Fallout 4, Hitman, Need for Speed, and Just Cause 3. The games cover a range of genres and gaming audiences. All compete with Xbox for marketing and gamer attention.

Also consider Microsoft’s release strategy, heavily weighted toward Q4 for big holiday sales. Sony staggers their (few) exclusives throughout the year. Sony’s early 2016 is crowded: Uncharted 4, Ratchet and Clank, and Street Fighter V. If Microsoft can’t bury the PS4 during Q4, Sony might have an opening later on.

I predict Microsoft’s focus on big exclusives will pay off. The sales gap between the Xbox One and PS4 console will close, and Microsoft will stick to its strategy. But if the gap remains large, I see a change of direction prodded by Microsoft executives. Maybe stronger ties to PCs and Windows 10. Or an attempt to establish Xbox as a VR and AR hub in the living room. Or the entire Xbox division gets spun off, and Sony coasts into what could easily be the last console generation. We’ll know a lot more a year from now.