Microsoft announced today it sold 1 million Xbox One game consoles in the first 24 hours after the product release. Calling that the "biggest launch in history," the company also said that it sold out in certain markets. But a number of industry analysts say this may not be as good as it sounds, for a number of reasons.
"It's a little underwhelming," Eric Smith, an analyst with research firm Strategy Analytics, said in a phone interview. "I would look at it from the big picture, (Sony's) PlayStation 4 was released only in the US and still sold 1 million consoles. Xbox One launched in 13 markets. Microsoft looks like it is a little behind, but there is time to make up that ground. They say they ran out of hardware."
In another interesting data point, customer experience firm SDL Inc. reports its predictive data analysis shows PlayStation 4 will edge out Xbox to win the battle of Black Friday. SDL reports its analysis of customer commitment and social data puts the Sony console in the lead among gaming and entertainment buyers.
SDL also predicts PlayStation 4 will outsell Xbox during the holiday season.
David Clark, VP of Marketing at SDL, said that the predictive analysis was made by gathering "commercially valuable" social data that was filtered down to people that were potentially active buyers of gaming consoles. This included, year-to-date, 300,000 total social conversations for PlayStation 4 and 200,000 conversations about Xbox.
But the big question is: Do these kind of short-term forecasts say anything about the market in the long term?
Smith said his assessment that PlayStation 4 has the edge is based on industry feedback and consumer surveys. But he also noted that the longer term is harder to predict because the console market commonly bounces back and forth.
Microsoft could very well "bounce back when the consumers discover all of the [Xbox's] streaming media features," he says.
When asked about the SDL survey, Smith said it was important, but characterized it as a relatively limited data point. "I think it's valuable, sure. It's pretty bare bones. But we're seeing more data mining and analysis [in these markets]."
Xbox One: Back to Loss Leader?
So far, however, a collection of analyst viewpoints indicates Xbox is off to a somewhat disappointing start.
Rick Sherlund, an influential Wall Street software research analyst with Nomura, said over the weekend that the Xbox One he received was defective. Overall, he was able to work around the defects and have a nice experience with the product. But that PlayStation 4 has an edge on pricing.
Nomura estimated 4.2 million Xbox One console units may be sold in the December quarter, according to Sherlund's research note. "But this may be ambitious given there is competition from Sony PlayStation 4 at $399 vs retail price of $499 for Xbox One and the product will only be available for a bit less than six weeks and in 13 countries. Xbox One includes the Kinect motion sensing device in the higher price versus Sony."
This also means that the product will lose money for Microsoft, Nomura noted. Sherlund estimated Microsoft could lose more than $1 billion in the Xbox division this year.
Wall Street is watching the action carefully because Xbox will be part of big strategic decisions to come after the selection of a new Microsoft CEO to secede long-time Steve Ballmer. Many observers predict a spinoff of Microsoft's Xbox business is in the cards.
Sherlund said Xbox's current positioning as a strategic asset may be overplayed, meaning it is likely to be eyed for a spinoff by the new CEO and board. A spinoff of the business, in the form of an IPO or buyout, could unlock more value for Microsoft shareholders.
Spinning toward a Spinoff
One big question: The streaming media features are an important element of the Xbox One, but are they enough to give Microsoft a strategic advantage in the consumer living room over a plethora of other streaming media devices?
"The quality of video games is better on the console, but most of the music and videos are located and accessed on the smartphone or tablet," wrote Sherlund. "So it is more than just a battle between Sony, Microsoft and Nintendo, but now likely a tougher battle upcoming against Apple and Google as well."
In other words, Sherlund says the product may not be as strategic as some people think and that a spinoff of the division makes sense. Sherlund also predicted Ford CEO Alan Mullaly would win the top job at Microsoft.
"Our apologies to the Xbox team for saying we thought it might lose as much as $2 billion this year. It is not that bad. But if new management asks for volunteers to get the band back together for a spin-out, it worked pretty well for Expedia," wrote Sherlund.