MarketLine Blog

Xbox One-80: Microsoft backs down on controversial DRM policies

Microsoft’s U-turn on its Xbox One DRM and Internet connectivity policies has completely changed the dynamics of the upcoming battle for next generation console dominance. The decision to go back on previously asserted policies has meant that many of the competitive advantages held by competitor Sony’s machine, the PlayStation 4 (PS4) have been negated. However, the decision has also confused Microsoft’s strategy, and the Xbox One’s higher price tag remains an issue.

One step forward, two steps back:

Microsoft’s initial DRM policies, which placed restrictions on the lending of physical copies of games and required a mandatory Internet connection every 24 hours proved hugely unpopular with potential consumers. This, coupled with the fact that Sony’s PS4 requires no such impositions, meant that many were considering migrating from Xbox to PlayStation later this year when both consoles are released.

However, despite initially standing by its decision, Microsoft has back-tracked substantially: used games will be able to be traded as they have been on Xbox 360 and, apart from during initial setup, an Internet connection is no longer mandatory for playing video games.

It is especially telling that debate over features such as the ability to play offline, which have always been available on consoles in the past, has dwarfed the impact of advancements in graphical prowess and computing power. Ironically, Microsoft’s regression back to the old way of doing things will make the Xbox One more competitive in the next generation, as old generation features seem to be both new consoles’ main selling points. It seems that taking away consumers’ choice cancelled out any technical advancement it may have implemented in its new console.

Although the move will help Microsoft compete with Sony – many were claiming that Microsoft had already lost the battle before it had even begun – it has no doubt put a huge dent in the company’s on-going strategy. Rather than becoming a trailblazer for the next generation of consoles, it has reverted to an overtly reactionary response to Sony’s strategy, as well as consumer distaste.

Even if the move has boosted its chances of success, it is a major blow to Microsoft’s reputation as an innovative company, and this episode holds many parallels with the company’s recent decision to reintegrate the start menu into its latest Windows 8 operating system. It will be worrying for Microsoft to have been proven spectacularly out-of-touch with consumers twice in such quick succession.

Pricing remains an issue:

Notwithstanding Microsoft’s recent reversal, the Xbox One remains more expensive than the PS4. The Xbox One will retail at $499, €499 and £429 in the US, Europe and the UK respectively upon launch. However, the PS4 will retail in the same markets for $399, €399 and £349 upon its launch later this year. This price difference is remarkable, considering that the PlayStation 3 (PS3) retailed at a substantially higher price than the Xbox 360 upon launch.

Evidently, Sony is employing a low cost strategy in order to entice potential buyers. This will be a key factor regarding Sony’s attempt at cementing a strong customer base early in the PS4’s life cycle, but is likely to negatively impact profitability. Furthermore, the Xbox One will come bundled with a next generation Kinect sensor, whereas the PlayStation Eye, Sony’s equivalent to Kinect, will retail separately for an additional $60.

Whether consumers believe that the Kinect justifies the higher price of the Xbox One will become evident after both consoles have gone on sale later this year. Amazon currently reports preorders of the Xbox One as the number one bestselling videogame product in the US on its site, with the PS4 sitting at number three. This is encouraging for Microsoft, although this fact is not representative of the global market as a whole.

What is clear, however, is that Microsoft’s decision to abandon its controversial DRM policies in response to criticism has increased its chances of success against the PS4 when both consoles launch later this year.

You can read more about Microsoft’s challenge to Sony in the videogame console market in our case study – Microsoft Xbox: How Microsoft challenged the dominance of Nintendo and Sony. You may also check out our Buy Reports section for thousands of company, industry & country analysis reports.

For more updates on the technology and telecoms sectors, follow me on Twitter:@Matt_MarketLine

Leave a comment

*Required fields. We will not publish your email address